Scudder
Limited Term Tax
Free Fund
Annual Report
October 31, 1998
Pure No-Load(TM) Funds
A fund seeking to provide as high a level of income exempt from regular federal
income tax as is consistent with a high degree of principal stability.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
Scudder Limited Term Tax Free Fund
- --------------------------------------------------------------------------------
Date of Inception: 2/15/94 Total Net Assets as of Ticker Symbol: SCLTX
10/31/98: $129.2 million
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o As of October 31, 1998, Scudder Limited Term Tax Free Fund's 30-day net
annualized SEC yield was 3.23%, equivalent to a 5.35% taxable yield for
investors subject to the 39.6% maximum federal income tax rate.
o For its most recent fiscal year ended October 31, 1998, Scudder Limited Term
Tax Free Fund posted a total return of 5.37%. The Fund's return surpassed the
average return of its peers over the 12 months ended October 31, according to
Lipper. In addition, the Fund placed in the top 20% of similar funds over the
three-year period ended October 31.
o Scudder Limited Term Tax Free Fund received a four-star rating from
Morningstar, reflecting an "above-average" rating for risk-adjusted performance
through October 31, 1998.^1
Table of Contents
3 Letter from the Fund's President 18 Financial Highlights
4 Performance Update 19 Notes to Financial Statements
5 Portfolio Summary 22 Report of Independent Accountants
6 Portfolio Management Discussion 23 Tax Information
9 Glossary of Investment Terms 24 Officers and Trustees
10 Investment Portfolio 25 Investment Products and Services
15 Financial Statements 26 Scudder Solutions
^1 For your information, these ratings are subject to change every month and
are calculated from the Fund's average annual return in excess of 90-day
Treasury bill returns with appropriate fee adjustments, and a risk factor
that reflects fund performance below T-bill returns. The Fund received four
stars for three-year performance, and was rated among 1,586 funds for the
period. Of the funds rated, 10% received five stars, and 22.5% received
four stars. Past performance is no guarantee of future returns.
2 - Scudder Limited Term Tax Free Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
Short-term municipal bond funds such as Scudder Limited Term Tax Free Fund
have afforded investors a gratifying level of principal stability over the past
12 months, during a period when events around the globe have led to greater
volatility in most financial markets. We believe municipal bonds rank second
only to U.S. Treasuries in the security they can provide investors. Many
municipal issuers are able to raise money to pay principal and interest on the
bonds they issue by levying taxes. Because of this taxing power, municipal bond
performance tends to be less reliant on economic cycles compared with other
asset classes. Added to municipals' characteristics of comparative stability and
security is their high relative value at present compared with U.S. Treasuries:
In October 1998, yields of 5-year AAA-rated municipal bonds were at their
highest level versus 5-year Treasury yields in 10 years.
Scudder Limited Term Tax Free Fund's total return over its most recent
fiscal year ended October 31, 1998, was 5.37%, outpacing the 5.16% average
return of its peers as compiled by Lipper. The Fund also placed in the top 20%
of similar funds over the three-year period ended October 31. Please see the
Portfolio Management Discussion beginning on page 6 for additional information.
For those of you who are interested in new Scudder products, we recently
introduced the Scudder Tax Managed Growth Fund, investing in medium- to
large-sized U.S. companies, and Scudder Tax Managed Small Company Fund, which
invests in stocks of small U.S. companies. Using a combination of quantitative
and fundamental research, the funds focus on companies with strong earnings
growth, reasonable valuations, and favorable risk profiles. Both funds strive to
maximize after-tax returns by systematically taking into account the tax
implications of portfolio transactions and seeking to offset capital gains by
realizing losses when appropriate. Please see pages 25 through 26 for more
information on Scudder products and services.
As always, please call a Scudder Investor Information representative at
1-800-225-2470 if you have questions about your Fund, or visit our Web site at
www.scudder.com. Thank you for choosing Scudder Limited Term Tax Free Fund to
help meet your investment needs.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Limited Term Tax Free Fund
3 - Scudder Limited Term Tax Free Fund
<PAGE>
Performance Update as of October 31, 1998
- ----------------------
Fund Index Compairsons
- ----------------------
Total Return
---------------------------------------------------
Period Ended Growth of Average
10/31/98 $10,000 Cumulative Annual
---------------------------------------------------
Scudder Limited Term Tax Free Fund
---------------------------------------------------
1 Year $ 10,537 5.37% 5.37%
Life of Fund* $ 12,621 26.21% 5.07%
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Lehman Brothers Municipal Bond Index (3 year)
---------------------------------------------------
1 Year $ 10,572 5.72% 5.72%
Life of Fund* $ 12,663 26.63% 5.18%
---------------------------------------------------
* The Fund commenced operation on February 15, 1994. Index comparisons begin
February 28, 1994.
