SCUDDER
INVESTMENTS(SM)
[LOGO]
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BOND/TAX FREE
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Scudder Limited Term
Tax Free Fund
Fund #044
Semiannual Report
November 30, 1999
The fund seeks as high a level of income exempt from regular federal income tax
as is consistent with a high degree of principal stability.
A no-load fund with no commissions to buy, sell, or exchange shares.
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Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
9 Portfolio Management Discussion
12 Investment Portfolio
16 Financial Statements
19 Financial Highlights
20 Notes to Financial Statements
23 Officers and Trustees
24 Investment Products and Services
26 Scudder Solutions
2
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Scudder Limited Term Tax Free Fund
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ticker symbol SCLTX fund number 044
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Date of Inception: o In an environment of rising interest rates, Scudder
2/15/94 Limited Term Tax Free Fund posted a total return of
-0.01% for its most recent semiannual period ended
Total Net Assets: November 30, 1999. The fund's return compares with
$84 million the -0.05% average performance of the fund's peers
over the same period, according to Lipper.
o As of November 30, 1999, Scudder Limited Term Tax
Free Fund's 30-day net annualized SEC yield was
3.98%, equivalent to a 6.59% taxable yield for
investors subject to the 39.6% maximum federal income
tax rate.
o Scudder Limited Term Tax Free Fund received an
overall Morningstar Rating(TM) of four stars (above
average) out of 1610 tax free funds as of November
30, 1999.*
* Morningstar proprietary rankings reflect historical risk-adjusted performance
as of November 30, 1999. Ratings are subject to change monthly, and past
performance does not guarantee future results. Morningstar ratings are
calculated from the fund's three- and five-year average annual returns in
excess of 90-day Treasury bills with appropriate fee adjustments, and a risk
factor that reflects fund performance below 90-day T-bill returns. The fund
received five stars for the three-year period and four stars for the
five-year period. The top 10% of funds in the broad asset class receive 5
stars and the next 22.5% receive 4 stars. The fund was rated among 1610 and
1330 funds in its broad asset class for the three- and five-year periods,
respectively.
3
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Letter from the Fund's President
Dear Shareholders,
The Federal Reserve, while placing a high priority on maintaining a generous
level of liquidity in the financial system in the face of uncertainty over the
Y2K date change, helped to push up interest rates and keep the bond market in
retreat during Scudder Limited Term Tax Free Fund's most recent semiannual
period ended November 30, 1999. Over the six-month period, the fund returned
- -0.01%. Despite the just-negative posting, two positive aspects of the fund's
performance should be noted: First, the fund's 30-day SEC yield increased from
3.38% on May 31, 1999, to 3.98% as of November 30. And its November 30 yield was
equivalent to a taxable yield of 6.59% for investors in the 39.6% tax bracket.
Second, the fund continues to display competitive longer-term performance. Over
the three- and five-year periods ended November 30, the fund placed in the top
one third of similar high yield municipal bond funds as ranked by Lipper. For
more information concerning the fund's investment environment and portfolio
strategy, as well as the outlook for the municipal bond market over the coming
months, please read the Portfolio Management Discussion that begins on page 9.
It should be noted that Daniel Pierce retired in June 1999 as President of
Scudder Limited Term Tax Free Fund, at which time I assumed that role and its
responsibilities. We are fortunate that Dan's longstanding affiliation with
Scudder is ongoing, and that we will continue to benefit from his counsel going
forward. I am
4
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pleased to join the fund's team in this capacity, and look forward
to serving your interests.
