SCUDDER
IVESTMENTS(SM)
[LOGO]
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BOND/TAX FREE
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Scudder Medium Term
Tax Free Fund
Fund #045
Semiannual Report
November 30, 1999
The fund seeks a high level of income free from regular federal income taxes and
seeks to limit principal fluctuation.
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
13 Glossary of Investment Terms
14 Investment Portfolio
24 Financial Statements
27 Financial Highlights
28 Notes to Financial Statements
31 Officers and Trustees
32 Investment Products and Services
34 Scudder Solutions
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Scudder Medium Term Tax Free Fund
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ticker symbol SCMTX fund number 045
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Date of o In an environment of rising interest rates, Scudder
Inception: Medium Term Tax Free Fund posted a total return of
4/12/83 -0.77% for its most recent semiannual period ended
November 30, 1999. The fund's return outpaced the
Total Net -1.34% average performance of the fund's peers over
Assets as of the same period, according to Lipper.
11/30/99:
$584 million o For the three-, five-, and ten-year periods, the fund's
total returns placed it in the top one third of similar
municipal bond funds as tracked by Lipper Analytical
Services. Please see page 8 for additional Lipper
performance information.
o As of November 30, 1999, Scudder Medium Term Tax Free
Fund's 30-day net annualized SEC yield was 4.28%,
equivalent to a 7.09% taxable yield for investors
subject to the 39.6%% maximum federal income tax
rate.
o Scudder Medium Term Tax Free Fund received an overall
Morningstar Rating(TM) of five stars (highest rating)
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 four stars for the three-year period, four stars for the five-year
period, and five stars for the ten-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, 1330, and 383 funds in its broad asset class for
the three-, five-, and ten-year periods, respectively.
3
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Letter from the Fund's President
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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 Medium Term Tax Free Fund's most recent semiannual period
ended November 30, 1999. Over the six-month period, the fund returned -0.77%.
Despite the negative posting, two positive aspects of the fund's performance
should be noted: First, the fund's 30-day SEC yield increased from 3.75% on May
31, 1999, to 4.28% as of November 30. Its November 30 yield was equivalent to a
taxable yield of 7.09% for investors in the 39.6% tax bracket. Second, the fund
continues to display competitive long-term performance, owing to its strategy of
buying noncallable premium coupon bonds. Over the three-, five-, and ten-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 Medium 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
4
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we will continue to benefit from his counsel going forward. I am 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
34 provides more information on how to contact Scudder. Thank you for
choosing Scudder Medium Term Tax Free Fund to help meet your investment needs.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder Medium 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 Brothers
Medium Term Municipal Bond
Tax Free Fund Index*
'89 10000 10000
'90 10620 10771
'91 11722 11875
'92 12906 13068
'93 14219 14516
'94 13731 13753
'95 15846 16353
'96 16660 17314
'97 17658 18559
'98 18809 20000
'99 18733 19784
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 Medium Term Tax Free Fund
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1 year $ 9,960 -0.40% -0.40%
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5 year $ 13,643 36.43% 6.41%
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10 year** $ 18,733 87.33% 6.48%
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Lehman Brothers Municipal Bond Index*
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1 year $ 9,892 -1.08% -1.08%
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5 year $ 14,385 43.85% 7.54%
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10 year $ 19,784 97.84% 7.06%
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* The unmanaged Lehman Brothers Municipal Bond Index is a market value-weighted
measure of the long-term, investment grade tax-exempt bond market consisting
of municipal bonds with a maturity of at least two years. Generally, the
Index's average effective maturity is longer than the Fund's. Index returns
assume dividends are reinvested and, unlike Fund returns, do not reflect any
fees or expenses.
** On November 1, 1990, the Fund adopted its present name and objectives. Prior
to that date, the Fund was known as the 1990 Portfolio of the Scudder Tax
Free Target Fund and its objective was to provide high tax-free income and
current liquidity. Since adopting its current objectives, the cumulative and
average annual total returns are 87.33% and 6.48%, respectively.
6
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Returns and Per Share Information
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
Scudder Lehman Brothers
Tax Free Municipal Bond
Target Fund Index*
1990** 6.20 7.71
Scudder Lehman Brothers
Medium Term Municipal Bond
Tax Free Fund Index*
1991 10.38 10.26
1992 10.11 10.04
1993 10.17 11.08
1994 -3.43 -5.25
1995 15.41 18.91
1996 5.13 5.88
1997 5.99 7.19
1998 6.51 7.77
1990 -0.40 -1.08
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<CAPTION>
1990** 1991 1992 1993 1994 1995 1996 1997 1998 1999
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Total
Return (%) 6.20 10.38 10.11 10.17 -3.43 15.41 5.13 5.99 6.51 -0.40
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Index Total
Return (%) 7.71 10.26 10.04 11.08 -5.25 18.91 5.88 7.19 7.77 -1.08
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Net Asset
Value ($) 10.11 10.45 10.82 11.21 10.26 11.22 11.23 11.31 11.48 10.88
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Income
Dividends ($) .54 .67 .65 .61 .55 .54 .53 .52 .52 .51
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Capital Gains
Distributions
($) -- .01 .03 .06 .03 .05 .02 .05 .04 .03
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</TABLE>
* The unmanaged Lehman Brothers Municipal Bond Index is a market value-weighted
measure of the long-term, investment grade tax-exempt bond market consisting
of municipal bonds with a maturity of at least two years. Generally, the
Index's average effective maturity is longer than the Fund's. Index returns
assume dividends are reinvested and, unlike Fund returns, do not reflect any
fees or expenses.
** On November 1, 1990, the Fund adopted its present name and objectives. Prior
to that date, the Fund was known as the 1990 Portfolio of the Scudder Tax
Free Target Fund and its objective was to provide high tax-free income and
current liquidity. Since adopting its current objectives, the cumulative and
average annual total returns are 87.33% and 6.48%, respectively.