- ------------------------------
Growth of a $10,000 Investment
- ------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Lehman Brothers Municipal Scudder Limited Term
Bond Index (3 year) Tax Free Fund
------------------------- --------------------
2/94* 10000 10000
4/94 9936 9965
10/94 10058 10099
4/95 10401 10464
10/95 10862 10901
4/96 11051 11071
10/96 11352 11373
4/97 11561 11551
10/97 11978 12044
4/98 12204 12220
10/98 12663 12690
The 3-year Lehman Brothers Municipal Bond Index is an unmanaged,
market-value-weighted measure of the short-term municipal bond market and
includes bonds with maturities of two to three years. Index returns assume
reinvested dividends and, unlike Fund returns, do not reflect fees or expenses.
- ---------------------------------
Returns and Per Share Information
- ---------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
Yearly periods ended October 31
1994* 1995 1996 1997 1998
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Net Asset Value $11.67 $12.01 $11.98 $12.12 $12.26
- ---------------------------------------------------------------------------
Income Dividends $ .38 $ .56 $ .53 $ .52 $ .50
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Capital Gains Distributions $ -- $ -- $ .01 $ .02 $ .01
- ---------------------------------------------------------------------------
Fund Total Return (%) .44 7.94 4.33 5.89 5.37
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Index Total Return (%) .56 8.01 4.51 5.51 5.72
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All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased. If the Adviser had not maintained the Fund's
expenses, the total returns for the one year and life of Fund periods would have
been lower.
* The Fund commenced operation on February 15, 1994. Index comparisons begin
February 28, 1994.
4 - Scudder Limited Term Tax Free Fund
<PAGE>
Portfolio Summary as of October 31, 1998
Diversification
- ---------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Hospital/Health 16%
State General Obligation 16%
Core Cities/Lease 16%
School District/Lease 15%
Electric Utility Revenue 9%
Port/Airport Revenue 6%
Water/Sewer Revenue 5%
Pollution Control/
Industrial Development 4%
County General Obligation/Lease 3%
Housing Finance Authority 3%
Miscellaneous Municipal 7%
--------------------------------------
100%
--------------------------------------
The Fund is broadly diversified, with holdings in several
categories of revenue and general obligation bonds.
Quality
- -------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
AAA 59%
AA 14%
A 19%
BBB 8%
--------------------------------------
100%
--------------------------------------
Weighted average quality: AA
Overall portfolio credit quality remains high, with over 70%
of the Fund's holdings rated AAA or AA
Effective Maturity
- ------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Less than 1 year 3%
1 - 5 years 63%
5 - 10 years 34%
--------------------------------------
100%
--------------------------------------
Weighted average effective maturity:
4.07 years
During the most recent fiscal year, we focused on two- to
three-year and five- to seven-year bonds to take advantage
of higher yields and what we felt were the most promising
capital appreciation opportunities within the Fund's range
of acceptable maturities.
For more complete details about the Fund's investment portfolio, see page 10. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Limited Term Tax Free Fund
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
In the face of heightened volatility in most of the world's financial markets,
Scudder Limited Term Tax Free Fund registered gains over its most recent fiscal
year ended October 31, 1998. The Fund posted a 5.37% total return over the 12
months ended October 31, surpassing the 5.16% average performance of 30 similar
short-term tax free funds as compiled by Lipper Analytical Services, Inc. As of
October 31, the Fund's 30-day net annualized SEC yield was 3.23%, equal to a
5.35% taxable yield for investors in the top federal income tax bracket.
Bonds Provided a Safe Haven
Investors worldwide went in search of a relative "safe haven" in the form of
U.S. Treasury bonds during the period, as a series of dramatic financial crises
rocked the global markets. In the international capital markets, the most
damaging developments were Russia's economic collapse -- including its
short-term debt default and ruble devaluation, Japan's failure to initiate
needed banking reform and climb out of recession, and Brazil's continuing
currency crisis. The Federal Reserve lowered short-term interest rates by one
quarter of a percentage point on September 29 in an attempt to restore order to
worldwide financial markets. Initial reaction from market participants was that
the Fed's action was insufficient, driving even more investors to Treasury
bonds. A subsequent interest rate reduction by the Fed along with mixed economic
signals left investors wondering about the future direction of short-term
interest rates. On the domestic front, the U.S. stock market continually
advanced to new highs until late July, when it succumbed to pressure from
overseas, as well as a series of domestic earnings disappointments. The near
collapse of the Long Term Capital Management hedge fund also contributed to a
sharp rise in Treasury bond prices.
As is typically true during a strong Treasury bond rally, prices of municipal
bonds did not keep up. During the 12-month period, 5-year Treasury bond yields
declined approximately one and one half of a percentage point and their prices
rose 6.5%. Over the same time frame, 5-year AAA-rated municipal bond yields
declined approximately one half of a percentage point, and their prices rose 2%.
Two factors were most responsible for the disparity in performance between the
Treasury and municipal markets: first, the "flight to quality" from stocks,
emerging market bonds, and corporate bonds into Treasuries; second, the heavy
supply of new tax-exempt issues from January through October 1998. Municipal
supply is expected to reach approximately $282 billion in 1998, which would be
second only to 1993's total of $292 billion over the past ten years.