Please call a Scudder Investor Information representative at 1-800-SCUDDER or go
to our Web site at www.scudder.com if you have questions about your fund. Page
26 provides more information on how to contact Scudder. Thank you for
choosing Scudder Limited Term Tax Free Fund to help meet your investment needs.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder Limited Term Tax Free Fund
5
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Performance Update
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November 30, 1999
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder Lehman
Limited Brothers
Term Tax Municipal
Free Fund Bond Index (3 Year)*
2/94* 10000 2/94* 10000
'94 9972 '94 10040
'95 10932 '95 10932
'96 11427 '96 11459
'97 12007 '97 12013
'98 12632 '98 12694
'99 12752 '99 12997
Yearly periods ended November 30
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 11/30/1999 $10,000 Cumulative Annual
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Scudder Limited Term Tax Free Fund
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1 year $ 10,095 .95% .95%
5 year $ 12,787 27.87% 5.04%
Life of Fund** $ 12,752 27.52% 4.29%
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Lehman Brothers Municipal Bond Index (3 Year)*
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1 year $ 10,239 2.39% 2.39%
5 year $ 12,945 29.45% 5.30%
Life of Fund** $ 12,997 29.97% 4.66%
* 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.
** The Fund commenced operations on February 15, 1994. Index comparisons begin
February 28, 1994.
6
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Returns and Per Share Information
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING FUND AND INDEX
TOTAL RETURN (%)
BAR CHART DATA:
Lehman Brothers
Scudder Limited Municipal Bond
Term Tax Free Fund Index (3 Year)*
1994** - 0.27 1994** - 1.33
1995 - 9.62 1995 - 8.88
1996 - 4.53 1996 - 4.83
1997 - 5.08 1997 - 4.83
1998 - 5.21 1998 - 5.67
1999 - 0.95 1999 - 2.39
Yearly periods ended November 30
1994** 1995 1996 1997 1998 1999
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Fund Total .27 9.62 4.53 5.08 5.21 .95
Return (%)
Index Total 1.33 8.88 4.83 4.83 5.67 2.39
Return (%)
Net Asset Value ($) 11.54 12.06 12.04 12.11 12.23 11.78
Income .43 .56 .53 .52 .50 .50
Dividends ($)
Capital Gains -- .01 .02 .01 -- .07
Distributions ($)
* 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.
** The Fund commenced operations on February 15, 1994. Index comparisons begin
February 28, 1994.
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 Fund would have been lower.
7
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Portfolio Summary
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November 30, 1999
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Diversification
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW
Core Cities/Lease 24% The fund is broadly
diversified, with
Hospital/Health Revenue 11% holdings in several
categories of general
Electric Utility Revenue 11% obligation and revenue
bonds.
State General Obligation 7%
Industrial Development
Revenue 3%
Transportation/Toll Revenue 3%
Student Loans 3%
Sales/Special Tax 2%
Housing Finance Authority 2%
Miscellaneous 34%
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100%
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Quality
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW
AAA 58% Overall portfolio
quality remains high,
AA 9% with over 65% of fund
holdings rated AAA or AA.
A 29%
BBB 4%
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100%
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Weighted average quality: AA
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Effective Maturity
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW
Less than 1 year 9% During the period we
shortened the fund's
1 to less than 5 years 70% average effective
maturity to 3.4 years
5 to less than 8 years 18% due to market weakness.
8 to less than 10 years 3%
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100%
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Weighted average effective
maturity: 3.4 years
For more complete details about the Fund's investment portfolio, see page 12. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
8
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Portfolio Management Discussion
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November 30, 1999
Dear Shareholders,
During Scudder Limited Term Tax Free Fund's most recent semiannual period,
municipal bonds languished along with the rest of the fixed income market as
stock indexes soared and the Federal Reserve maintained upward pressure on
interest rates. Reflecting the fact that 1999 was one of the most difficult
years ever for bonds, the fund posted a -0.01% total return for the six-month
period ended November 30, 1999. On the plus side, the fund's tax-free 3.98%
30-day SEC yield as of November 30 was equivalent to a 6.59% yield for investors
in the top (39.6%) tax bracket.
In addition, Scudder Limited Term Tax Free Fund received a four-star (above
average) rating from Morningstar as of November 30 (see page 2 for additional
information), and continues to display competitive long-term performance as
ranked by Lipper Analytical Services. As shown in the accompanying table, the
fund's average annual total returns placed it in the top one third of similar
funds over three- and five-year periods. Please turn to the Performance Update
on page 5 for more information on the fund's long-term progress, including
comparisons with the unmanaged Lehman Brothers Municipal Bond Index (3 year).