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.
Electric Utility Revenue 17% Diversification remains
an important strategy
Core Cities/Lease 12% for the fund, allowing
us to spread risk over a
Hospital/Health Revenue 11% large number of sectors,
maturities, and
School District/Lease 11% geographic regions.
State General Obligation/
Lease 10%
Other General Obligation/
Lease 7%
Sales/Special Tax 7%
Resource Recovery 4%
Miscellaneous Municipal 21%
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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 70% Overall portfolio
quality remains high,
AA 9% with over 75% of fund
holdings rated AAA or AA.
A 16%
BBB 4%
Not Rated 1%
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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 3% The fund continues its
cautious stance on the
1 to less than 5 years 46% market with respect to
interest rate risk,
5 to less than 10 years 33% maintaining an average
maturity similar to that
10 to less than 15 years 18% of its competitive
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100%
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Weighted average effective
maturity: 6.06 years
For more complete details about the Fund's investment portfolio, see page 14. 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 Medium 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 -0.77% total return for the six-month
period ended November 30, 1999. On the plus side, the fund's tax-free 4.28%
30-day SEC yield as of November 30 was equivalent to a 7.09% yield for investors
in the top (39.6%) tax bracket.
In addition, Scudder Medium Term Tax Free Fund received a five-star (highest)
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-, five-, and ten-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.
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Competitive Long-Term Performance
(Average annual returns for periods ended November 30, 1999)
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Scudder Lipper
Medium Term Average Number of
Tax Free Fund Annual Funds Percentile
Period Return Return Rank Tracked Ranking
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1 Year -0.40% -0.84% 47 of 133 Top 36%
3 Years 3.99% 3.71% 37 of 117 Top 32%
5 Years 6.41% 6.00% 20 of 95 Top 21%
10 Years 6.48% 6.05% 4 of 25 Top 16%
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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: It raised 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%.
Seeking High Tax-Free Income and
Stability of Principal
Scudder Medium Term Tax Free Fund's primary investment goals are to generate
high federally tax-free income while maintaining a significant degree of price
stability. During the six-month period, we maintained key elements of our
longer-term strategy: First, we focused on premium "cushion" bonds -- high
coupon bonds trading at a premium to face value that can be redeemed prior to
maturity. We believe that the extra yield provided by cushion bonds adequately
compensates the fund for the call feature in the current environment. At the
same time, we continued the fund's strong emphasis on purchasing call protected
bonds. (Generally a bond is called in by its
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issuer so that it can be refinanced at a lower prevailing rate.) Our
call-protection strategy provides a more reliable income stream for the fund
than would exist if the portfolio held a significant proportion of bonds that
could be called in before their stated maturities. We make decisions on whether
to purchase cushion bonds or call protected bonds based on relative value.
Second, our emphasis on purchasing premium bonds rather than par bonds (which
can more easily decline to a discount) helped the fund by minimizing its
exposure to "market discount" bonds. When municipal bonds decline low enough in
price to be subject to the market discount tax, they can lose value relative to
higher coupon bonds. That's because future gains from these bonds are taxable to
prospective buyers at potentially higher ordinary income tax rates, rather than
at capital gain tax rates. We also buy bonds after they become market discounts
to take advantage of their cheap levels and the opportunity for strong
performance when the market rallies.
Over the course of the period, higher interest rates created challenges, but
also provided opportunities to reposition the fund's portfolio to what we
believe is a favorable stance over the near term. Accordingly, our recent
portfolio strategy included recognizing losses on certain bonds in order to
offset capital gains in the fund's portfolio and carry losses forward in the
future. This strategy provides us with additional flexibility to restructure the
portfolio as needed, reducing concern about incurring significant capital gains
when bonds are sold for a profit. Additionally, we continued to swap positions
to improve the fund's coupon position.
The fund continues its cautious stance on the market with respect to interest
rate risk, maintaining an average duration similar to that of its competitive
universe. As of November 30, the fund's average duration was 4.97 years.
(Duration gives relative weight to both principal and interest payments through
the life of a bond and has replaced average maturity as the standard measure of
interest rate sensitivity among professional investors.
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Generally, the shorter the duration, the less sensitive a portfolio will be to
changes in interest rates.)
The fund's overall level of portfolio quality remains high, with over 75% of the
fund's portfolio rated AAA or AA, or of equivalent quality. And diversification
remains an important strategy for the fund, allowing us to spread risk over a
large number of sectors, maturities, and geographic areas. As of November 30,
the fund held securities issued in 36 states, the District of Columbia, Puerto
Rico, and the Virgin Islands. The Portfolio Summary on page 7 provides more
information about the fund's holdings, including quality, maturity, and sector
representation.
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.
In terms of the fund's day-to-day strategy, we will continue to seek competitive
returns by purchasing 12- to 15-year premium cushion bonds and noncallable bonds
over the coming months. And rather than attempting to make investment decisions
based on short-term market movements, we will search for the most attractively
valued bonds as we seek a high level of tax-free income for our shareholders.
Sincerely,
Your Portfolio Management Team
/s/Ashton P. Goodfield /s/Philip G. Condon
Ashton P. Goodfield Philip G. Condon
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Glossary of Investment Terms
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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 A municipal bond backed by the "full faith and credit"
Obligation (including the taxing and further borrowing power) of the
Bond 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 The price per share of a mutual fund based on the sum of
Value (NAV) the market value of all the securities owned by the fund
divided by the number of outstanding shares.
Taxable The level of yield a fully taxable instrument would have
Equivalent to provide to equal that of a tax-free municipal bond on
Yield an after-tax basis.
