SCUDDER
INVESTMENTS(SM)
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Scudder California Tax Free Fund
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BOND/TAX FREE
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Scudder California
Tax Free Fund
Semiannual Report
September 30, 2000
Scudder California Tax Free Fund seeks income that is exempt from California
personal and regular federal income taxes.
<PAGE>
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
23 Financial Statements
26 Financial Highlights
27 Notes to Financial Statements
31 Shareholder Meeting Results
32 Officers and Trustees
33 Investment Products and Services
35 Account Management Resources
2
<PAGE>
Scudder California Tax Free Fund
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ticker symbol SCTFX fund number 043
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Date of Inception: o Scudder California Tax Free Fund posted a total return
7/22/83 of 4.21% for its most recent semiannual period ended
September 30, 2000. The average return of 82 similar
funds tracked by Lipper Analytical Services was 4.58%.
o As of September 30, 2000, Scudder California Tax Free
Total Net Assets as Fund's 30-day net annualized SEC yield was 4.43%,
of 9/30/00: equivalent to an 8.09% taxable yield for California
$310.8 million investors subject to the 45.22% combined federal and
state income tax rate.
----------------------------------------------------------------
30-Day Yield on September 30, 2000
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
Scudder Taxable Yield
California Needed to Equal
Tax Free Fund the Fund's Yield
4.43% 8.09%
o Scudder California Tax Free Fund received a four-star rating
from Morningstar(TM), reflecting "above average" risk-adjusted
performance through September 30, 2000.*
* For your information, these ratings are subject to change every month
and are calculated from the fund's five-year average annual return in
excess of 90-day Treasury bill returns with appropriate fee
adjustments, and a risk factor that reflects fund performance below
T-bill returns. The fund received four stars for three-year
performance, four stars for five-year performance, and three stars for
10-year performance, and was rated among 1720, 1472, and 424 municipal
funds for the respective periods. Of the funds rated, the top 10%
received five stars, and the next 22.5% received four stars. Past
performance does not guarantee future returns.
3
<PAGE>
Letter from the Fund's President
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Dear Shareholders,
We are pleased to report to you on Scudder California Tax Free Fund's most
recent semiannual period ended September 30, 2000. The fund posted a 4.21% total
return for the period, and placed within the top one-third of similar funds for
total return over the one-, three-, five-, and ten-year periods ended September
30.
Scudder California Tax Free Fund seeks income exempt from California personal
and regular federal income taxes. It does this by investing most of its assets
in a broadly diversified portfolio of California municipal bonds that finance
public transportation, road and bridge construction, state colleges and
universities, hospitals, and other projects or entities. The fund's managers
look for securities that appear to offer the best total return potential, and
normally prefer those that cannot be called in before maturity. In making
decisions, the managers weigh a number of factors against each other, from
national and state economic outlooks to supply and demand within the municipal
market. Please see the Portfolio Management Discussion beginning on page NO TAG
for additional information on the fund's performance, strategy, and outlook.
In closing, we thought you'd like to know that municipal bonds currently
represent attractive value when compared with U.S. government securities: yields
of 10-year municipal bonds
4
<PAGE>
were 82.8% as high as yields of comparable Treasuries as of September 30. This
means that -- on an after-tax basis -- an individual in an income tax bracket
higher than 17% would be better off owning municipal securities over Treasuries.
Of course, Treasury securities are backed by the full faith and credit of the
U.S. government, but municipal bonds are considered "next in line" in terms of
creditworthiness. And with their superior liquidity and diversification compared
with the holding of individual bonds, municipal bond funds are a convenient way
for investors to seek attractive yields and steady total returns.
Thank you for investing with Scudder California Tax Free Fund. If you have any
questions regarding the fund, please call 1-800-SCUDDER, or visit Scudder's Web
site at www.scudder.com.
Sincerely,
/s/Lin Coughlin
Linda C. Coughlin
President
Scudder California Tax Free Fund
5
<PAGE>
Performance Update
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September 30, 2000
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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 California Lehman Brothers
Tax Free Fund Municipal Bond Index*
'90 10000 10000
'91 11393 11318
'92 12671 12503
'93 14687 14096
'94 13936 13752
'95 15409 15291
'96 16439 16213
'97 18060 17679
'98 19740 19220
'99 19329 19085
'00 20637 20259
Yearly periods ended September 30
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 9/30/2000 $10,000 Cumulative Annual
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Scudder California Tax Free Fund
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1 year $ 10,677 6.77% 6.77%
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5 year $ 13,393 33.93% 6.02%
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10 year $ 20,638 106.38% 7.51%
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Lehman Brothers Municipal Bond Index*
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1 year $ 10,616 6.16% 6.16%
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5 year $ 13,249 32.49% 5.78%
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10 year $ 20,259 102.59% 7.31%
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* The unmanaged Lehman Brothers Municipal Bond Index is a market value
weighted measure of municipal bonds issued across the United States.
Index issues have a credit rating of at least Baa and a maturity of at
least two years. Index returns assume reinvestment of dividends and,
unlike Fund returns, do not reflect any fees or expenses.
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.
6
<PAGE>
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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE SCUDDER CALIFORNIA TAX FREE FUND TOTAL RETURN (%) AND
LEHMAN BROTHERS MUNICIPAL BOND INDEX TOTAL RETURN (%)
<TABLE>
<CAPTION>
Yearly periods ended September 30
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Total
Return (%) 13.93 11.22 15.92 -5.12 10.57 6.68 9.86 9.30 -2.08 6.77
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Index Total
Return (%) 13.19 10.45 12.74 -2.44 11.18 6.04 8.76 8.72 -.70 6.16
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Net Asset
Value ($) 10.62 10.83 11.29 9.78 10.28 10.44 10.92 11.37 10.64 10.81
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Income
Dividends
($) .63 .60 .56 .52 .50 .52 .52 .52 .50 .52
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Capital
Gains
Distributions
($) .22 .34 .60 .44 -- -- .01 .02 -- --
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</TABLE>
7
<PAGE>
Portfolio Summary
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September 30, 2000
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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.
School District/Lease 9% The fund invests in
Hospital/Health Revenue 9% a broad selection of
County General Obligation/ California municipal
Lease 9% bonds.
Housing Finance Authority 8%
State General Obligation/
Lease 8%
Sales/Special Tax 8%
Other General Obligation/
Lease 7%
Electric Revenue 7%
Water and Sewer Revenue 6%
Miscellaneous Municipal 29%
------------------------------------
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* 61% Overall portfolio
AA 16% quality remains high,
A 8% with 85% of portfolio
BBB 6% securities rated A or
SKI** 9% better as of
------------------------------------ September 30.