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Competitive Long-Term Performance
(Average annual returns for periods ended November 30, 1999)
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Scudder Lipper
Limited Term Average Number of
Tax Free Fund Annual Funds Percentile
Period Return Return Rank Tracked Ranking
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1 Year 0.95% 0.89% 15 of 37 Top 40%
3 Years 3.73% 3.38% 11 of 33 Top 30%
5 Years 5.04% 4.61% 6 of 22 Top 27%
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Past performance does not guarantee future results.
9
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Slow Retreat for Bonds
During the last half of 1998, bonds were avidly sought as a safe haven following
Asia's economic turmoil and the Russian debt default. As the global economy
began to stabilize and growth gained a foothold in Europe, Asia, and Latin
America, market participants began to worry over possible increases in
inflation. By the second half of 1999, the bond market shifted its focus to the
Y2K issue, concerned about the effect the date changeover might have on
computers and countries around the world. The U.S. Federal Reserve took action
of its own to address market concerns, raising interest rates three times from
June through November to dampen inflation. The Fed also substantially increased
liquidity to keep the financial markets functioning smoothly beyond 1999's
close. The Fed's rate increases and a burgeoning money supply -- raising
additional inflation fears -- kept bond prices in retreat through the end of the
period.
Though most fixed-income investments posted negative returns, municipals managed
to outperform Treasuries during the six months ended November 30. The price of
an average 10-year AAA-rated municipal bond declined 3.1% over the period, while
the price of an average 10-year Treasury bond declined 4.2%.
Portfolio Strategy
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 10 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, and ability
to diversify its assets continue to offer advantages compared with the holding
of individual municipal bonds.
Over the six-month period, the yield curve between two- and ten-year maturities
flattened as overall yield levels
10
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rose. By the close of the period we had shortened the fund's average maturity to
3.4 years and duration to 2.9 years due to market weakness. Going forward, we
plan to concentrate purchases in the four- to five-year range. As we increase
our positions in the more attractive part of the yield curve, we will sell
blocks of bonds that have generated recognized capital losses where possible in
order to offset capital gains. In addition, we continue to purchase primarily
premium coupon bonds to provide protection during periods of rising interest
rates. The fund also seeks high average quality: As of November 30, 1999, over
65% of fund assets were rated AA or better.
Outlook
Despite the difficult environment for bonds, municipals' high after-tax yields
provide attractive value for investors in the highest tax brackets. And two
scenarios could provide a considerable boost to bonds over the coming months --
first, when investors become convinced that the Fed has completed its latest
round of interest rate increases, they should return to the bond market in
appreciable numbers; second, if the U.S. economy slows during the second half of
2000 as some economists are predicting, inflation concerns may subside.
Over the coming months, we will pursue attractive value by weighing the maturity
and call characteristics, credit quality, and income potential of each bond we
consider adding to the fund's portfolio. And rather than attempting to make
investment decisions based on short-term market movements, we will search for
the most attractively valued investments as we seek a high level of tax-free
income for our shareholders. Thank you for investing with Scudder.