30-Day SEC The standard yield reference for bond funds, based on a
Yield 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.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
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Investment Portfolio as of November 30, 1999 (Unaudited)
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<TABLE>
<CAPTION>
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Principal
Amount ($) Value ($)
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Short-Term Municipal Investments 1.0%
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<S> <C> <C>
Massachusetts
Massachusetts State Health and Educational Facilities
Authority, Wellesley College, Series G, Daily Demand
Note, 3.6%, 7/1/2039* .................................... 1,500,000 1,500,000
New York
New York State Energy Research and Development
Authority, Series 1985 C, Daily Demand Note, 3.7%,
12/1/2025* ............................................... 2,500,000 2,500,000
Pennsylvania
Philadelphia, PA , Industrial Development Authority, Fox
Chase Cancer Center Project, Series 1997, Daily
Demand Note, 3.75%, 7/1/2025* ............................ 1,000,000 1,000,000
Texas
Harris County, TX, Health Facilities, Revenue, Saint Lukes
Episcopal Hospital, Series 1997 A, Daily Demand Note,
3.7%, 2/15/2027* ......................................... 1,000,000 1,000,000
Total Short-Term Municipal Investments (Cost $6,000,000) 6,000,000
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Long-Term Municipal Investments 99.0%
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Alabama
Alabama Street Docks, Department Facilities Revenue,
Series 1998, 6%, 10/1/2007 (b) ........................... 1,000,000 1,067,433
Alaska
North Slope Borough, AK, General Obligation:
Series 1992 A, Zero Coupon, 6/30/2002 (b) ................ 3,275,000 2,904,630
Series 1992 A, Zero Coupon, 6/30/2003 (b) ................ 7,000,000 5,899,670
Series 1994 B, Zero Coupon, 6/30/2004 (b) ................ 19,500,000 15,584,790
Series 1995 A, Zero Coupon, 6/30/2006 (b) ................ 11,150,000 7,978,048
Arizona
Arizona Health Facilities Authority, Phoenix Baptist Hospital
and Medical Center, Series 1992, ETM, 6.1%,
9/1/2003 (b)** ........................................... 2,000,000 2,106,380
Maricopa County, AZ, School District #28, General
Obligation:
Series 1993 B, Zero Coupon, 1/1/2003 (b) ................. 4,150,000 3,589,211
Series 1993 B, Zero Coupon, 7/1/2003 (b) ................. 2,000,000 1,689,520
Maricopa County, AZ, School District #41, General
Obligation:
Series 1993, Zero Coupon, 7/1/2003 (b) ................... 4,500,000 3,801,420
The accompanying notes are an integral part of the financial statements.
14
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Principal
Amount ($) Value ($)
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Series 1993, Zero Coupon, 1/1/2004 (b) .................. 6,000,000 4,927,080
Series 1994, Zero Coupon, 7/1/2005 (b) .................. 1,790,000 1,359,935
Series 1994, Zero Coupon, 1/1/2006 (b) .................. 2,925,000 2,155,403
Series 1994, Zero Coupon, 7/1/2006 (b) .................. 7,605,000 5,465,257
Salt River, AZ, Agricultural Improvement and Power
District, Electrical Systems Revenue, Series 1992 C,
6.2%, 1/1/2012 .......................................... 1,500,000 1,564,050
Arkansas
Rogers, AR, Sales & Use Tax Revenue, Series 1996, 5.35%,
11/1/2011 ............................................... 2,500,000 2,532,025
California
California Health Facilities Finance Authority, Summit
Medical Center, Series 1996 A, 6%, 5/1/2006 (b) ......... 3,150,000 3,372,737
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 ............................. 7,275,000 6,045,962
Long Beach, CA, Aquarium of the Pacific Project,
Series 1995 A, 5.75%, 7/1/2005 .......................... 1,300,000 1,325,701
Orange County, CA, Local Transportation Authority, Sales
Tax Revenue, Series 1994 M, Step-Down Coupon, 5.10%
to 2/15/1998, 4.30% to 2/15/2001 (b) .................... 5,100,000 5,121,216
Colorado
Boulder County, CO, Industrial Development, May
Department Stores, Series 1992, 6.25%, 9/1/2007 ......... 3,500,000 3,593,695
Connecticut
Bristol, CT, Resource Recovery, Ogden Martin System,
Series 1995, 6.125%, 7/1/2003 ........................... 8,750,000 8,823,500
Connecticut State Health & Educational Facilities Authority,
Windham Community Memorial Hospital, Series 1996 C,
5.75%, 7/1/2011 ......................................... 3,300,000 3,051,180
District of Columbia
District of Columbia, Certificate of Participation,
Series 1993, 6.875%, 1/1/2003 ........................... 1,780,000 1,815,849
District of Columbia, General Obligation:
Series 1989 B, Zero Coupon, 6/1/2001 (b) ................ 7,100,000 6,640,701
Series 1993 A, 5.625%, 6/1/2002 (b) ..................... 4,240,000 4,348,671
Series 1993 A, ETM, 5.625%, 6/1/2002 (b)** .............. 4,120,000 4,233,465
Series 1993 A, 4.85%, 6/1/2004 (b) ...................... 1,030,000 1,033,306
Series 1993 A, ETM, 4.85%, 6/1/2004 (b)** ............... 970,000 977,013
Series 1993 A, 5.8%, 6/1/2004 (b) ....................... 3,535,000 3,680,960
Series 1993 A, ETM, 5.8%, 6/1/2004 (b)** ................ 3,415,000 3,570,075
Series 1993 A, 4.95%, 6/1/2005 (b) ...................... 2,030,000 2,035,806
Series 1993 A, ETM, 4.95%, 6/1/2005 (b)** ............... 1,910,000 1,926,464
Series 1993 A, 5.875%, 6/1/2005 (b) ..................... 1,860,000 1,947,457
The accompanying notes are an integral part of the financial statements.