Partly because they have lagged in performance, municipal bonds are currently
attractively valued, as indicated by the fact that the ratio of municipal yields
to Treasury yields on bonds of similar maturity is by far the highest it has
been in 10 years. If, as we expect, Treasury yields remain low, the tendency
would be for municipal yields to decline and prices to rise, restoring a more
typical relationship between municipals and Treasuries.
6 - Scudder Limited Term Tax Free Fund
<PAGE>
Tax-Free Income and Below-Average Risk
Scudder Limited Term Tax Free Fund is designed to deliver tax-free income with
below-average price risk through investments primarily in municipal bonds with
effective maturities between one and ten years. The Fund seeks higher income
than is typically available from tax-free money market investments and less
share price fluctuation than is found in intermediate- and long-term tax-free
bonds. The Fund's professional management, economies of scale, liquidity,
dividend reinvestment, and ability to diversify its assets continue to offer
advantages compared with the holding of individual municipal bonds.
Over the Fund's most recent fiscal year the Fund emphasized tax-exempt bonds
with maturities of two to three years and five to seven years. We did this to
take advantage of higher yields and what we felt were the most promising
opportunities for capital appreciation within the Fund's range of acceptable
maturities. Throughout the Fund's fiscal year, we also emphasized high quality
bonds when making new purchases: High quality bonds generally represented
attractive value, while yields on bonds of lower quality were not sufficiently
high to make it worthwhile to incur additional credit risk. The Fund's overall
credit quality remains high, with over 70% of the bonds in the Fund's portfolio
rated AAA or AA. Lastly, we continued to emphasize premium bonds (96% of the
Fund's portfolio as of October 31), which generally exhibit less interest rate
sensitivity than bonds priced at par.
7 - Scudder Limited Term Tax Free Fund
<PAGE>
Outlook
The Federal Reserve enacted its two most recent reductions in the Fed Funds Rate
both to promote global economic stability and to keep the U.S. economy from
sliding into a recession. If the Fed sees the need to act on either front over
the coming months and cut interest rates further, municipal bonds with
maturities of seven years or less should benefit.
We will continue to maintain a conservative investment strategy by keeping the
Fund's credit quality at a high level, holding premium bonds, and diversifying
broadly. We will also search for attractive value by weighing the maturity
characteristics, credit quality, income potential, and call protection of each
bond we consider adding to the Fund's portfolio. Thank you for investing with
us.
Sincerely,
Your Portfolio Management Team
/s/M. Ashton Patton /s/K. Sue Cote
M. Ashton Patton K. Sue Cote
Scudder Limited Term
Tax Free Fund:
A Team Approach to Investing
Scudder Limited Term Tax Free Fund is managed by a team of Scudder
Kemper Investments, Inc. (the "Adviser") professionals, each of whom
plays an important role in the Fund's management process. Team members
work together to develop investment strategies and select securities
for the Fund's portfolio. They are supported by the Adviser's large
staff of economists, research analysts, traders, and other investment
specialists who work in our offices across the United States and
abroad. We believe our team approach benefits Fund investors by
bringing together many disciplines and leveraging our extensive
resources.
M. Ashton Patton, Lead Portfolio Manager, has overseen the Fund's
investment strategy and daily operation since the Fund was introduced
in 1994. Ms. Patton joined the Adviser in 1990 as a portfolio manager.
K. Sue Cote, Portfolio Manager since 1998, joined the Adviser in 1983
as a research assistant and has been a portfolio manager since 1986.
8 - Scudder Limited Term Tax Free Fund
<PAGE>
Glossary of Investment Terms
BOND An interest-bearing security issued by the
federal, state, or local government or a
corporation that obligates the issuer to pay the
bondholder a specified amount of interest for a
stated period -- usually a number of years --
and to repay the face amount of the bond at its
maturity date.
GENERAL OBLIGATION BOND A municipal bond backed by the "full faith
and credit" (including the taxing and further
borrowing power) of the city, state,
or agency that issues the bond. A general
obligation bond is repaid with the issuer's
general revenue and borrowings.
INFLATION An overall increase in the prices of goods and
services, as happens when business and consumer
spending increases relative to the supply of goods
available in the marketplace-- in other words, when
too much money is chasing too few goods. High
inflation has a negative impact on the prices of
fixed-income securities.
MUNICIPAL BOND An interest-bearing debt security issued by
a state or local government entity.
NET ASSET VALUE (NAV) The price per share of a mutual fund based on the
sum of the market value of all the securities
owned by the fund divided by the number of
outstanding shares.
TAXABLE EQUIVALENT YIELD The level of yield a fully taxable instrument
would have to provide to equal that of a
tax-free municipal bond on an after-tax basis.
30-DAY SEC YIELD The standard yield reference for bond funds, based
on a formula prescribed by the SEC. This annualized
yield calculation reflects the 30-day average of the
income earnings of every holding in a given fund's
portfolio, net of expenses, assuming each is held to
maturity.