Sincerely,
Your Portfolio Management Team
/s/Ashton P. Goodfield /s/Philip G. Condon
Ashton P. Goodfield Philip G. Condon
11
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Investment Portfolio as of November 30, 1999 (Unaudited)
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Principal
Amount ($) Value ($)
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Short-Term Municipal Investments 1.2%
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Indiana 1.2%
Jasper County, IN, Pollution Control Revenue, Northern
Indiana Public Services, Series C, Daily Demand Note,
4.5%, 4/1/2019* ..................................... 1,000,000 1,000,000
Total Short-Term Municipal Investments (Cost $1,000,000) 1,000,000
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<CAPTION>
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Intermediate-Term Municipal Investments 98.8%
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<S> <C> <C>
Arizona
Central Arizona Water Conservation District:
Series 1990, 7.5%, Prerefunded 11/1/00, 11/1/2005*** 1,000,000 1,050,930
Series 1991 B, 6.5%, Prerefunded 5/1/01, 11/1/2011*** 1,195,000 1,254,296
Arkansas
Rogers, AR, Sales and Use Tax Revenue, Series 1996,
5%, 11/1/2015 ....................................... 660,000 656,106
California
Foothill Eastern Transportation Corridor Agency, CA,
Toll Road Revenue, Series 1995 A, Step-Up Coupon,
0% to 1/1/2005, 7.05% to 1/1/2009 ................... 1,000,000 792,700
Sacramento, CA, Cogeneration Revenue,
Procter & Gamble Project, Series 1995, 7%, 7/1/2004 . 1,000,000 1,085,270
Colorado
Boulder County, CO, Industrial Development Revenue,
May Department Stores, Colorado Project,
Series 1992, 6.25%, 9/1/2007 ........................ 1,250,000 1,283,463
Delaware
Delaware State Health Facilities Authorities Revenue,
Medical Center of Delaware, Series 1989, 7%,
10/1/2003 (b) ....................................... 1,500,000 1,533,420
District of Columbia
District of Columbia , General Obligation:
Series 1993 A, ETM, 5.625%, 6/1/2002** (b) .......... 735,000 755,242
Series 1993 A, 5.625%, 6/1/2002 (b) ................. 765,000 784,607
Series 1993 D, ETM, 5.25%, 12/1/2003** .............. 935,000 958,020
Series 1993 D, 5.25%, 12/1/2003 ..................... 65,000 66,409
Series 1999 B, 5.5%, 6/1/2007 (b) ................... 2,000,000 2,050,600
Florida
Dade County, FL, Port Authority Revenue, Series 1968 C,
5.5%, Prerefunded 4/1/2007, 10/1/2007*** 4,015,000 4,109,272
The accompanying notes are an integral part of the financial statements.
12
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Principal
Amount ($) Value ($)
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Georgia
Municipal Electric Authority, Power Revenue,
Series 1991 U, ETM, 6.6%, 1/1/2001 (b)** ............... 1,000,000 1,024,100
Illinois
Chicago, IL, General Obligation, Series 1995 C,
6.25%, 10/31/2002 (b) .................................. 3,450,000 3,613,427
Illinois Health Facilities Authority:
Methodist Medical Center, Series 1998, ETM, 5.5%,
11/15/2004 (b)** ..................................... 1,245,000 1,283,022
Sherman Hospital Project, Series 1991, ETM,
6.5%, 8/1/2001 (b)** ................................. 1,025,000 1,061,541
Indiana
Indiana Health Facility Finance Authority, Ancilla
Systems Inc., Series 1992 A, 5.875%, 7/1/2002 (b) ...... 1,000,000 1,032,180
Indiana Housing Finance Authority, Single Family Mortgage
Revenue, Series 1995 C-1, 5.25%, 7/1/2012 (b) .......... 420,000 420,529
Iowa
Cedar Rapids, IA, Hospital Revenue, St. Luke's Hospital:
Series 1993, ETM, 5.65%, 8/15/2002 (b)** ............... 490,000 505,440
Series 1993, 5.65%, 8/15/2002 (b) ...................... 760,000 781,212
Louisiana
Jefferson Parish, LA, School Board Sales & Use Tax Revenue,
Series 1986 A, ETM, 7.25%, 2/1/2001** .................. 6,135,000 6,281,627
Louisiana State, General Obligation, Series 1996 A, 6%,
8/1/2002 (b) ........................................... 1,000,000 1,038,740
Massachusetts
Massachusetts Water Resource Authority, Series 1994 A,
6%, Prerefunded 8/1/2004, 8/1/2020*** .................. 2,940,000 3,144,065
New England Education Loan Marketing Corporation,
Massachusetts Student Loan Revenue, Series 1992 D,
6.2%, 9/1/2000 (b) ..................................... 2,000,000 2,030,020
New Jersey
New Jersey Economic Development Authority,
Series 1999 A, 5.375%, 5/1/2006 (b) .................... 2,000,000 2,063,920
New Jersey State Turnpike Authority, Series 1968 C,
ETM, 5.2%, 1/1/2008** .................................. 1,220,000 1,236,470
New York
New York City, NY, General Obligation:
Series 1991 A, 3%, 8/15/2002 (b) ....................... 1,000,000 959,350
Series 1995 D, 6.5%, 2/15/2005 ......................... 1,315,000 1,406,208
Series 1995 B, 6.75%, 8/15/2003 ........................ 6,000,000 6,406,860
Series 1996 A, 6.75%, 8/1/2004 ......................... 1,500,000 1,618,980
Series 1996 I, 6.5%, 3/15/2005 ......................... 1,575,000 1,685,770
The accompanying notes are an integral part of the financial statements.