15
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Principal
Amount ($) Value ($)
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Series 1993 A, ETM, 5.875%, 6/1/2005 (b)** ............... 1,790,000 1,884,745
Series 1993 B, 5.3%, 6/1/2005 (b) ........................ 8,000,000 8,156,560
District of Columbia Redevelopment Land Agency,
DC Sports Arena, Special Tax, Series 1996, 5.625%,
11/1/2010 ................................................ 1,550,000 1,570,755
District of Columbia Water and Sewer Authority, Public
Utility Revenue, Series 1998, 6%, 10/1/2013 (b) .......... 3,630,000 3,829,142
Florida
Dade County, FL, General Obligation:
Series 1990, Zero Coupon, Prerefunded 2/1/2006,
8/1/2014 (b) (c) ....................................... 4,000,000 1,623,200
Series 1990, Zero Coupon, Prerefunded 2/1/2006,
8/1/2018 (b) (c) ....................................... 6,000,000 1,785,120
Florida Department of Environmental Protection, Series
1997 B, 6%, 7/1/2012 (b) ................................. 7,000,000 7,485,380
Georgia
Forsyth County, GA, School District, Series 1999, 6%,
2/1/2014 ................................................. 1,000,000 1,042,940
Georgia, General Obligation, Series 1999 B, 6.75%,
9/1/2010 ................................................. 5,370,000 6,124,592
Hawaii
Hawaii State General Obligation, Series 1993 C, 4.75%,
11/1/2008 ................................................ 7,050,000 6,747,908
Honolulu, HI, General Obligation, Series 1997 C, 5.5%,
11/1/2010 (b) ............................................ 4,130,000 4,235,522
Illinois
Berwyn, IL, MacNeal Memorial Hospital Association Project,
Series 1995, 5.25%, 6/1/2004 (b) ......................... 3,935,000 3,999,573
Chicago, IL, Water Revenue, Series 1997, Zero Coupon,
11/1/2011 (b) ............................................ 5,000,000 2,594,650
Cook County, IL, General Obligation, Series 1999 B,
5.125%, 11/15/2011 (b) ................................... 3,060,000 2,997,025
Cook County, IL, School District #401, Elmwood Park,
Series 1997, Zero Coupon, 12/1/2007 (b) .................. 2,180,000 1,436,576
Hoffman Estates, IL, Tax Increment Revenue:
Series 1991, Zero Coupon, 5/15/2004 ...................... 2,450,000 1,953,900
Series 1991, Zero Coupon, 5/15/2006 ...................... 8,500,000 6,047,920
Illinois Development Finance Authority, Commonwealth
Edison, Series 1994, 5.3%, 1/15/2004 (b) ................. 7,500,000 7,649,625
Illinois, General Obligation, Series 1994, 4.6%, 12/1/2005 .. 5,000,000 4,932,000
Illinois Educational Facilities Authority, Loyola University,
Series 1991 A, ETM, Zero Coupon, 7/1/2002 (b)** .......... 2,130,000 1,889,821
Illinois Health Facilities Authority, Evangelical Hospitals,
Series 1992 B, ETM, 6.1%, 4/15/2001 (b)** ................ 1,240,000 1,269,500
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
- ------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
Illinois State Toll Highway Authority, Series 1998 A, 5.5%,
1/1/2013 (b) ........................................... 2,200,000 2,208,030
Kendall, Kane and Will Counties, IL, School District #308,
Series 1991, Zero Coupon, 3/1/2003 (b) ................. 1,345,000 1,150,500
Macon and Decatur County, IL, Certificate of Participation,
Series 1991, 6.3%, 1/1/2000 (b) ........................ 1,320,000 1,322,574
Metropolitan Pier and Exposition Authority of Illinois,
Series 1992, Zero Coupon, 6/15/2004 (b) ................ 10,500,000 8,397,795
Rosemont, IL, General Obligation:
Series 1990 B, Zero Coupon, 12/1/2002 (b) .............. 2,785,000 2,420,249
Series 1990 C, Zero Coupon, 12/1/2002 (b) .............. 3,345,000 2,906,905
Indiana
Indiana Housing Finance Authority, Single Family Mortgage
Revenue, Series 1995 C-1, 5.25%, 7/1/2012 (b) .......... 295,000 295,372
Indianapolis, IN, Resource Recovery Revenue, Ogden
Martin Systems Inc. Project, Series 1996, 6.75%,
12/1/2007 (b) .......................................... 6,000,000 6,594,300
Madison County, IN, Hospital Authority, Holy Cross Health
System, Series 1991, 6.7%, Prerefunded 12/1/2001,
12/1/2002 (b) (c) ...................................... 1,385,000 1,473,017
Iowa
Iowa Certificate of Participation, Series 1992 A, 6.25%,
7/1/2002 (b) ........................................... 5,000,000 5,206,200
Kansas
Kansas City, KS, Utility System Revenue:
Series 1991, ETM, Zero Coupon, 3/1/2003 (b)** .......... 3,850,000 3,301,645
Series 1991, Zero Coupon, 3/1/2003 (b) ................. 2,750,000 2,358,318
Louisiana
Jefferson Parish, LA, School Board Sales & Use Tax
Revenue, Series 1986 A, ETM, 7.35%, 2/1/2003** ......... 5,055,000 5,403,290
Louisiana Housing Finance Agency, Single Family Mortgage
Revenue, Series 1995 C-1, 5.125%, 12/1/2010 (b) ........ 825,000 796,744
Orleans, LA, Levee District, Series 1986, 5.95%,
11/1/2014 (b) .......................................... 1,755,000 1,799,208
Massachusetts
Massachusetts General Obligation:
Series 1992 A, 6.4%, 8/1/2003 .......................... 1,000,000 1,062,280
Series 1992 B, 6.375%, 8/1/2002 ........................ 2,150,000 2,255,307
Series 1998 C, 5.25%, 8/1/2012 ......................... 4,000,000 3,948,760
Massachusetts State Housing Finance Agency:
Series 1992 C, 6.25%, 5/15/2002 ........................ 2,000,000 2,047,360
Series 1992 C, 6.25%, 11/15/2002 ....................... 3,420,000 3,521,916
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
- ------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
Massachusetts State Industrial Finance Agency:
North Andover Solid Waste, Series 1993 A, 6.15%,
7/1/2002 ........................................... 3,250,000 3,327,643
Sturdy Memorial Hospital, Series 1989, 7.9%,
6/1/2009 ........................................... 1,545,000 1,580,257
Massachusetts Water Resource Authority, Series 1990 A,
7.25%, 4/1/2001 ...................................... 1,000,000 1,029,010
Michigan
Detroit, MI, City School District, General Obligation,
Series 1998 C, 5.25%, 5/1/2013 (b) ................... 1,000,000 983,890