TOTAL RETURN The most common yardstick to measure the
performance of a fund. Total return --
annualized or compound -- is based on a
combination of share price changes plus income
and capital gain distributions, if any,
expressed as a percentage gain or loss in value.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
9 - Scudder Limited Term Tax Free Fund
<PAGE>
Investment Portfolio as of October 31, 1998
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Short-Term Municipal Investments 2.0%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alabama
North Alabama, Environmental Improvement Authority, Pollution Control
Revenue, 3.65%, 12/1/2000* ................................................... 1,600,000 A 1,600,000
Indiana
Madison County, IN, Hospital Authority, Holy Cross Health System, 6.3%,
12/1/1998 (c) ................................................................ 1,000,000 AAA 1,002,710
- ------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Municipal Investments (Cost $2,600,573) 2,602,710
- ------------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Municipal Investments 98.0%
- ------------------------------------------------------------------------------------------------------------------------------
Arizona
Central Arizona Water Conservation District:
Central Arizona Project, Prerefunded 11/1/2000, 7.5%, 11/1/2005*** ........... 1,000,000 AAA 1,096,140
Contract Revenue, Prerefunded 5/1/2001, Series 1991 B, 6.5%, 11/1/2011*** .... 1,195,000 AAA 1,299,096
Arkansas
Rogers, AR, Sales and Use Tax Revenue, Series 1996, 5%, 11/1/2015 .............. 795,000 AA 806,838
California
Foothill/Eastern Transportation Corridor Agency, CA, Toll Road Revenue,
Senior Lien, Series A, Zero Coupon, 1/1/2005 ................................. 1,000,000 BBB 751,710
Orange County, CA, Recovery Notes, Series A, 6.5%, 6/1/2005 (c) ................ 1,665,000 AAA 1,916,332
Sacramento, CA, Cogeneration Project Revenue, Proctor & Gamble Project,
Series 1995, 7%, 7/1/2004 .................................................... 1,000,000 BBB 1,139,340
Colorado
Boulder County, Co, Industrial Development, Revenue Refunding, May Department
Stores, Colorado Project, Series 1992, 6.25%, 9/1/2007 ....................... 1,250,000 A 1,327,775
Castle Rock Ranch, CO, Public Improvements Authority, Public Facilities
Revenue, Series 1996, 5.9%, 12/1/2003 ........................................ 1,475,000 AA 1,601,349
Delaware
Delaware State Health Facilities Authorities Revenue Bonds, Medical Center of
Delaware, Series 1989, 7%, 10/1/2003 (c) ..................................... 1,500,000 AAA 1,580,730
Delaware, General Obligation, Series 1991, Prerefunded 4/1/2001, 6.6%,
4/1/2010*** .................................................................. 1,700,000 AAA 1,849,107
District of Columbia
District of Columbia, General Obligation:
Series A, 5.625%, 6/1/2002 (c) ............................................... 110,000 AAA 116,895
Series A, 5.625%, 6/1/2002 (c) ............................................... 1,390,000 AAA 1,471,051
Series D, 5.25%, 12/1/2003 (c) ............................................... 40,000 AAA 42,548
Series D, 5.25%, 12/1/2003 (c) ............................................... 960,000 AAA 1,015,603
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Limited Term Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida
Dade County, FL, Port Authority Revenue, Series 1968 C, 5.5%, 10/1/2007 ........ 4,490,000 AAA 4,729,317
Georgia
Municipal Electric Authority of Georgia, Power Revenue, 6.6%, 1/1/2001 (c) ..... 1,000,000 AAA 1,061,490
Henry County, GA, School District Revenue, 5%, 9/1/2001 (c) .................... 3,670,000 AAA 3,810,194
Illinois
Berwyn, IL, MacNeal Memorial Hospital, Association Project, Series 1995,
5.5%, 6/1/2001 (c) ........................................................... 2,795,000 AAA 2,915,800
Chicago, IL, General Obligation, Tender Note, Series C, 6.25%, 10/31/2002 (c) .. 3,450,000 AAA 3,763,605
Cook County, IL, Community High School District #219, Niles Township,
Series 1998, Zero Coupon, 12/1/2006 (c) ...................................... 2,360,000 AAA 1,675,693
Illinois Health Facilities Authority:
Edgewater Medical Center, Series A, 4.7%, 7/1/2031 ........................... 2,275,000 AA 2,311,195
Methodist Medical Center, Revenue Bond, 5.5%, 11/15/2004 (c) ................. 1,245,000 AAA 1,338,798
Revenue Refunding, Sherman Hospital Project, 6.5%, 8/1/2001 (c) .............. 1,025,000 AAA 1,102,090
Springfield, IL, Electric Revenue, Junior Lien, Series 1995, 6%, 3/1/2004 (c) .. 1,500,000 AAA 1,644,285
Indiana
Indiana Health Facility Finance Authority, Hospital Revenue, Ancilla Systems