100%
------------------------------------
Weighted average quality: AA
* Includes Cash Equivalents
** Scudder Kemper Investments (SKI) has determined these
securities to be of comparable quality to rated eligible
securities.
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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% Because of the unusual
1-5 years 15% flatness of the
5-8 years 15% municipal yield curve,
8-15 years 38% the fund assumed a
Greater than 15 years 29% relatively defensive
------------------------------------ posture during the
100% period, emphasizing
------------------------------------ bonds with short and
intermediate maturities.
Weighted average effective
maturity: 11.5 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
<PAGE>
Portfolio Management Discussion
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September 30, 2000
Dear Shareholders,
The municipal bond market recorded respectable gains during Scudder
California Tax Free Fund's most recent semiannual period. The fund's
total return for the six months ended September 30, 2000, was 4.21%,
compared with the 4.58% average return of 82 similar funds as tracked
by Lipper Analytical Services, Inc. The fund's 30-day SEC yield as of
September 30 was 4.43%, equivalent to an 8.09% taxable yield for
California investors subject to the 45.22% combined federal and state
income tax rate.
Though the fund slightly underperformed its peer group during the
six-month period, it ranked in the top 33% of similar California
tax-free funds over the one-, three-, five-, and ten-year periods ended
September 30, 2000. Please see the accompanying table for additional
information concerning the fund's returns.
California Update
California's financial operations and position are sound. The state
experienced an exceptional and unexpected surge in tax revenues during
its 2000 fiscal year, driven mainly by personal income taxes. At the
same time, the Governor and Legislature held firm on expenditures. The
state's cash flow position has improved dramatically in the last three
years, and improving financial conditions now allow the state to rely
less on temporary cash flow relief.
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Scudder California Tax Free Fund:
Consistent Long-Term Performance
(Average annual returns for periods ended September 30, 2000)
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<TABLE>
<CAPTION>
Scudder
California
Tax Free Fund Lipper Number of Percentile
Period Return Average Rank Funds Tracked Rank
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<S> <C> <C> <C> <C> <C> <C>
1 Year 6.77% 5.99% 35 of 109 Top 32%
3 Years 4.55% 3.69% 10 of 97 Top 11%
5 Years 6.02% 5.27% 14 of 84 Top 17%
10 Years 7.51% 6.75% 3 of 40 Top 8%
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</TABLE>
Past performance does not guarantee future results.
9
<PAGE>
California is leading the nation in job growth. In 1999, the state added 380,000
new jobs, or 13.1% of total U.S. job growth. New jobs are concentrated in
construction, high technology, and motion picture production. This growth
brought the state's unemployment rate down to an average of 5.2% in 1999.
International trade is a strong part of the state's economy, and the
strengthening Mexican peso and economy, as well as improved prospects for
political stability there, represent favorable economic news for California.
California is one of the largest issuers of municipal debt, with approximately
$30 billion outstanding. The size of the state and its wealth levels mitigate
any impact on the state's credit standing which debt of that magnitude could
have.
Market Environment
During the six-month period the municipal yield curve, which began 2000
unusually flat, steepened. Yields declined across the maturity spectrum during
the period, but yields of short-term bonds declined the most (29 basis points);
yields of 30-year bonds dropped by 8 basis points. The gradual steepening of the
yield curve and reductions in yields (bond yields and prices move in opposite
directions) brought about higher prices and positive total returns for most
municipal bonds during the period. In addition, municipal bonds slightly
underperformed Treasuries over the six months ended in September: while yields
of 10-year AAA-rated municipals declined 20 basis points and their prices rose
1.5%, yields of 10-year Treasury bonds declined 27 basis points and their prices
rose 2.0%. At the close of the period, municipal bonds represented attractive
value compared with Treasuries as the average yield of 10-year municipal bonds
was 82.8% of the average yield of comparable Treasury bonds.
Portfolio Strategy
Because of the unusual flatness of the municipal yield curve -- and because a
flat yield curve will more often tend to steepen, leading to higher yields and
declines in
10
<PAGE>
bond prices -- the fund assumed a relatively defensive posture during the
period, emphasizing bonds with short and intermediate maturities. As of
September 30, the fund held a relatively large percentage (36%) of its portfolio
in bonds with maturities between 8 and 14 years. Because the yield curve between
10 and 20 years steepened by 12 basis points during the period, this portfolio
structure produced a positive total return for the fund. By contrast, the fund's
small representation in market discount bonds^1 (some of the top performers
during the period) compared with other similar funds hindered the fund's
competitive performance. It should be noted, however, that the fund's limited
exposure to market discount bonds during its previous fiscal year (when market
discount bonds were the worst performers) boosted its longer-term performance.
In addition, due to the unprecedented retail demand for California tax-exempt
bonds, we took advantage of resulting opportunities to sell weaker call- and
coupon-structured securities and replace them with those with more favorable
risk/return profiles during the period. We also retained two important elements
of our long-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. Second, we
continued the fund's strong emphasis on call protection -- generally, a bond is
called in by its 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. Though "structured" bonds --
premium bonds as well as noncallable bonds -- are more popular than ever within
our industry (and therefore slightly more expensive than in the past), we feel
that their long-term return potential more than justifies their cost.
^1 "Market discount" is a provision that can subject a portion of income
from municipal bonds sold at a discount to ordinary income tax.
11
<PAGE>
In addition, credit spreads -- the difference in yield between higher- and
lower-rated bonds -- remained at historically wide levels. Because of this, we
continued to selectively add lower-rated bonds which we deemed to be appropriate
risks. The fund's overall portfolio quality remains high, with 85% of portfolio
securities rated A or better at the close of the period. We continue to invest
in a broad selection of California tax-exempt issues, including school district
lease, hospital/health revenue, and county general obligation/lease.
Outlook
Because of the relative economic balance between the tight U.S. labor market on
one hand and evidence of a slowing economy on the other, we do not expect the
Federal Reserve to adjust short-term interest rates for the remainder of 2000.
Thus the prospects for additional steepening of the yield curve seem guarded for
the moment. Bond markets are likely to be relatively static until they see signs
that the Fed's next move will be to cut interest rates. We believe the
likelihood of such a reduction -- leading to higher bond prices -- will increase
in early 2001. In terms of fund strategy, we will continue to search for
attractively valued -- and structured -- intermediate-term municipal bonds. We
will also continue to selectively invest in bonds with slightly lower ratings to
boost the fund's yield. We believe Scudder California Tax Free Fund remains an
attractive investment for those seeking a high level of income free from federal
and California income taxes.