Detroit, MI, General Obligation:
Series 1999 B, 5.875%, 4/1/2013 (b) .................. 2,410,000 2,492,157
Series 1999 B, 5.875%, 4/1/2014 (b) .................. 2,555,000 2,619,054
Forest Hills, MI, Public Schools, General Obligation,
Series 1999, 5%, 5/1/2013 ............................ 1,525,000 1,467,233
Michigan Municipal Bond Authority, Local Government
Loan Program, Series 1991 C, Zero Coupon,
6/15/2006 (b) ........................................ 4,750,000 3,414,633
Michigan State Hospital Finance Authority, Series 1999 A,
6%, 5/15/2014 (b) .................................... 3,000,000 3,065,340
Romulus, MI, Community Schools, Series 1992-II, Zero
Coupon, Prerefunded 5/1/2007, 5/1/2022 (c) ........... 12,400,000 3,111,284
Mississippi
Mississippi Higher Education, Series 1992 A, 6.2%,
1/1/2002 ............................................. 1,200,000 1,232,868
Nevada
Clark County, NV, School District, General Obligation:
Series 1997 B, 6.5%, 6/15/2007 (b) ................... 7,000,000 7,643,580
Series 1999, 5.25%, 6/15/2013 (b) .................... 5,000,000 4,858,350
Nevada State Housing Division, Single Family Mortgage
Revenue, Series 1993 R, 5.95%, 10/1/2011 ............. 1,225,000 1,237,691
New Hampshire
New Hampshire, Higher Education & Health Authority
Revenue, Catholic Charities, Series 1997 A, 5.75%,
8/1/2011 ............................................. 1,300,000 1,203,436
New Jersey
New Jersey Economic Development Authority, Market
Transition Facility Revenue, Series 1994 A, 7%,
7/1/2004 (b) ......................................... 2,500,000 2,736,775
New York
Metropolitan Transportation Authority of New York,
Service Contract:
Commuter Facilities:
Series 1991, 6.75%, 7/1/2000 ....................... 1,200,000 1,217,760
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------------
Series 1991, 6.9%, 7/1/2001 ........................... 1,280,000 1,326,054
Transit Facilities:
Series 1991, 6.75%, 7/1/2000 .......................... 2,270,000 2,303,596
Series 1991, 6.9%, 7/1/2001 ........................... 2,415,000 2,501,892
Series 1993 O, 5.75%, 7/1/2007 ........................ 1,975,000 2,037,292
New York, NY, General Obligation:
Series 1992 B, 6.4%, 10/1/2002 .......................... 3,300,000 3,455,991
Series 1992 B, ETM, 6.4%, 10/1/2002** ................... 1,605,000 1,689,150
Series 1992 B, 6.6%, 10/1/2003 .......................... 205,000 217,712
Series 1992 B, 6.6%, Prerefunded 10/1/2002,
10/1/2003 (c) ......................................... 9,995,000 10,704,245
Series 1992 C-1, 6.3%, 8/1/2003 (b) ..................... 50,000 52,796
Series 1992 H, ETM, 6.9%, 2/1/2001** .................... 505,000 520,478
Series 1994 A, 7%, 8/1/2004 ............................. 7,650,000 8,325,878
Series 1994 A, 6%, 8/1/2005 (b) ......................... 2,560,000 2,713,318
Series 1995 B, 6.75%, 8/15/2003 ......................... 7,000,000 7,474,670
Series 1995 B, 7.25%, 8/15/2007 ......................... 2,900,000 3,269,953
Series 1995 E, 6.6%, 8/1/2004 ........................... 2,500,000 2,682,800
Series 1996 A, 7%, 8/1/2006 ............................. 2,000,000 2,211,180
Series 1996 G, 6.75%, 2/1/2009 .......................... 5,000,000 5,516,850
New York State Dormitory Authority:
City University System, Consolidated Revenue Lease,
Series 1993 A, 5.5%, 7/1/2003 ......................... 8,000,000 8,166,240
College and University Pooled Capital Program,
Series 1985, 7.8%, 12/1/2005 (b) ...................... 190,000 195,958
Cons City University System, Series 1993 A, 5.75%,
7/1/2006 (b) .......................................... 1,750,000 1,835,803
State University Education Facilities, Series 1990 B, 7%,
15/15/2016 ............................................ 1,900,000 1,958,501
New York State Energy Research and Development
Authority, Pollution Control Revenue, Series 1995 E,
5.9%, 12/1/2006 (b) ..................................... 5,200,000 5,524,116
New York State Medical Care Facilities, Finance Agency
Revenue, Mount Sinai Hospital, Series 1992 C, 5.95%,
8/15/2009 ............................................... 4,920,000 5,060,368
New York State Thruway Authority, Special Obligation,
Series 1991 A, Zero Coupon, 1/1/2002 .................... 3,155,000 2,858,335
New York State Urban Development Corp. Revenue,
Correctional Facilities, Series 1994 A, 5.3%,
1/1/2005 (b) ............................................ 3,500,000 3,592,820
North Carolina
North Carolina, Municipal Power Agency #1, Catawba
Electric Revenue, Series 1992, 5.9%, 1/1/2003 (b) ....... 2,550,000 2,645,727
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
- ------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
North Dakota
Bismarck, ND, Hospital Revenue, St. Alexius Medical
Center, Series 1991, ETM, Zero Coupon, 5/1/2000** ........ 2,850,000 2,801,037
Grand Forks, ND, Health Care Facilities, United Hospital
Obligation Group, Series 1991 A, 6%, 12/1/2002 (b) ....... 1,160,000 1,208,036
Ohio
Franklin County, OH, Health Care Facilities Revenue, Ohio
Presbyterian Series:
Series 1997, 5.15%, 7/1/2007 ............................. 1,000,000 960,390
Series 1997, 5.4%, 7/1/2010 .............................. 1,000,000 939,840
Hamilton County, OH, Health System Revenue, Franciscan
Sisters of the Poor, Providence Hospital, Series 1992,
6.375%, 7/1/2004 ......................................... 4,495,000 4,764,880
Ohio State Building Authority, Adult Correctional Facilities,
Series 1999 A, 5.5%, 10/1/2011 ........................... 3,325,000 3,395,523
Oregon
Chemeketa, OR, Community College General Obligation,
Series 1998, 5.5%, 6/1/2013 .............................. 2,170,000 2,201,009
Oregon State, Department of Administrative Services,
Series 1999 B, 5.75%, 4/1/2013 (b) ....................... 4,000,000 4,096,720
Pennsylvania
Armstrong County, PA, Hospital Authority, St. Frances
Medical Center, Series 1992 A, 6.2%, 6/1/2003 (b) ........ 3,090,000 3,240,112
Montgomery County, PA, Multi Family Housing Revenue