Inc., Series A, 5.875%, 7/1/2002 (c) ......................................... 1,000,000 AAA 1,069,680
Indiana Housing Finance Authority, Single Family Mortgage Revenue, Series
1995 C-1, 5.25%, 7/1/2012 .................................................... 1,890,000 AAA 1,931,807
Iowa
Cedar Rapids, IA, Hospital Facilities Revenue:
5.65%, 8/15/2002 (c) ......................................................... 490,000 AAA 523,629
St. Luke's Methodist Hospital, 5.65%, 8/15/2002 (c) .......................... 760,000 AAA 808,617
Des Moines, IA, Hospital Revenue, Revenue Refunding Bond, Des Moines General
Hospital Project, Series 1996 A, 6%, 11/15/2002 .............................. 1,750,000 AA 1,886,833
Louisiana
Jefferson Parish, LA, School Board Sales & Use Tax Revenue, ETM, Series 1986
A, 7.25%, 2/1/2001** ......................................................... 6,135,000 A 6,610,708
Louisiana State, General Obligation, Series 1996 A, 6%, 8/1/2002 (c) ........... 1,000,000 AAA 1,077,650
Maryland
Montgomery County, MD, Public Improvement, Series 1994 A, 5.5%, 10/1/2002 ...... 1,000,000 AAA 1,068,660
Massachusetts
New England Education Loan Marketing Corporation, Massachusetts Student Loan
Revenue Refunding, Series D, 6.2%, 9/1/2000 .................................. 2,000,000 AAA 2,084,020
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Limited Term Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nevada
Clark County, NV, Airport Revenue, Subordinate Lien, Series A, 5%,
7/1/2003 (c) ................................................................. 2,000,000 AAA 2,097,340
New Hampshire
New Hampshire Higher Education & Health Facilities Authority, St. Josephs
Hospital, 5.65%, 1/1/2004 .................................................... 1,095,000 AAA 1,174,333
New Jersey
New Jersey State Turnpike Authority, Series C, Revenue Bond, 5.2%, 1/1/2008 .... 1,395,000 AAA 1,457,608
New York
New York City, NY, General Obligation:
Series 1991 A, 3%, 8/15/2002 (c) ............................................. 1,000,000 AAA 975,760
Series 1995 B, 6.75%, 8/15/2003 .............................................. 6,000,000 A 6,707,520
Series 1996 A, 6.75%, 8/1/2004 ............................................... 1,500,000 A 1,700,925
Series 1995 D, 6.5%, 2/15/2005 ............................................... 1,315,000 A 1,478,284
Series 1996 I, 6.5%, 3/15/2005 ............................................... 1,575,000 A 1,772,852
Series 1997 I, 6.25%, 4/15/2006 .............................................. 1,000,000 A 1,123,950
New York State Dormitory Authority, State University Educational Facility,
Series A, 6.5%, 5/15/2004 .................................................... 1,000,000 A 1,121,030
New York State Medical Care Facilities, Finance Agency:
Mount Sinai Hospital, Series 1983, 5.95%, 8/15/2009 .......................... 840,000 AAA 887,720
Secured Hospital Revenue Bond, Wyckoff Heights Medical Center, Series 1991
A, Prerefunded 8/15/2001, 7.4%, 8/15/2021*** ................................ 3,000,000 AAA 3,352,170
New York State Urban Development Corporation Project, Onondaga County
Convention Center:
6%, 1/1/2004 ................................................................ 1,445,000 BBB 1,571,640
6%, 1/1/2005 ................................................................ 1,535,000 BBB 1,683,695
Syracuse, NY, Industrial Development Agency, Pilot Revenue Bond, Series 1995,
5.125%, 10/15/2002 ........................................................... 1,500,000 AA 1,558,920
North Carolina
Charlotte, NC, Water & Sewer, 4.75%, 2/1/2001 .................................. 3,310,000 AAA 3,402,846
North Carolina Municipal Power Agency #1, Catawaba Electric Revenue,
5.75%, 1/1/2002 (c) .......................................................... 1,150,000 AAA 1,218,069
Ohio
Ohio Building Authority Revenue, Arts Faculties Building Fund, Series A,
5.5%, 10/1/2003 .............................................................. 1,000,000 AA 1,075,130
Pennsylvania
Delaware County, PA, Industrial Development Authority, Resource Recovery
Facility, Series 1997 A, 6.1%, 1/1/2005 ...................................... 2,000,000 A 2,151,840
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Limited Term Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rhode Island
Rhode Island, Consolidated Capital Development Loan, General Obligation,
Series 1996, 6%, 8/1/2003 (c) ................................................ 1,690,000 AAA 1,849,401
Tennessee
Metropolitan Government Nashville & Davidson County, TN, General Obligation,
Prerefunded 5/15/2002, 6.125%, 5/15/2019*** .................................. 1,000,000 AAA 1,097,350
Texas