Sincerely,
Your Portfolio Management Team
/s/Eleanor R. Brennan /s/Philip G. Condon
Eleanor R. Brennan Philip G. Condon
/s/Matthew J. Caggiano
Matthew J. Caggiano
12
<PAGE>
<TABLE>
<CAPTION>
Glossary of Investment Terms
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<S> <C>
Bond An interest-bearing security issued by the federal, state,
or local government or a corporation that obligates the
issuer to pay the bondholder a specified amount of interest
for a stated period -- usually a number of years -- and to
repay the face amount of the bond at its maturity date.
General Obligation A municipal bond backed by the "full faith and credit"
Bond (including the taxing and further borrowing power) of the
city, state or agency that issues the bond. A general
obligation bond is repaid with the issuer's general revenue
and borrowings.
Inflation An overall increase in the prices of goods and services, as
happens when business and consumer spending increases
relative to the supply of goods available in the marketplace
-- in other words, when too much money is chasing too few
goods. High inflation has a negative impact on the prices of
fixed-income securities.
Municipal Bond An interest-bearing debt security issued by a state or local
government entity.
Net Asset The price per share of a mutual fund based on the sum of the
Value (NAV) market value of all the securities owned by the fund divided
by the number of outstanding shares.
Taxable Equivalent The level of yield a fully taxable instrument would have to
Yield provide to equal that of a tax-free municipal bond on an
after-tax basis.
30-Day SEC Yield The standard yield reference for bond funds, based on a
formula prescribed by the SEC. This annualized yield
calculation reflects the 30-day average of the income
earnings of every holding in a given fund's portfolio, net
of expenses, assuming each is held to maturity.
Total Return The most common yardstick to measure the performance of a
fund. Total return -- annualized or compound -- is based on a
combination of share price changes plus income and capital
gain distributions, if any, expressed as a percentage gain
or loss in value.
</TABLE>
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
13
<PAGE>
Investment Portfolio as of September 30, 2000 (Unaudited)
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<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Short-Term Municipal Investments 0.7%
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<S> <C> <C>
California
Irvine, CA, Improvement Bond, Daily Demand Note:
Assessment District 87-8, 4.75%, 9/2/2024* .............. 1,000,000 1,000,000
Assessment District 97-17, 4.75%, 9/2/2023* ............. 1,000,000 1,000,000
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Total Short-Term Municipal Investments (Cost $2,000,000) 2,000,000
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Long-Term Municipal Investments 99.3%
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California
ABAG Finance Authority, CA, Stanford Health Systems,
Certificate of Participation, ETM, 6%, 11/1/2007 (b)*** . 605,000 664,141
Alameda County, CA, Water District Revenue,
Series 1998, 4.625%, 6/1/2016 (b) ....................... 2,450,000 2,280,191
Anaheim County, CA, Convention Center Financing,
Certificate of Participation, Zero Coupon, 8/1/2005 (b) . 1,250,000 1,004,500
Anaheim, CA, Public Financing Authority:
Lease Revenue Public Improvements Project:
Series 1997A, 6%, 9/1/2024 (b) ........................ 3,500,000 3,760,330
Series 1997C, 6%, 9/1/2014 (b) ........................ 1,000,000 1,115,390
Series 1997C, 6%, 9/1/2016 (b) ........................ 1,000,000 1,104,200
Series 1997C, Zero Coupon, 9/1/2017 (b) ............... 1,455,000 575,205
Series 1997C, Zero Coupon, 9/1/2018 (b) ............... 1,000,000 369,690
Cabrillo, CA, Unified School District, Capital Appreciation,
Series 1996A, Zero Coupon, 8/1/2019 (b) ................. 4,000,000 1,392,600
California Community Development Authority,
Apartment Development Revenue Bond:
Series 1998A-3, 5.1%, 5/15/2025 ....................... 1,000,000 972,510
Series 1998A-4, 5.25%, 5/15/2025 ...................... 1,000,000 962,420
California Educational Facilities Authority,
Pepperdine University, Series 1999A, 5%, 11/1/2018 ...... 1,000,000 947,500
California Health Facilities, Financial Authority,
Capital Appreciation, Kaiser Permanente:
Series 1989A, Zero Coupon, 10/1/2010 (b) .............. 3,040,000 1,858,352
Series 1989A, Zero Coupon, 10/1/2012 (b) .............. 4,900,000 2,658,103
California Housing Finance Agency:
Home Mortgage Revenue:
Series F1, AMT, 6.2%, 8/1/2005 (b) (e) .............. 840,000 862,033
Series F1, AMT, 6.3%, 8/1/2006 (b) .................. 1,310,000 1,354,815
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
------------------------------------------------------------------------------------
<S> <C> <C>
Series 1995G, AMT, 5.7%, 2/1/2007 (b) ............ 500,000 522,475
Series 1995G, AMT, 5.8%, 2/1/2008 (b) ............ 1,330,000 1,396,074
Series 1995G, AMT, 5.9%, 2/1/2009 (b) ............ 200,000 210,160
Multi-Unit Rental Housing Revenue:
Series A, 7.4%, 8/1/2001 ......................... 1,555,000 1,582,819
Series A, 7.45%, 8/1/2002 ........................ 1,015,000 1,054,818
Series A, 7.6%, 8/1/2006 ......................... 4,030,000 4,263,901
Series A, 7.65%, 8/1/2007 ........................ 2,335,000 2,472,532
Series A, 7.7%, 8/1/2009 ......................... 700,000 741,839
Series A, 7.75%, 8/1/2016 ........................ 2,440,000 2,571,199
Series A, 7.8%, 8/1/2023 ......................... 2,635,000 2,778,950
Series II, 7.3%, 8/1/2001 ........................ 375,000 381,221
Series II, 7.35%, 8/1/2002 ....................... 400,000 412,804
Series II, 7.35%, 8/1/2003 ....................... 430,000 448,421
Series II, 7.35%, 8/1/2004 ....................... 460,000 484,817
Series II, 7.35%, 8/1/2005 ....................... 495,000 526,056
California Pollution Control Financing Authority,