Series 1993 A, 6%, 7/1/2004 .............................. 2,685,000 2,698,694
Philadelphia, PA, School District, Series 1999 C, 5.875%,
3/1/2013 (b) ............................................. 1,000,000 1,032,950
Scranton-Lackawanna, PA, Health & Welfare Authority,
Community Medical Center Project, Series 1998, 5.5%,
7/1/2008 (b) ............................................. 2,725,000 2,777,129
South Carolina
South Carolina Jobs Economic Development Authority:
Anderson Area Medical Center, Series 1999, 5.5%,
2/1/2011 (b) ........................................... 3,000,000 3,022,170
St. Francis Hospital, Series 1992, 6.375%, 7/1/2004 ...... 3,420,000 3,470,240
Tennessee
Johnson City, TN, Health and Educational, Medical Center
Hospital, Series 1998, 5.5%, 7/1/2013 (b) ................ 3,305,000 3,317,394
Nashville and Davidson Counties, TN, Water and Sewer
Revenue, Series 1998 B, 5.25%, 1/1/2013 (b) .............. 3,310,000 3,266,738
Texas
Austin, TX, Combined Utility System Revenue, Zero
Coupon, Series 1992, 11/15/2009 (b) ...................... 6,775,000 3,985,326
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
- ---------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------
Brownsville, TX, Utility System Revenue:
Series 1995, 6%, 9/1/2008 (b) ........................... 1,000,000 1,064,990
Series 1995, 6%, 9/1/2009 (b) ........................... 2,700,000 2,876,121
Denison, TX, Hospital Authority, Texoma Medical Center
Inc. Project, Series 1997, 6.125%, 8/15/2012 ............ 1,000,000 925,820
Harris County, TX, Toll Road Revenue, Series 1994 A, Zero
Coupon, 8/15/2006 (b) ................................... 3,915,000 2,783,487
Houston, TX, Water Conveyance System Contract,
Series 1993 J, 6.25%, 12/15/2013 (b) .................... 2,500,000 2,676,625
Richardson, TX, Hospital Authority, Richardson Medical
Center:
Series 1993, 6.5%, 12/1/2012 ............................ 1,005,000 994,247
Series 1993, 6.5%, Prerefunded 12/1/2003,
12/1/2012 (c) ......................................... 630,000 679,965
San Antonio, TX, Electric and Gas Revenue Bond, Series
1999 A, 5.25%, 2/1/2011 ................................. 5,000,000 4,982,900
Texas Municipal Power Agency:
Series 1989, Zero Coupon, 9/1/2007 (b) .................. 8,385,000 5,610,655
Series 1993, Zero Coupon, 9/1/2014 (b) .................. 1,800,000 769,158
Texas Public Finance Authority, Series 1990, Zero Coupon,
2/1/2009 (b) ............................................ 5,860,000 3,595,051
Texas Water Development Board, Series 1999 B, 5.75%,
7/15/2014 ............................................... 3,555,000 3,617,532
Travis County, TX, Health Services, Series 1999 A, 6.25%,
11/15/2013 .............................................. 5,000,000 5,255,000
Utah
Intermountain Power Agency, UT, Power Supply Revenue:
Series 1988 B, Zero Coupon, 7/1/2001 (b) ................ 10,495,000 9,773,679
Series 1988 B, Zero Coupon, 7/1/2002 (b) ................ 2,500,000 2,217,000
Series 1996 B, 6.25%, 7/1/2006 (b) ...................... 8,000,000 8,601,280
Salt Lake County, UT, Water Conservation District,
Series 1992 A, Zero Coupon, 10/1/2003 (b) ............... 3,200,000 2,664,640
Virgin Islands
Virgin Islands, Public Finance Authority Revenue, Series
1998 C, 5.5%, 10/1/2005 ................................. 3,000,000 3,044,580
Virgin Islands, Water and Public Finance Authority,
Series 1998, 5.25%, 7/1/2009 ............................ 2,000,000 1,968,140
Washington
Clark County, WA:
Public Utility District #1, Series 1998, 6%, 1/1/2007 (b) 12,150,000 12,852,027
School District, #117, Series 1998, 5%, 12/1/2011 (b) ... 1,820,000 1,770,387
King County, WA, Public Hospital District, Valley Medical
Center, Series 1997 N, 6%, 9/1/2009 ..................... 1,940,000 2,048,252
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
- ---------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------
Snohomish County, WA, Public Utility District #1, Series
1991 B, 6.4%, 1/1/2000 ................................ 2,000,000 2,003,900
Thurston County, WA ,School District, General Obligation,
Series 1996 B, Zero Coupon, 12/1/2010 (b) ............. 4,000,000 2,206,600
Washington State Public Power Supply System:
Nuclear Project #1, Series 1996 A, 6%, 7/1/2005 (b) ... 2,950,000 3,117,088
Nuclear Project #2:
Series 1991 A, 6.3%, 7/1/2001 ....................... 6,000,000 6,171,240
Series 1993 A, 5.8%, 7/1/2007 ....................... 2,120,000 2,209,570
Series 1993 B, 5.15%, 7/1/2002 ...................... 6,085,000 6,174,389
Series 1994 A, 4.9%, 7/1/2005 ....................... 4,330,000 4,325,627
Series 1994 A, 5.25%, 7/1/2008 ...................... 3,000,000 3,004,830
Nuclear Project #3:
Series 1989 B, 7.15%, 7/1/2001 ...................... 1,310,000 1,339,017
Series 1989 B, Zero Coupon, 7/1/2004 (b) ............ 8,000,000 6,384,320
Series 1994 B, 5.25%, 7/1/2003 ...................... 3,000,000 3,056,730
Washington State, Higher Education Facilities Series 1998,
4.95%, 4/1/2011 (b) ................................... 1,500,000 1,443,465
West Virginia
South Charleston, WV, Pollution Control Revenue, Union
Carbide, Series 1985, 7.625%, 8/1/2005 ................ 2,000,000 2,220,600
Wisconsin
Milwaukee County, WI, General Obligation, Series 1993 A,
12/1/2010 (b) ......................................... 3,500,000 1,930,775
Wisconsin Health & Educational Facilities Authority:
Columbia Hospital Inc., Series 1991, 6.125%,
11/15/2001 (b) ...................................... 1,000,000 1,031,490
Mercy Health System Corporation:
Series 1995, 6%, 8/15/2005 (b) ...................... 1,400,000 1,473,626
Series 1995, 6.125%, 8/15/2006 (b) .................. 1,480,000 1,570,310
Series 1995, 6.25%, 8/15/2007 (b) ................... 1,000,000 1,069,820
Wheaton Franciscan Hospital:
Series 1991, 6%, 8/15/2002 (b) ...................... 1,000,000 1,036,480
Series 1993, 5.8%, 8/15/2004 (b) .................... 1,675,000 1,743,993
Total Long-Term Municipal Investments (Cost $563,838,556) 577,421,112