13
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Principal
Amount ($) Value ($)
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Series 1997 I, 6.25%, 4/15/2006 ......................... 1,000,000 1,063,530
New York State Dormitory Authority, State University
Educational Facility, Series 1995 A, 6.5%, 5/15/2004 .... 1,000,000 1,064,180
New York State Medical Care Facilities, Finance Agency
Revenue, Mount Sinai Hospital, Series 1992 C, 5.95%,
8/15/2009 ............................................... 760,000 781,683
New York State Urban Development Corporation Project,
Onondaga County Convention Center:
Series 1995, 6%, 1/1/2004 ............................... 1,445,000 1,503,147
Series 1995, 6%, 1/1/2005 ............................... 1,535,000 1,601,711
Syracuse, NY, Industrial Development Agency, Pilot
Revenue, Series 1995, 5.125%, 10/15/2002 ................ 1,200,000 1,207,860
North Carolina
North Carolina Municipal Power Agency #1, Catawaba
Electric Revenue, Series 1992, 5.75%, 1/1/2002 (b) ...... 1,150,000 1,179,417
Texas
Austin, TX, Independent School District, General Obligation,
Series 1991, ETM, 8.125%, 8/1/2001 (b)** ................ 1,000,000 1,061,208
Austin, TX, Utility System Revenue:
Series 1991 A, ETM, 6.3%, 11/15/2001 (b)** .............. 365,000 378,910
Series 1991 A, 6.3%, 11/15/2001 (b) ..................... 635,000 658,451
Ector County, TX, Hospital District Revenue, Series 1997,
5.5%, 4/15/2003 (b) ..................................... 1,000,000 1,023,700
Lower Colorado River Authority, TX:
Series 1999 F, 6%, 5/15/2007 ............................ 1,000,000 1,061,590
Series 1999 B, 5.5%, 5/15/2008 (b) ...................... 1,320,000 1,355,878
Richardson, TX, Hospital Authority, Richardson Medical
Center:
Series 1993, 6.5%, Prerefunded, 12/1/2003,
12/1/2012*** .......................................... 320,000 345,379
Series 1993, 6.5%, 12/1/2012 ............................ 505,000 499,597
Texas Department of Housing & Community Affairs,
Single-Family Mortgage Revenue, Series 1996 B, 5.5%,
3/1/2011 (b) ............................................ 760,000 766,126
Travis County, TX, Health Services, Series 1999 A, 5.75%,
11/15/2007 .............................................. 2,000,000 2,082,780
Virgin Islands
Virgin Islands, Public Finance Authority Revenue,
Series 1998 C, 5.5%, 10/1/2005 .......................... 1,000,000 1,014,860
Washington
Lewis County, WA, Public Utility District 1, Cowlitz Falls
Hydroelectric Project, Series 1991, 7%, Prerefunded,
10/1/2001, 10/1/2022*** ................................. 1,430,000 1,524,065
The accompanying notes are an integral part of the financial statements.