Solid Waste Disposal Revenue, CanFibre of
Riverside PJ, Series 1997A, AMT, 9%, 7/1/2019 ........ 2,250,000 1,895,625
California Public Works Board, Department of Corrections,
Lease Based Revenue, Medera Prison, Series A-2,
7.4%, 9/1/2010 (b) ................................... 1,000,000 1,225,130
California Resource Efficiency Financing Authority,
Certificate of Participation, Capital Improvement
Program:
Series 1997, 6%, 4/1/2010 (b) ...................... 1,500,000 1,666,335
Series 1997, 6%, 4/1/2011 (b) ...................... 1,590,000 1,773,804
California Rural Home Mortgage Finance Authority,
Single Family Mortgage Revenue, Series 2000B,
Step-up Coupon, 6.1% to 12/1/2000, 7.3% to
6/1/2031 ............................................. 1,000,000 1,082,660
California Statewide Community Development Authority,
Certificates of Participation:
Catholic Healthcare West, Series 1999, 6.5%,
7/1/2020 ......................................... 2,000,000 2,012,040
Children's Hospital, Series 1993, 6%, 6/1/2010 (b) . 1,000,000
1,106,590
Lutheran Homes, Series 1993, 5.5%, 11/15/2008 (e) .. 1,500,000
1,593,735
Lutheran Homes, Series 1993, 5.6%, 11/15/2013 ...... 4,750,000 4,951,828
Series 1999, 6%, 8/15/2017 (b) ..................... 1,000,000 1,068,290
The Internext Group, Series 1999, 5.375%,
4/1/2030 ......................................... 5,500,000 4,785,715
Capistrano, CA, Unified School District,
Improvement District No. 1, Series 2000A,
6.25%, 8/1/2018 (b) .................................. 1,000,000 1,103,920
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
-------------------------------------------------------------------------------------
<S> <C> <C>
Castaic Lake, CA, Water Agency, Certificate of
Participation, Water System Improvement Project,
Series 1994A, 7.25%, 8/1/2007 (b) ........................ 1,000,000 1,167,110
Center, CA, Unified School District, Capital
Appreciation, Series 1997C, Zero Coupon, 9/1/2014 (b) .... 2,240,000 1,084,272
Central Valley, CA, School District, Finance Authority,
Capital Appreciation:
Zero Coupon, 2/1/2007 (b) .............................. 1,960,000 1,466,394
Zero Coupon, 8/1/2007 (b) .............................. 5,510,000 4,029,077
Chino Basin, CA, Regional Finance Authority, Municipal
Water District, Sewer System, Series 1994,
5.9%, 8/1/2011 (b) ....................................... 1,290,000 1,431,784
Contra Costa, CA, Water District, Water Revenue,
Series 1994G, 5%, 10/1/2024 (b) .......................... 1,140,000 1,067,416
Delmar, CA, Race Track Authority, Series 1996, 6%,
8/15/2006 ................................................ 2,000,000 2,051,000
Dry Creek, CA, Joint Elementary School District,
Capital Appreciation:
Series 1997A, Zero Coupon, 8/1/2010 (b) ................ 1,120,000 698,958
Series 1997A, Zero Coupon, 8/1/2011 (b) ................ 1,180,000 693,828
Series 1997A, Zero Coupon, 8/1/2016 (b) ................ 555,000 235,725
Series 1997A, Zero Coupon, 8/1/2021 (b) ................ 1,920,000 585,619
Series 1997A, Zero Coupon, 5/1/2022 (b) ................ 1,385,000 401,387
Duarte, CA, Certificates of Participation, City of Hope
Medical Center:
Series 1993, 5.75%, 4/1/2002 ............................. 3,525,000 3,609,600
Series 1993, 6%, 4/1/2008 ................................ 3,750,000 3,980,213
Encinitas, CA, Unified School District, Capital Appreciation,
Series 1996, Zero Coupon, 8/1/2017 (b) ................... 4,000,000 1,588,560
Escondido County, CA, Unified School District,
Capital Appreciation, Zero Coupon, 11/1/2018 (b) ......... 4,605,000 1,674,931
Foothill Eastern Transportation Corridor Agency, CA, Toll
Road Revenue:
Capital Appreciation:
Series 1995A, ETM, Zero Coupon, 1/1/2020*** ............ 5,000,000 1,684,750
Series 1999, Zero Coupon, 1/15/2017 (b) ................ 1,475,000 587,493
Senior Lien:
Series 1995A, 5%, 1/1/2035 (b) ......................... 2,500,000 2,297,875
Series 1995A, Step-up Coupon, 0% to 1/1/2005,
ETM, 6.95% to 1/1/2007*** ............................ 575,000 487,773
Series 1995A, Step-up Coupon, 0% to 1/1/2005,
7.1% to 1/1/2011 (c) ................................. 6,000,000 5,412,720
Series 1995A, Step-up Coupon, 0% to 1/1/2005,
7.15% to 1/1/2013 (c) ................................ 975,000 881,303
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
------------------------------------------------------------------------------------
<S> <C> <C>
Series 1995A, Step-up Coupon, 0% to 1/1/2005,
7.15% to 1/1/2014 (c) .............................. 2,875,000 2,598,713
Series 1999, Zero Coupon, 1/15/2026 .................. 1,250,000 707,663
Foothill-De Anza, CA, Community College District,
6%, 8/1/2013 ........................................... 1,000,000 1,102,740
Fresno, CA, Unified School District, Series 1999C, 5.9%,
2/1/2017 (b) ........................................... 1,760,000 1,914,686
Healdsburg, CA, Unified School District, Capital
Appreciation:
Series 1997, Zero Coupon, 7/15/2011 (b) .............. 400,000 235,708
Series 1997, Zero Coupon, 7/15/2012 (b) .............. 400,000 221,616
Series 1997, Zero Coupon, 7/15/2013 (b) .............. 400,000 208,180
Series 1997, Zero Coupon, 7/15/2014 (b) .............. 400,000 194,916
Inland Empire Solid Waste Financing Authority, California
Landfill Improvement Financing Project, Series 1996B,
AMT, ETM, 6%, 8/1/2006 (b)*** .......................... 1,000,000 1,074,610
Las Virgenes, CA, Unified School District, Capital
Appreciation, Zero Coupon, 11/1/2016 (b) ............... 1,500,000 628,545
Long Beach, CA, Bond Finance Authority Lease Revenue,
Rainbow Harbor, Series 1999A, 5.125%, 5/1/2020 (b) ..... 2,750,000 2,668,820
Los Angeles County, CA, Certificate of Participation:
Capital Appreciation, Disney Parking Project:
Zero Coupon, 9/1/2006 ................................ 2,500,000 1,863,900
Zero Coupon, 3/1/2008 ................................ 2,780,000 1,911,611
Zero Coupon, 9/1/2008 ................................ 4,865,000 3,261,934
Marina Del Ray:
Series A, 6.25%, 7/1/2003 ............................ 1,590,000 1,627,874