Austin, TX, Independent School District, Guaranteed General Obligation,
8.125%, 8/1/2001 ............................................................. 1,000,000 AAA 1,116,861
Austin, TX, Utility System Revenue, Series A:
6.3%, 11/15/2001 (c) ......................................................... 365,000 AAA 392,978
6.3%, 11/15/2001 (c) ......................................................... 635,000 AAA 682,828
Ector County, TX, Hospital District Revenue, Series 1997, 5.5%, 4/15/2003 (c) .. 1,000,000 AAA 1,062,780
Plano, TX, Independent School District, General Obligation, 6%, 2/15/2004 ...... 4,790,000 AAA 5,259,228
Richardson, TX, Hospital Authority Refunding and Improvement, Richardson
Medical Center, Series 1993, 6.5%, 12/1/2012 ................................. 920,000 BBB 988,678
Texas Department of Housing & Community Affairs, Single-Family Mortgage
Revenue, Series B, 5.5%, 3/1/2011 (c) ........................................ 1,520,000 AAA 1,574,553
Utah
Utah State, General Obligation, Series 1997, 5.5%, 7/1/2007 .................... 2,000,000 AAA 2,217,840
Virgin Islands
Virgin Islands, General Obligation, Public Finance Authority, Matching Fund
Loan Notes, Series A, 6.9%,10/1/2001 ......................................... 1,000,000 BBB 1,091,040
Virgin Islands, Revenue Bond, Public Finance Authority, 5.5%, 10/1/2005 ........ 1,000,000 BBB 1,061,910
Virginia
Virginia State Public School Authority, Series B, General Obligation,
Prerefunded 8/1/2004, 6.5%, 8/1/2015*** ...................................... 3,000,000 AA 3,441,270
Washington
Lewis County, WA, Public Utility District 1, Cowlitz Falls Hydroelectric
Project, Series 1991, Prerefunded 10/1/2001, 7%, 10/1/2022*** ................ 1,430,000 AAA 1,588,473
Washington Public Power Supply System, Nuclear Project #2, Refunding Revenue:
Series C, 7.3%, 7/1/2000 ..................................................... 1,300,000 AA 1,376,674
Series A, 6.3%, 7/1/2001 ..................................................... 1,000,000 AA 1,064,610
Series 1992 A, 5.7%, 7/1/2002 ................................................ 1,550,000 AA 1,646,612
West Virginia
Wayne County, WV, Industrial Development, Atlantic Richfield Company Project,
11.75%, 12/1/2001 ............................................................ 495,000 A 610,310
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder Limited Term Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wisconsin
Milwaukee, WI, Metropolitan Sewer District Revenue, Series A, 6.7%, 10/1/2001 .. 1,000,000 AA 1,084,280
Wisconsin Health and Education Facilities Authority, St. Luke's Medical
Center, 6.6%, 8/15/2001 (c) .................................................. 1,745,000 AAA 1,882,506
- ------------------------------------------------------------------------------------------------------------------------------
Total Intermediate-Term Municipal Investments (Cost $119,859,931) 125,030,399
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $122,460,504) (a) 127,633,109
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $122,460,504. At October 31,
1998, net unrealized appreciation for all securities based on tax cost was
$5,172,605. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $5,172,605.
(b) All of the securities held have been determined to be of appropriate
credit quality as required by the Fund's investment objectives. Credit
ratings shown are assigned by either Standard & Poor's Ratings Group,
Moody's Investors Service, Inc. or Fitch Investors Service, Inc.
(c) Bond is insured by one of these companies: AMBAC, FGIC, FSA, or MBIA.
* Floating rate and monthly, weekly, or daily demand notes are securities
whose yields vary with a designated market index or market rate, such as
the coupon-equivalent of the Treasury bill rate. Variable rate demand
notes are securities whose yields are periodically reset at levels that
are generally comparable to tax-exempt commercial paper. These securities
are payable on demand within seven calendar days and normally incorporate
an irrevocable letter of credit or line of credit from a major bank. These
notes are carried, for purposes of calculating average weighted maturity,
at the longer of the period remaining until the next rate change or to the
extent of the demand period.
** ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by a
trustee and used to pay principal and interest on bonds so designated.
*** Prerefunded: Bonds which are prerefunded are collateralized by U.S.
Treasury Securities which are held in escrow and are used to pay principal
and interest on tax-exempt issue and to retire the bonds in full at the
earliest refunding date.
The accompanying notes are an integral part of the financial statements.