14
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Principal
Amount ($) Value ($)
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Washington Public Power Supply System, Nuclear Project #2:
Series 1990 C, 7.3%, 7/1/2000 ......................... 1,300,000 1,323,712
Series 1991 A, 6.3%, 7/1/2001 ......................... 1,000,000 1,028,540
Series 1992 A, 5.7%, 7/1/2002 ......................... 1,550,000 1,593,338
West Virginia
Wayne County, WV, Atlantic Richfield Company Project,
Series 1981, ETM, 11.75%, 12/1/2001** ................. 495,000 564,102
Wisconsin
Milwaukee, WI, Metropolitan Sewer District,
Series 1990 A, ETM, 6.7%, 10/1/2001** ................. 1,000,000 1,042,220
Wisconsin Health and Education Facilities Authority,
St. Luke's Medical Center, Series 1991, ETM, 6.6%,
8/15/2001 (b)** ....................................... 1,745,000 1,811,746
Total Intermediate-Term Municipal Investments (Cost $80,094,135) 81,511,526
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Total Investment Portfolio-- 100.0% (Cost $81,094,135) (a) 82,511,526
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</TABLE>
(a) The cost for federal income tax purposes was $81,094,135. At November 30,
1999, net unrealized appreciation for all securities based on tax cost was
$1,417,391. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $1,527,184 and aggregate gross unrealized depreciation for all
securities in which there was an excess tax cost over market value of
$109,793.
(b) Bond is insured by one of these companies: AMBAC, Capital Guaranty, FGIC,
FSA, or MBIA/BIG.
* 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 issues and to retire the bonds in full at the
earliest refunding date.
The accompanying notes are an integral part of the financial statements.
15
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Financial Statements
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Statement of Assets and Liabilities as of November 30, 1999 (Unaudited)
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Assets
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Investments in securities, at value (cost $81,094,135) $ 82,511,526
Cash ................................................. 428,797
Receivable for investments sold ...................... 75,344
Interest receivable .................................. 1,322,738
Receivable for Fund shares sold ...................... 11,746
Other assets ......................................... 861
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Total assets ......................................... 84,351,012
Liabilities
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Dividends payable .................................... 167,644
Payable for Fund shares redeemed ..................... 49,626
Accrued management fee ............................... 29,390
Other accrued expenses ............................... 96,507
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Total liabilities .................................... 343,167
Net assets, at value ................................. $ 84,007,845
Net Assets
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Net assets consist of:
Net unrealized appreciation (depreciation) on:
Investment securities .............................. 1,417,391
Accumulated net realized gain (loss) ................. (465,483)
Paid-in capital ...................................... 83,055,937
Net assets, at value ................................. $ 84,007,845
Net Asset Value
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NetAsset Value, offering and redemption price per share ($84,007,845 /
7,128,968 outstanding shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) ............ $ 11.78
The accompanying notes are an integral part of the financial statements.
16
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Statement of Operations for the six months ended November 30, 1999 (Unaudited)
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Investment Income
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Interest ....................................................... $ 2,408,897
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Expenses:
Management fee ................................................. 291,245
Custodian and accounting fees .................................. 27,235
Services to shareholders ....................................... 35,082
Trustees fees and expenses ..................................... 19,704
Auditing ....................................................... 19,249
Registration fees .............................................. 13,325
Legal .......................................................... 2,186
Reports to shareholders ........................................ 15,187
Amortization of organization expense ........................... 1,756
Other .......................................................... 3,428
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Total expenses, before expense reductions ...................... 428,397
Expense reductions ............................................. (64,232)
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Total expenses, after expenses reductions ...................... 364,165
Net investment income .......................................... 2,044,732
Realized and unrealized gain (loss) on investment transactions
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Net realized gain (loss) from:
Investments .................................................... (442,994)
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (1,636,548)
Net gain (loss) on investment transactions ..................... (2,079,542)
Net increase (decrease) in net assets resulting from operations $ (34,810)
The accompanying notes are an integral part of the financial statements.