Series A, 6.5%, 7/1/2008 ............................. 2,500,000 2,644,125
Los Angeles County, CA, Convention and Exhibition
Center Authority Lease Revenue, Series 1993A,
6.125%, 8/15/2011 (b) .................................. 1,000,000 1,128,860
Los Angeles County, CA, Metropolitan Transportation
Authority, Revenue Bond, Series 1999A, 5%, 7/1/2019 (b) 2,000,000 1,924,480
Los Angeles, CA, State Building Authority, Lease Revenue,
General Services, Series 1993A, 5.6%, 5/1/2008 ......... 7,000,000 7,485,450
Los Angeles, CA, Unified School District, Series 1997A, 5%,
7/1/2021 (b) ........................................... 6,000,000 5,694,960
Merced, CA, High School District, Capital Appreciation:
Series 1999A, Zero Coupon, 8/15/2015 (b) ............... 2,090,000 952,016
Series 1999A, Zero Coupon, 8/1/2016 (b) ................ 2,140,000 908,922
Midpeninsula Regional Open Space District, CA,
Finance Authority Revenue, Capital Appreciation,
Zero Coupon, 9/1/2020 (b) .............................. 1,190,000 385,393
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
-------------------------------------------------------------------------------------
<S> <C> <C>
Millbrae, CA, Residential Facilities Revenue, Magnolia
of Millbrae Project, Series 1997A, AMT,
7.375%, 9/1/2027 ......................................... 4,000,000 3,894,880
Modesto, CA, Certificate of Participation, Community
Project, Series A, 5.6%, 11/1/2014 (b) ................... 1,370,000 1,473,065
Modesto, CA, Wastewater Facilities Treatment Revenue,
Series 1997, AMT, 6%, 11/1/2011 (b) ...................... 1,255,000 1,406,228
Mojave Desert & Mountain Region, CA, Solid Waste Joint
Powers Authority, 7.875%, 6/1/2020 ....................... 2,350,000 2,502,233
Morgan Hill, CA, Unified School District, 5.75%,
8/1/2016 (b) ............................................. 1,710,000 1,808,838
Northern California Power Agency, Public Power Revenue,
Hydroelectric Project No. 1, Series 1998A, 5%,
7/1/2017 (b) ............................................. 2,500,000 2,444,325
Oakland, CA, Port Revenue:
Series 2000K, 5.5%, 11/1/2010 (b) ........................ 2,500,000 2,637,050
Series 2000K, 5.75%, 11/1/2014 (b) ....................... 2,500,000 2,627,700
Pomona, CA, Unified School District,
ETM, Series 1992B, 6.25%, 8/1/2014 (b)*** ................ 1,020,000 1,138,585
Richmond, CA, Joint Powers Finance Authority:
Series 1996, 5.875%, 9/1/2006 ............................ 500,000 525,670
Series 1996, 6.6%, 9/1/2016 .............................. 1,000,000 1,071,190
Richmond, CA, Wastewater Revenue, Capital Appreciation,
Zero Coupon, 8/1/2020 (b) ................................ 2,495,000 813,420
Riverside County, CA, Asset Leasing Corp., Leasehold
Revenue Project:
Series 1997, Zero Coupon, 6/1/2015 (b) ................... 1,750,000 793,940
Series 1997, Zero coupon, 6/1/2016 (b) ................... 2,395,000 1,012,462
Rocklin, CA, Unified School District, Community Facilities:
Zero Coupon, 9/1/2019 (b) ................................ 1,675,000 580,421
Zero Coupon, 9/1/2020 (b) ................................ 1,415,000 459,153
Sacramento, CA, City Financing Authority:
Lease Revenue, Series 1993B, 5%, 11/1/2014 ............... 4,200,000 4,208,232
Revenue, Capital Appreciation, Tax Allocation,
Series 1993B, Zero Coupon, 11/1/2016 (b) ............... 2,685,000 1,125,096
Revenue, Convention Center Hotel, Series 1999A,
6.25%, 1/1/2030 ........................................ 4,000,000 3,839,080
Sacramento, CA, Municipal Utility District, Electric Revenue,
Series 1997L, 5.125%, 7/1/2022 (b) ....................... 1,750,000 1,677,883
Sacramento, CA, Power Authority Cogeneration Project,
Series 1995, 6.5%, 7/1/2004 .............................. 2,000,000 2,113,280
Sacramento County, CA, Sanitation District Financing
Authority Revenue:
Series 2000A, 6%, 12/1/2014 .............................. 5,000,000 5,513,150
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
----------------------------------------------------------------------------------
<S> <C> <C>
Series 2000A, 5.875%, 12/1/2027 ..................... 3,000,000 3,080,190
Saddleback Valley, CA, Unified School District, Public
Finance Authority, Special Tax Revenue:
Series A, 4.75%, 9/1/2020 (b) ..................... 3,215,000 2,928,833
Series 1997A, 6%, 9/1/2013 (b) .................... 1,000,000 1,118,610
Series 1997A, 6%, 9/1/2014 (b) .................... 1,000,000 1,115,390
Series 1997A, 6%, 9/1/2015 (b) .................... 1,000,000 1,110,940
San Bernadino, CA, Certificate of Participation, Medical
Center Financing Project:
Series 1994, 6%, 8/1/2009 (b) ..................... 3,000,000 3,320,370
Series 1994, 5.5%, 8/1/2017 (b) ................... 3,965,000 4,119,714
San Francisco, CA, Airport Revenue:
6.755%, RITES, 5/1/2015 (b)** ....................... 1,530,000 1,669,536
6.986%, RITES, 5/1/2016 (b)** ....................... 1,625,000 1,788,573
San Francisco, CA, City and County Redevelopment
Agency :
Hotel Tax Revenue, Series 1998, 5%, 7/1/2018 (b) .. 4,000,000 3,880,600
Residential Facility, Coventry Park Project,
Series 1996A, AMT, 8.5%, 12/1/2026 .............. 2,000,000 2,020,480
San Francisco, CA, Redevelopment Finance Agency,
Tax Allocation Revenue, Series A, Zero Coupon,
8/1/2003 (b) ........................................ 1,080,000 953,413
San Joaquin Hills, CA, Revenue, Capital Appreciation,
Series 1997 A, Zero Coupon, 1/15/2012 (b) ........... 2,500,000 1,410,850
San Joaquin Hills, CA, Transportation Corridor Agency:
Toll Road Revenue:
Capital Appreciation, Series 1997A, Zero Coupon,
1/15/2015 (b) ..................................... 2,065,000 960,101
Junior Lien, ETM:
Series 1993, Zero Coupon, 1/1/2002*** ............. 515,000 487,674
Series 1993, Zero Coupon, 1/1/2006*** ............. 200,000 157,480
Series 1993, Zero Coupon, 1/1/2010*** ............. 1,500,000 962,640
Senior Lien:
Series 1993, Step-up Coupon, ETM, 0% to 1/1/2002,
7.35% to 1/1/2005*** ............................ 2,500,000 2,536,300