- ---------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $569,838,556) (a) 583,421,112
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $569,838,556. At November
30, 1999, net unrealized appreciation based on tax cost for all
securities was $13,582,556. This consisted of aggregate gross
unrealized appreciation for all securities in which there was an excess
of market value over tax cost of $16,827,227 and aggregate gross
unrealized depreciation for all securities in which there was an excess
of tax cost over market value of $3,244,671.
(b) Bond is insured by one of these companies: AMBAC, Capital Guaranty,
FGIC, FSA or MBIA/BIG.
(c) 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.
* 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.
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------
Investments in securities, at value (cost $569,838,556) $ 583,421,112
Cash .................................................. 597,726
Receivable for investments sold ....................... 5,940,176
Interest receivable ................................... 8,128,338
Receivable for Fund shares sold ....................... 73,657
Other assets .......................................... 14,598
-------------
Total assets .......................................... 598,175,607
Liabilities
- --------------------------------------------------------------------------------
Payable for investments purchased ..................... 11,906,216
Dividends payable ..................................... 748,125
Payable for Fund shares redeemed ...................... 787,062
Accrued management fee ................................ 290,754
Other accrued expenses ................................ 267,614
-------------
Total liabilities ..................................... 13,999,771
Net assets, at value $ 584,175,836
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on:
Investment securities ............................... 13,582,556
Accumulated net realized gain (loss) .................. (3,215,522)
Paid-in capital ....................................... 573,808,802
Net assets, at value $ 584,175,836
Net Asset Value
- --------------------------------------------------------------------------------
NetAsset Value, offering and redemption price per share
($584,175,836 / 53,695,627 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) .............................. $ 10.88
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations for the six months ended November 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
Investment Income
- --------------------------------------------------------------------------------
Interest ....................................................... $ 16,462,484
------------
Expenses:
Management fee ................................................. 1,778,772
Services to shareholders ....................................... 254,310
Custodian and accounting fees .................................. 78,173
Trustees' fees and expenses .................................... 20,015
Reports to shareholders ........................................ 15,899
Auditing ....................................................... 26,275
Registration fees .............................................. 6,065
Legal .......................................................... 3,266
Other .......................................................... 5,747
------------
Total expenses, before expense reductions ...................... 2,188,522
Expense reductions ............................................. (13,220)
------------
Total expenses, after expense reductions ....................... 2,175,302
Net investment income 14,287,182
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... (3,013,101)
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (16,702,588)
Net gain (loss) on investment transactions (19,715,689)
Net increase (decrease) in net assets resulting from operations $ (5,428,507)
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
November30, Five Months Year Ended
Increase (Decrease) in Net 1999 Ended May 31, December 31,
Assets (Unaudited) 1999 1998
- ------------------------------------------------------------------------------------
Operations:
<S> <C> <C> <C>
Net investment income ............ $ 14,287,182 $ 12,413,677 $ 30,375,825
Net realized gain (loss) ......... (3,013,101) 1,867,179 2,094,910
Net unrealized appreciation
(depreciation) on investment
transactions during the period (16,702,588) (14,113,518) 3,869,091
------------- ------------- -------------
Net increase (decrease) in net
assets resulting from
operations.................... (5,428,507) 167,338 36,339,826
------------- ------------- -------------
Distributions to shareholders:
From net investment income ....... (14,287,182) (12,413,677) (30,380,935)
------------- ------------- -------------
From net realized gains .......... (1,872,606) (409,765) (2,121,192)
------------- ------------- -------------
Fund share transactions:
Proceeds from shares sold ........ 35,367,049 45,891,601 148,879,720
Reinvestment of distributions .... 11,105,157 8,500,137 20,941,810
Cost of shares redeemed .......... (83,978,377) (76,655,887) (152,419,713)
------------- ------------- -------------
Net increase (decrease) in net
assets from Fund share
transactions .................. (37,506,171) (22,264,149) 17,401,817
------------- ------------- -------------
Increase (decrease) in net assets (59,094,466) (34,920,253) 21,239,516
Net assets at beginning of period 643,270,302 678,190,555 656,951,039
Net assets at end of period ...... $ 584,175,836 $ 643,270,302 $ 678,190,555
Other Information
- ------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning
of period ..................... 57,106,903 59,066,560 57,554,739
------------- ------------- -------------
Shares sold ...................... 3,209,047 4,009,345 13,026,477
Shares issued to shareholders in
reinvestment of distributions . 1,012,142 745,387 1,831,600
Shares redeemed .................. (7,632,465) (6,714,389) (13,346,256)