17
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Statements of Changes in Net Assets
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<TABLE>
<CAPTION>
Six Months
Ended November Seven Months Year Ended
Increase (Decrease) in Net 30, 1999 Ended May 31, October 31,
Assets (Unaudited) 1999 1998
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Operations:
<S> <C> <C> <C>
Net investment income ............ $ 2,044,732 $ 2,869,555 $ 5,457,882
Net realized gain (loss) ......... (442,994) 578,402 (139,113)
Net unrealized appreciation
(depreciation) on investment
transactions during the period (1,636,548) (2,118,666) 1,558,802
------------- ------------- -------------
Net increase (decrease) in net
assets resulting from
operations (34,810) ........... 1,329,291 6,877,571
------------- ------------- -------------
Distributions to shareholders
from:
Net investment income .......... (2,044,732) (2,869,555) (5,457,882)
------------- ------------- -------------
Net realized gains ............. (461,778) -- (57,180)
------------- ------------- -------------
Fund share transactions:
Proceeds from shares sold ........ 7,577,062 20,000,539 68,479,028
Reinvestment of distributions .... 1,286,055 1,255,955 2,328,280
Cost of shares redeemed .......... (29,617,674) (41,586,645) (59,872,051)
------------- ------------- -------------
Net increase (decrease) in net
assets from Fund share
transactions .................. (20,754,557) (20,330,151) 10,935,257
------------- ------------- -------------
Increase (decrease) in net assets (23,295,877) (21,870,415) 12,297,766
Net assets at beginning of period 107,303,722 129,174,137 116,876,371
Net assets at end of period ...... $ 84,007,845 $ 107,303,722 $ 129,174,137
Other Information
- ------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning
of period ..................... 8,870,916 10,536,316 9,639,451
------------- ------------- -------------
Shares sold ...................... 635,472 1,638,556 5,627,934
Shares issued to shareholders in
reinvestment of distributions . 108,330 102,879 191,473
Shares redeemed .................. (2,485,750) (3,406,835) (4,922,542)
------------- ------------- -------------
Net increase (decrease) in Fund
shares ........................ (1,741,948) (1,665,400) 896,865
Shares outstanding at end of
period ........................ 7,128,968 8,870,916 10,536,316
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<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>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999(a) 1999(b) 1998(c) 1997(c) 1996(c) 1995(c) 1994(d)
- -------------------------------------------------------------------------------------
Net asset value,
beginning of period $12.10 $12.26 $12.12 $11.98 $12.01 $11.67 $12.00
--------------------------------------------------------------
Income from investment
operations:
Net investment income .25 .29 .50 .52 .53 .56 .38
Net realized and
unrealized gain
(loss) on investment
transactions (.25) (.16) .15 .16 (.02) .34 (.33)
-------------------------------------------------------------
Total from
investment operations -- .13 .65 .68 .51 .90 .05
Less distributions from:
Net investment income (.25) (.29) (.50) (.52) (.53) (.56) (.38)
Net realized gains
on investment
transactions (.07) -- (.01) (.02) (.01) -- --
-------------------------------------------------------------
Total distributions (.32) (.29) (.51) (.54) (.54) (.56) (.38)
Net asset value, end
of period $11.78 $12.10 $12.26 $12.12 $11.98 $12.01 $11.67
-------------------------------------------------------------
Total Return (%) (e) (.01)** 1.05** 5.37 5.89 4.33 7.94 .44**
Ratios to Average Net Assets and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of
period ($ millions) 84 107 129 117 124 122 68
Ratio of expenses
before expense
reductions (%) .88* .81* .82 .83 .82 .85 1.29*
Ratio of expenses
after expense
reductions (%) .75* .75* .75 .75 .63 .23 --
Ratio of net
investment income (%) 4.22* 4.06* 4.12 4.32 4.46 4.78 4.84*
Portfolio turnover
rate (%) 43.4* 5.6* 23.2 17.8 37.7 37.5 36.3*
</TABLE>
(a) For the six months ended November 30, 1999 (Unaudited).
(b) For the seven months ended May 31, 1999. On August 10, 1998, the Board of
Trustees of the Fund changed the fiscal year end from October 31 to May 31.
(c) For the years ended October 31.
(c) For the period February 15, 1994 (commencement of operations) to October
31, 1994.
(e) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
19
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Unaudited)
A. Significant Accounting Policies
Scudder Limited Term Tax Free Fund (the "Fund") is a diversified series of
Scudder Tax Free Trust (the "Trust") which is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company organized as a Massachusetts business trust. On August 10,
1998, the Board of Trustees of the Fund changed the fiscal year end from October
31 to May 31.