Series 1993, Step-up Coupon, ETM, 0% to 1/1/2002,
7.4% to 1/1/2007*** ............................. 6,000,000 6,313,380
Series 1993, Zero Coupon, ETM, 1/1/2004*** ........ 1,000,000 992,390
Series 1993, Zero Coupon, ETM, 1/1/2014*** ........ 2,500,000 1,252,925
Series 1993, 5%, 1/1/2033 (b) ..................... 1,000,000 919,170
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
------------------------------------------------------------------------------------
<S> <C> <C>
San Jose, CA, Financing Revenue, Community
Facilities Project:
Series 1993B, Zero Coupon, 11/15/2003 .............. 735,000 635,790
Series 1993B, Zero Coupon, 11/15/2004 .............. 1,605,000 1,322,263
Series 1993B, Zero Coupon, 11/15/2005 .............. 1,605,000 1,258,464
Series 1993B, Zero Coupon, 11/15/2006 .............. 1,605,000 1,196,592
Santa Ana, CA, Finance Authority, Lease Revenue
Bonds, Police Administration and Holding Facility,
Series 1994A, 6.25%, 7/1/2024 (b) .................... 2,000,000 2,214,380
Santa Clara County, CA, Finance Authority, Lease Revenue,
VMC Replacement Project, 7.75%, 11/15/2008 (b) ....... 3,250,000 3,980,243
Santa Cruz County, CA, Certificates of Participation,
Capital Facilities Project:
Series 1997, 5.5%, 9/1/2017 (b) .................... 1,005,000 1,047,843
Series 1997, 5.5%, 9/1/2018 (b) .................... 1,060,000 1,097,990
Series 1997, 5.6%, 9/1/2019 (b) .................... 1,115,000 1,157,861
Series 1997, 5.6%, 9/1/2020 (b) .................... 1,180,000 1,215,825
Series 1997, 5.65%, 9/1/2024 (b) ................... 1,445,000 1,483,307
Series 1997, 5.65%, 9/1/2025 (b) ................... 1,520,000 1,561,101
Series 1997, 5.65%, 9/1/2026 (b) ..................... 1,605,000 1,646,955
Santa Margarita/Dana Point, CA:
Improvement Districts 1-2-2A and 8, Series 1994A,
7.25%, 8/1/2006 (b) ................................ 465,000 533,839
Improvement Districts 3, 3A, 4 and 4A, Series 1994B,
7.25%, 8/1/2005 (b) ................................ 2,895,000 3,262,955
Solano County, CA, Vallejo Sanitation & Flood
Control District, Certificates of Participation,
5%, 7/1/2019 (b) ..................................... 1,000,000 961,090
South Tahoe, CA, Joint Powers Financing Authority,
Series 1999A, 7.3%, 10/1/2007 ........................ 2,500,000 2,511,975
Southern California Public Power Authority:
Series 1989, 6.75%, 7/1/2010 ......................... 6,000,000 6,927,660
Transmission Project Revenue, Capital Appreciation,
Zero Coupon, 7/1/2015 .............................. 2,000,000 909,800
State of California, General Obligation:
Series 1991, 6.5%, 9/1/2010 .......................... 1,305,000 1,504,065
Series 1997, 5%, 10/1/2018 (b) ....................... 2,150,000 2,085,457
Series 1998, 4.375%, 10/1/2017 ....................... 5,000,000 4,398,850
Series 2000, 5.5%, 5/1/2011 .......................... 5,500,000 5,877,685
Tustin, CA, Unified School District, Special Tax,
Community Facilities District No. 97-1, 6.25%,
9/1/2021 ............................................. 750,000 751,050
Washington Township, CA, Health Care District,
Revenue Bond, Series 1999, 5.125%, 7/1/2023 .......... 500,000 455,845
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Watsonville, CA, Community Hospital Revenue,
Series 1996, 5.95%, 7/1/2007 ......................................... 1,135,000 1,230,556
West Covina, CA, Queen of the Valley Hospital,
Certificate of Participation, Hospital Revenue,
Series 1994, ETM, 5.8%, 8/15/2001*** ................................. 750,000 762,795
West Covina, CA, Redevelopment Agency Facility,
Series 1996, ETM, 5.75%, 9/1/2009*** ................................. 865,000 924,685
Westminster, CA, Redevelopment Agency, Tax Allocation
Revenue, Community Development, Project No. 1,
Series 1991A, Prerefunded 8/1/2001, 7.3%, 8/1/2021 (c) ............... 2,690,000 2,819,012
Puerto Rico
Puerto Rico Commonwealth, General Obligation, Public
Improvement, Series B, 5.75%, 7/1/2009 (b) ........................... 2,500,000 2,723,900
Puerto Rico Commonwealth, Highway & Transportation
Authority, Highway Revenue, Series 1996Z, 6.25%,
7/1/2014 (b) ......................................................... 1,000,000 1,124,230
Puerto Rico Commonwealth, Infrastructure Financing
Authority, Series 2000A, 5.5%, 10/1/2020 (d) ......................... 500,000 504,520
Puerto Rico Commonwealth, Inverse Floating Rate
RITES-PA 620 B, 7.246%, 7/1/2014 (b)** 1,500,000 1,798,680 Puerto Rico
Electric Power Authority, Power Revenue:
Series 2000HH, 5.75%, 7/1/2014 (b) ................................... 1,250,000 1,328,225
Series 2000HH, 5.75%, 7/1/2015 (b) ................................... 2,300,000 2,430,203
Puerto Rico Municipal Finance Authority,
Inverse Floating Rate:
RITES-PA 645B, 6.766%, 8/1/2013 (b)** ................................ 1,145,000 1,299,735
RITES-PA 645D, 7.168%, 8/1/2015 (b)** ................................ 1,225,000 1,413,944
Puerto Rico, Public Building Authority, Government
Facilities Revenue, Series 1995A, 6.25%, 7/1/2013 .................... 1,000,000 1,125,820
Virgin Islands
Virgin Islands, Public Finance Authority:
Matching Fund Loan Notes, Series 1992A,
ETM, 7%, 10/1/2002*** .............................................. 1,000,000 1,052,330
Revenue Bond, Series 1999A, 6.5%, 10/1/2024 .......................... 2,500,000 2,573,250
Virgin Islands, Special Tax Bonds, Hugo Bonds,
Prerefunded 10/1/2001, 7.75%, 10/1/2006 (c) .......................... 1,180,000 1,230,634
-----------------------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $291,745,639) 305,566,092
-----------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $293,745,639) (a) 307,566,092
-----------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $293,745,639. At September
30, 2000, net unrealized appreciation for all securities based on tax
cost was $13,820,453. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $15,958,960 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over value of $2,138,507.