14 - Scudder Limited Term Tax Free Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1998
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $122,460,504) ................... $ 127,633,109
Cash .................................................................... 71,998
Receivable for investments sold ......................................... 75,000
Interest receivable ..................................................... 1,871,781
Receivable for Fund shares sold ......................................... 39,400
Other assets ............................................................ 2,662
----------------
Total assets ............................................................ 129,693,950
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Dividends payable ....................................................... 248,187
Payable for Fund shares redeemed ........................................ 138,690
Accrued management fee .................................................. 59,397
Other payables and accrued expenses ..................................... 73,539
----------------
Total liabilities ....................................................... 519,813
--------------------------------------------------------------------------------------------
Net assets, at market value $ 129,174,137
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation on investments .................................. 5,172,605
Accumulated net realized gain (loss) .................................... (154,566)
Paid-in capital ......................................................... 124,156,098
--------------------------------------------------------------------------------------------
Net assets, at market value $ 129,174,137
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($129,174,137 /10,536,316 outstanding shares of beneficial ----------------
interest, $.01 par value, unlimited number of shares authorized) ..... $12.26
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Limited Term Tax Free Fund
<PAGE>
Statement of Operations
year ended October 31, 1998
<TABLE>
<S> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Interest ................................................................ $ 6,452,037
----------------
Expenses:
Management fee .......................................................... 794,767
Custodian and accounting fees ........................................... 65,451
Services to shareholders ................................................ 76,305
Trustees' fees and expenses ............................................. 43,170
Registration fees ....................................................... 26,770
Auditing ................................................................ 30,448
Legal ................................................................... 6,858
Reports to shareholders ................................................. 21,248
Amortization of organization expense .................................... 8,388
Other ................................................................... 7,625
----------------
Total expenses before expense reductions ................................ 1,081,030
Expense reductions ...................................................... (86,875)
----------------
Expenses, net ........................................................... 994,155
--------------------------------------------------------------------------------------------
Net investment income ................................................... 5,457,882
--------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments ............................... (139,113)
Net unrealized appreciation (depreciation) on investments during the
period ............................................................... 1,558,802
--------------------------------------------------------------------------------------------
Net gain (loss) on investments 1,419,689
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 6,877,571
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Limited Term Tax Free Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................. $ 5,457,882 $ 5,201,534
Net realized gain (loss) on investments ............... (139,113) 75,394
Net unrealized appreciation (depreciation) on
investments during the period ......................... 1,558,802 1,386,314
---------------- ----------------
Net increase in net assets resulting from operations .. 6,877,571 6,663,242
---------------- ----------------
Distributions to shareholders from:
Net investment income ................................. (5,457,882) (5,201,534)
---------------- ----------------
Net realized gains .................................... (57,180) (205,773)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ............................. 68,479,028 46,364,831
Net asset value of shares issued to shareholders in
reinvestment of distributions ......................... 2,328,280 2,206,361
Cost of shares redeemed ............................... (59,872,051) (56,611,187)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ....................................... 10,935,257 (8,039,995)
---------------- ----------------
Increase (decrease) in net assets ..................... 12,297,766 (6,784,060)
Net assets at beginning of period ..................... 116,876,371 123,660,431
---------------- ----------------
Net assets at end of period ........................... $129,174,137 $116,876,371
---------------- ----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ............. 9,639,451 10,318,550
---------------- ----------------
Shares sold ........................................... 5,627,934 3,856,337
Shares issued to shareholders in reinvestment of
distributions ...................................... 191,473 183,612
Shares redeemed ....................................... (4,922,542) (4,719,048)
---------------- ----------------
Net increase (decrease) in Fund shares ................ 896,865 (679,099)
---------------- ----------------
Shares outstanding at end of period ................... 10,536,316 9,639,451
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Limited Term Tax Free Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
February 15,
1994
(commencement
of operations)
Years Ended October 31, to October 31,
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------
Net asset value, beginning of period ..................... $ 12.12 $ 11.98 $ 12.01 $ 11.67 $12.00
Income from investment operations: -----------------------------------------------------------------
Net investment income .................................... .50 .52 .53 .56 .38
Net realized and unrealized gain (loss) on investments ... .15 .16 (.02) .34 (.33)
-----------------------------------------------------------------
Total from investment operations ......................... .65 .68 .51 .90 .05
-----------------------------------------------------------------
Less distributions from:
Net investment income .................................... (.50) (.52) (.53) (.56) (.38)
Net realized gain on investment transactions ............. (.01) (.02) (.01) -- --
-----------------------------------------------------------------
Total distributions ...................................... (.51) (.54) (.54) (.56) (.38)
-----------------------------------------------------------------
-----------------------------------------------------------------
Net asset value, end of period ........................... $ 12.26 $ 12.12 $ 11.98 $ 12.01 $11.67
-----------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) ..................................... 5.37 5.89 4.33 7.94 .44**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................... 129 117 124 122 68
Ratio of operating expenses, net to average daily net
assets (%) ............................................. .75 .75 .63 .23 --
Ratio of operating expenses before expense reductions,
to average daily net assets (%) ........................ .82 .83 .82 .85 1.29*
Ratio of net investment income to average daily net
assets (%) ............................................. 4.12 4.32 4.46 4.78 4.84*
Portfolio turnover rate (%) .............................. 23.2 17.8 37.7 37.5 36.3*
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
18 - Scudder Limited Term Tax Free Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Limited Term Tax Free Fund (the "Fund") is a diversified series of
Scudder Tax Free Trust, a Massachusetts business trust (the "Trust"), which is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. There are currently two series in the Trust.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the Officers of the
Fund, which quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. All other debt securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Trustees.