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 purchased with an original
maturity greater than sixty days are valued by pricing agents approved by the
officers of the Fund, whose 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. Money market instruments purchased with an original
maturity of sixty days or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable and tax-exempt income
to its shareholders. Accordingly, the Fund paid no federal income taxes and no
federal income tax provision was required.
Distribution of Income and Gains. All of the net investment income of the Fund
is declared as a daily dividend and is distributed to shareholders monthly. 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 at least annually.
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
20
<PAGE>
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.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Realized gains and losses from investment transactions are recorded on an
identified cost basis.
Organization Costs. Costs incurred by the Fund in connection with its
organization were deferred and amortized on a straight-line basis over a
five-year period.
B. Purchases and Sales of Securities
During the six months ended November 30, 1999, purchases and sales of
investments (excluding short-term) aggregated $19,009,967 and $38,680,925,
respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), 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. The management fee
payable under the Agreement is equal to an annual rate of 0.60%, computed and
accrued daily and payable monthly. The Adviser agreed to maintain the Fund's
expenses at 0.75% of average daily net assets until September 30, 2000. For the
six months ended November 30, 1999, the Adviser did not impose a portion of its
fee amounting to $61,748 and the amount imposed aggregated $229,497.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended November 30, 1999, the amount charged to the Fund by SSC
aggregated $18,664 of which $6,128 was unpaid at November 30, 1999.
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
21
<PAGE>
six months ended November 30, 1999, the amount charged to the Fund by SFAC
aggregated $18,000 of which $6,000 was unpaid at November 30, 1999.
The Trust pays each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the six
months ended November 30, 1999, Trustees' fees and expenses aggregated $19,704.
D. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. During the six months ended November
30, 1999, the Fund's custodian and transfer agent fees were reduced by $0 and
$2,484, respectively under these arrangements.
E. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated pro rata among each of the Participants. Interest is
calculated based on the market rates at the time of the borrowing. The Fund may
borrow up to a maximum of 33 percent of its net assets under the agreement.
22
<PAGE>
Officers and Trustees
Lynn S. Birdsong*
o President and Trustee
Henry P. Becton, Jr.
o Trustee; President and General Manager, WGBH Educational Foundation
Dawn-Marie Driscoll
o Trustee; Executive Fellow, Center for Business Ethics, Bentley College;
President, Driscoll Associates
Peter B. Freeman
o Trustee; Corporate Director and Trustee
George M. Lovejoy, Jr.
o Trustee; President and Director, Fifty Associates; Chairman Emeritus,
Meredith and Grew, Inc.
Wesley W. Marple, Jr.
o Trustee; Professor of Business Administration, Northeastern University,
College of Business Administration
Kathryn L. Quirk*
o Trustee, Vice President and Assistant Secretary
Jean C. Tempel
o Trustee; Venture Partner,
Internet Capital Group
Ashton P. Goodfield*
o Vice President
Ann M. McCreary*
o Vice President
John Millette*
o Vice President and Secretary
John R. Hebble*
o Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
23
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Heath Care Fund
Scudder Pathway Conservative Portfolio Scudder Technology Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
</TABLE>
24
<PAGE>
1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Closed-End Funds#
- -----------------------------------------------------------------------------------------
<S> <C>
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
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 or classes thereof 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.
+++ +++ +++ A no-load variable annuity contract issued by Glenbrook Life and
Annuity Company and underwritten by Allstate Financial Services,
Inc., sold 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
<PAGE>
Scudder Solutions
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average" --
buy more shares when the fund's price is lower and fewer
when it's higher, which can reduce your average purchase
price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government checks
-- invested in up to four Scudder funds at one time.
* 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- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.scudder.com
Personal Investment Organizer: Offering account information
and transactions, interactive worksheets, prospectuses and
applications for all Scudder funds, plus your current asset
allocation, whenever your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
26
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal each distribution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
27
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family
and individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded over
80 years ago as one of the nation's first investment counsel organizations,
joined the Zurich Financial Services 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 Financial Services Group. The Zurich Financial Services 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 INVESTMENTS (sm)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial
Service Group