------------- ------------- -------------
Net increase (decrease) in Fund
shares ........................ (3,411,276) (1,959,657) 1,511,821
Shares outstanding at end of
period ........................ 53,695,627 57,106,903 59,066,560
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<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>
- -----------------------------------------------------------------------------------
1999(a) 1999(b) 1998(c) 1997(c) 1996(c) 1995(c) 1994(c)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $11.26 $11.48 $11.41 $11.15 $11.26 $10.39 $11.36
---------------------------------------------------------
Income from investment
operations:
Net investment income .26 .21 .52 .52 .53 .54 .53
Net realized and
unrealized gain (loss)
on investment
transactions (.35) (.21) .11 .31 (.09) .92 (.92)
---------------------------------------------------------
Total from investment
operations (.09) -- .63 .83 .44 1.46 (.39)
Less distributions from:
Net investment income (.26) (.21) (.52) (.52) (.53) (.54) (.53)
Net realized gains on
investment transactions (.03) (.01) (.04) (.05) (.02) (.05) (.05)
---------------------------------------------------------
Total distributions (.29) (.22) (.56) (.57) (.55) (.59) (.58)
Net asset value, end
of period $10.88 $11.26 $11.48 $11.41 $11.15 $11.26 10.39
---------------------------------------------------------
Total Return (%) (.77)** (.02)** 5.58 7.69 4.02 14.32(d)(3.50)(d)
Ratios to Average Net Assets and Supplemental Data
- ---------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 584 643 678 657 651 712 701
Ratio of expenses before
expense reductions (%) .73* .72* .72 .74 .72 .72 .71
Ratio of expenses after
expense reductions (%) .73* .72* .72 .74 .72 .70 .63
Ratio of net investment
income (%) 4.79* 4.49* 4.51 4.67 4.75 4.92 4.94
Portfolio turnover rate (%) 22.5* 12.5* 10.8 13.4 14.1 36.1 33.8
</TABLE>
(a) For the six months ended November 30, 1999 (Unaudited).
(b) For the five months ended May 31, 1999. On August 10, 1998, the Board
of Trustees of the Trust changed the fiscal year end of the Fund from
December 31 to May 31.
(c) For the year ended December 31.
(d) Total returns may have been lower had certain expenses not been
reduced.
* Annualized
** Not annualized
27
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Unaudited)
A. Significant Accounting Policies
Scudder Medium 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 Trust changed the fiscal year end of the Fund
from December 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 Trust, 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 from
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distributions during such periods. 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.
All premiums and original issue discounts are amortized/accreted for both tax
and financial reporting purposes.
B. Purchases and Sales of Securities
During the six months ended November 30, 1999, purchases and sales of municipal
securities (excluding short-term investments) aggregated $67,021,800 and
$105,015,106, 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 objective, 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% of the first
$500,000,000 of the Fund's average daily net assets and 0.50% of such net assets
in excess of $500,000,000 computed and accrued daily and payable monthly. For
the six months ended November 30, 1999, the management fee aggregated
$1,778,772, which was equivalent to an annualized effective rate of 0.60% of the
Fund's average daily net assets.
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 $153,221, of which $50,681 is 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 six months
ended November 30, 1999, the amount charged to the Fund by
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SFAC aggregated $44,307, of which $14,258 is unpaid at November 30, 1999.
The Fund 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 $20,015.
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 $8,795
and $4,425, 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.
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Officers and Trustees
Lynn S. Birdsong* Ashton P. Goodfield*
o President and Trustee o Vice President
Henry P. Becton, Jr. Ann M. McCreary*
o Trustee; President and General o Vice President
Manager, WGBH Educational
Foundation John Millette*
o Vice President and Secretary
Dawn-Marie Driscoll
o Trustee; Executive Fellow, Center John R. Hebble*
for Business Ethics, Bentley o Treasurer
College; President, Driscoll
Associates Caroline Pearson*
o Assistant Secretary
Peter B. Freeman
o Trustee; Corporate Director and *Scudder Kemper Investments, Inc.
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
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Investment Products and Services
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1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
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The Scudder Family of Funds+++
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<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>
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1-800-SCUDDER www.scudder.com
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Retirement Programs and Education Accounts
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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>
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Closed-End Funds#
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<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.
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Scudder Solutions
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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.
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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
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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 Services Group