(b) Bond is insured by one of these companies: AMBAC, Capital Guaranty,
FGIC, FSA or MBIA/BIG.
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
--------------------------------------------------------------------------------
(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.
(d) When-issued or forward delivery securities.
(e) At September 30, 2000, these securities, in part or in whole, have been
segregated to cover when-issued securities.
* 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 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.
** Inverse floating rate notes are instruments whose yields may change
based on the change in the relationship between long-term and
short-term interest rates and which exhibit added interest rate
sensitivity compared to other bonds with a similar maturity. These
securities are shown at their rate as of September 30, 2000.
*** 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.
AMT: Alternative minimum tax
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of September 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
----------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $293,745,639) ................ $ 307,566,092
Cash ................................................................... 386,374
Receivable for investments sold ........................................ 150,000
Interest receivable .................................................... 3,867,847
Receivable for Fund shares sold ........................................ 158,519
Due from Adviser ....................................................... 17,486
Other assets ........................................................... 1,023
---------------
Total assets ........................................................... 312,147,341
Liabilities
----------------------------------------------------------------------------------------
Payable for when-issued securities ..................................... 503,675
Dividends payable ...................................................... 462,178
Payable for Fund shares redeemed ....................................... 24,495
Accrued Trustees' fees and expenses .................................... 34,972
Accrued management fee ................................................. 161,166
Other accrued expenses and payables .................................... 128,934
---------------
Total liabilities ...................................................... 1,315,420
----------------------------------------------------------------------------------------
Net assets, at value $ 310,831,921
----------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments .............. 13,820,453
Accumulated net realized gain (loss) ................................... (7,315,496)
Paid-in capital ........................................................ 304,326,964
----------------------------------------------------------------------------------------
Net assets, at value $ 310,831,921
----------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($310,831,921 /
28,749,577 outstanding shares of beneficial interest, $.01 par value, -------------
unlimited number of shares authorized) .............................. $ 10.81
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations for the six months ended September 30, 2000
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
------------------------------------------------------------------------------
<S> <C>
Income:
Interest ...................................................... $ 8,708,074
---------------
Expenses:
Management fee ................................................ 944,844
Services to shareholders ...................................... 104,597
Custodian and accounting fees ................................. 46,923
Auditing ...................................................... 20,055
Legal ......................................................... 5,014
Trustees' fees and expenses ................................... 41,970
Reports to shareholders ....................................... 7,181
Registration fees ............................................. 8,376
Other ......................................................... 34,806
---------------
Total expenses, before expense reductions ..................... 1,213,766
Expense reductions ............................................ (33,523)
---------------
Total expenses, after expense reductions ...................... 1,180,243
------------------------------------------------------------------------------
Net investment income 7,527,831
------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
------------------------------------------------------------------------------
Net realized gain (loss) from investments ..................... (490,807)
Net unrealized appreciation (depreciation) during the period on
investments ................................................ 5,569,798
------------------------------------------------------------------------------
Net gain (loss) on investment transactions 5,078,991
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 12,606,822
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended September Year Ended
30, March 31,
Increase (Decrease) in Net Assets 2000 (Unaudited) 2000
-------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ............................. $ 7,527,831 $ 15,304,162
Net realized gain (loss) on investment transactions (490,807) (2,198,636)
Net unrealized appreciation (depreciation) on
investment transactions during the period ...... 5,569,798 (14,884,705)
---------------- ----------------
Net increase (decrease) in net assets resulting
from operations ................................ 12,606,822 (1,779,179)
---------------- ----------------
Distributions to shareholders from:
Net investment income ............................. (7,527,831) (15,304,162)
---------------- ----------------
Net realized gains ................................ -- (147,090)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ......................... 32,247,328 62,587,325
Reinvestment of distributions ..................... 4,775,823 9,886,007
Cost of shares redeemed ........................... (40,627,348) (86,144,466)
---------------- ----------------
Net increase (decrease) in net assets from Fund
share transactions ............................. (3,604,197) (13,671,134)
---------------- ----------------
Increase (decrease) in net assets ................. 1,474,794 (30,901,565)
Net assets at beginning of period ................. 309,357,127 340,258,692
Net assets at end of period ....................... $ 310,831,921 $ 309,357,127
Other Information
------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 29,087,807 30,428,525
---------------- ----------------
Shares sold ....................................... 3,013,618 5,815,536
Shares issued to shareholders in reinvestment of
distributions .................................. 447,451 928,209
Shares redeemed ................................... (3,799,299) (8,084,463)
---------------- ----------------
Net increase (decrease) in Fund shares ............ (338,230) (1,340,718)
Shares outstanding at end of period ............... 28,749,577 29,087,807
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<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>
------------------------------------------------------------------------------------
Years Ended March 31, 2000(a) 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $10.64 $11.18 $11.06 $10.39 $10.36 $10.07
-----------------------------------------------------
------------------------------------------------------------------------------------
Income (loss) from investment operations:
------------------------------------------------------------------------------------
Net investment income .26 .51 .51 .52 .52 .51
------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions .17 (.53) .12 .69 .04 .29
-----------------------------------------------------
------------------------------------------------------------------------------------
Total from investment
operations .43 (.02) .63 1.21 .56 .80
------------------------------------------------------------------------------------
Less distributions from:
------------------------------------------------------------------------------------
Net investment income (.26) (.51) (.51) (.52) (.52) (.51)
------------------------------------------------------------------------------------
Net realized gains on
investment transactions -- (.01) -- (.02) (.01) --
-----------------------------------------------------
------------------------------------------------------------------------------------
Total distributions (.26) (.52) (.51) (.54) (.53) (.51)
------------------------------------------------------------------------------------
Net asset value, end of period $10.81 $10.64 $11.18 $11.06 $10.39 $10.36
-----------------------------------------------------
------------------------------------------------------------------------------------
Total Return (%) 4.21** (.21) 5.78 11.85 5.44 8.01
------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 311 309 340 324 289 293
------------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) .79(b)* .76 .76 .78 .78 .77
------------------------------------------------------------------------------------
Ratio of expenses after
expense reductions (%) .76(b)* .76 .76 .78 .78 .77
------------------------------------------------------------------------------------
Ratio of net investment income
(%) 4.88* 4.78 4.55 4.79 4.98 4.88
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 24* 40 41 22 71 49
------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended September 30, 2000 (Unaudited).