Money market instruments purchased with an original maturity of sixty days or
less are valued at amortized cost.
Amortization and Accretion. All premiums and original issue discounts are
amortized/accreted for both tax and financial reporting purposes.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable and tax-exempt income
to its shareholders. The Fund accordingly paid no federal income taxes and no
provision for federal income taxes was required.
At October 31, 1998, the Fund had a net tax basis capital loss carryforward of
approximately $140,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until October 31,
2006, whichever occurs first.
Distribution of Income and Gains. All of the net investment income of the Fund
is declared as a dividend to shareholders of record as of the close of business
each day and is paid to shareholders monthly. During any particular year, net
realized gains from investment transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not distributed and, therefore,
will be distributed to shareholders. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
Organization Costs. Costs incurred by the Fund in connection with its
organization and initial registration of shares have been deferred and are being
amortized on a straight-line basis over a five-year period.
19 - Scudder Limited Term Tax Free Fund
<PAGE>
Other. Investment transactions are accounted for on a trade date basis.
Distributions of net realized gains to shareholders are recorded on the
ex-dividend date. Interest income is accrued pro rata to the earlier of the call
or maturity date.
B. Purchases and Sales of Securities
For the year ended October 31, 1998, purchases and sales of investments
(excluding short-term) aggregated $45,151,971 and $28,658,201, respectively.
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Fund and Scudder Kemper was
approved by the Fund's Board of Trustees and by the Fund's Shareholders. The
Management Agreement, which was effective December 31, 1997, is the same in all
material respects as the corresponding previous Investment Management Agreement,
except that Scudder Kemper is the new investment adviser to the Fund. The
Adviser agreed to maintain the annualized expenses at 0.75% of average daily net
assets until February 28, 1999. For the year ended October 31, 1998, the Adviser
imposed fees amounting to $707,892 and the portion not imposed amounted to
$86,875 at October 31, 1998.
Under the Management Agreement with Scudder Kemper, the Fund agrees to pay the
Adviser a fee equal to an annual rate of 0.60% of the Fund's average daily net
assets, computed and accrued daily and payable monthly. As manager of the assets
of the Fund, the Adviser directs the investments of the Fund in accordance with
its investment objectives, policies, and restrictions. The Adviser determines
the securities, instruments, and other contracts relating to investments to be
purchased, sold or entered into by the Fund. In addition to portfolio management
services, the Adviser provides certain administrative services in accordance
with the Agreement.
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
Adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's investment management agreement with Scudder Kemper was
deemed to have been assigned and, therefore, terminated. The Board of Trustees
of the Fund has approved a new investment management agreement with Scudder
Kemper, which is substantially identical to the former investment management
agreement, except for the dates of execution and termination. The Board of
Trustees of the Fund will seek shareholder approval of the new investment
management agreement through a proxy solicitation that is currently scheduled to
conclude in mid-December.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended October 31, 1998, the amount charged to the Fund by SSC aggregated
$44,864 of which $3,827 was unpaid at October 31, 1998.
20 - Scudder Limited Term Tax Free Fund
<PAGE>
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1998, the amount charged to the Fund by SFAC aggregated $40,937 of
which $6,584 was unpaid at October 31, 1998.
The Trust pays each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the year
ended October 31, 1998, Trustees' fees and expenses charged to the Fund
aggregated $43,170.
21 - Scudder Limited Term Tax Free Fund
<PAGE>
Report of Independent Accountants
To the Trustees of Scudder Tax Free Trust and to the Shareholders of Scudder
Limited Term Tax Free Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Limited Term Tax Free Fund
(the "Fund") at October 31, 1998, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 4, 1998
22 - Scudder Limited Term Tax Free Fund
<PAGE>
Tax Information
Of the dividends paid by the Scudder Limited Term Tax Free Fund from net
investment income for the taxable year ended October 31, 1998, 100% are
constituted as exempt interest dividends for federal income tax purposes.
The Fund paid distributions of $.006 per share from net long-term capital gains
during its year ended October 31, 1998 of which 38.8% represents 20% rate gains.
Please consult a tax adviser if you have any questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Investor
Relations Representative at 1-800-225-5163.
23 - Scudder Limited Term Tax Free Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
Trustee; Executive Fellow, Center
for Business Ethics, Bentley
College; President, Driscoll
Associates
Peter B. Freeman
Trustee; Corporate Director and
Trustee
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business
Administration, Northeastern
University, College of Business
Administration
Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners
M. Ashton Patton*
Vice President
Donald C. Carleton*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President and Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
24 - Scudder Limited Term Tax Free Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series--
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange and,
in some cases, on various other stock exchanges.
25 - Scudder Limited Term Tax Free Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- www.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
26 - Scudder Limited Term Tax Free Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
800 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
</TABLE>
27 - Scudder Limited Term Tax Free Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
United States.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
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