(b) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were .76%
and .75%, respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
26
<PAGE>
Notes to Financial Statements (Unaudited)
--------------------------------------------------------------------------------
A. Significant Accounting Policies
Scudder California Tax Free Fund (the "Fund") is a diversified series of Scudder
California 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.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America 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.
When-Issued/Delayed Delivery Securities. The Fund may purchase securities with
delivery or payment to occur at a later date beyond the normal settlement
period. At the time the Fund enters into a commitment to purchase a security,
the transaction is recorded and the value of the security is reflected in the
net asset value. The value of the security may vary with market fluctuations. No
interest accrues to the Fund until payment takes place. At the time the Fund
enters into this type of transaction it is required to segregate cash or other
liquid assets at least equal to the amount of the commitment.
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.
At March 31, 2000, the Fund had a net tax basis capital loss carryforward of
approximately $4,400,000, which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until March 31,
2003 ($2,000,000), March 31, 2004 ($400,000) and March 31,
27
<PAGE>
2008 ($2,000,000), the respective expiration dates, whichever occurs first. In
addition, from November 1, 1999 through March 31, 2000, the Fund incurred
approximately $756,500 of net realized capital losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat them as
arising in the fiscal year ending March 31, 2001.
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 accounting principles generally accepted in the United
States of America. As a result, net investment income (loss) and net realized
gain (loss) on investment transactions for a reporting period may differ
significantly from distributions during such period. Accordingly, the Fund may
periodically make reclassifications among certain of its capital accounts
without impacting the net asset value of the Fund.
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 September 30, 2000, purchases and sales of long-term
municipal securities aggregated $36,400,748 and $41,213,093, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. (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
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management fee payable under the Agreement is equal to an annual rate of 0.625%
of the first $200,000,000 of the average daily net assets and 0.60% of such net
assets in excess of $200,000,000, computed and accrued daily and payable
monthly. For the six months ended September 30, 2000, the fee pursuant to the
Agreement amounted to $944,844, which was equivalent to an annualized effective
rate of 0.61% 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 September 30, 2000, the amount charged to the Fund by SSC
aggregated $67,285, of which $34,411 is unpaid at September 30, 2000.
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 for the Fund. For the six months
ended September 30, 2000, the amount charged to the Fund by SFAC aggregated
$33,259, of which $14,154 is unpaid at September 30, 2000.
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 September 30, 2000, Trustees' fees and expenses aggregated $6,998.
In addition, a one-time fee of $34,972 was accrued for payment to those Trustees
not affiliated with the Adviser who did not stand for re-election under the
reorganization discussed in Note F. Inasmuch as the Adviser will also benefit
from administrative efficiencies of a consolidated Board, the Adviser has agreed
to bear $17,486 of such costs.
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. For the six months ended September 30,
2000, the Fund's custodian and transfer agent fees were reduced by $9,624 and
$6,413, respectively, under these arrangements.
E. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
revolving credit facility with Chase Manhattan Bank 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 based upon net assets, among
each of the Participants. Interest is calculated based on
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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.
F. Reorganization
In early 2000, Scudder Kemper initiated a restructuring program for most of its
Scudder no-load open-end funds in response to changing industry conditions and
investor needs. The program proposes to streamline the management and operations
of most of the no-load open-end funds Scudder Kemper advises principally through
the liquidation of several small funds, mergers of certain funds with similar
investment objectives, the creation of one Board of Directors/Trustees and the
adoption of an administrative fee covering the provision of most of the services
currently paid for by the affected funds. Costs incurred in connection with this
restructuring initiative are being borne jointly by Scudder Kemper and certain
of the affected funds.
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Shareholder Meeting Results (Unaudited)
--------------------------------------------------------------------------------
A Special Meeting of Shareholders (the "Meeting") of Scudder California Tax Free
Fund (the "fund"), a series of Scudder California Tax Free Trust, was held on
July 13, 2000, at the office of Scudder Kemper Investments, Inc., Two
International Place, Boston, Massachusetts 02110. At the Meeting the following
matters were voted upon by the shareholders (the resulting votes for each matter
are presented below).
1. To elect Trustees of Scudder California Tax Free Trust.
Number of Votes:
Trustee For Withheld
--------------------------------------------------------------------------------
Henry P. Becton, Jr. 17,532,362 554,642
Linda C. Coughlin 17,616,290 470,715
Dawn-Marie Driscoll 17,621,968 465,037
Edgar R. Fiedler 17,610,726 476,279
Keith R. Fox 17,619,870 467,134
Joan E. Spero 17,614,433 472,572
Jean Gleason Stromberg 17,618,052 468,952
Jean C. Tempel 17,621,968 465,037
Steven Zaleznick 17,479,591 607,414
--------------------------------------------------------------------------------
2. To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the fiscal year ending March 31, 2001.
Number of Votes:
Broker
For Against Abstain Non-Votes*
--------------------------------------------------------------------------------
17,602,012 139,617 345,375 0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
* Broker non-votes are proxies received by the fund from brokers or
nominees when the broker or nominee neither has received instructions
from the beneficial owner or other persons entitled to vote nor has
discretionary power to vote on a particular matter.
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<PAGE>
Officers and Trustees
Linda C. Coughlin* Eleanor R. Brennan*
o President and Trustee o Vice President
Henry P. Becton, Jr. Thomas V. Bruns*
o Trustee; President, WGBH o Vice President
Educational Foundation
Philip G. Condon*
Dawn-Marie Driscoll o Vice President
o Trustee; President, Driscoll
Associates; Executive Fellow, William F. Glavin*
Center for Business Ethics, o Vice President
Bentley College
James E. Masur*
Edgar R. Fiedler o Vice President
o Trustee; Senior Fellow and
Economic Counsellor, The Ann M. McCreary*
Conference Board, Inc. o Vice President
Keith R. Fox Howard S. Schneider*
o Trustee; General Partner, o Vice President
The Exeter Group of Funds
John Millette*
Joan E. Spero o Vice President and Secretary
o Trustee; President, The Doris
Duke Charitable Foundation Kathryn L. Quirk*
o Vice President and
Jean Gleason Stromberg Assistant Secretary
o Trustee; Consultant
John R. Hebble*
Jean C. Tempel o Treasurer
o Trustee; Managing Director,
First Light Capital, LLC Brenda Lyons*
o Assistant Treasurer
Steven Zaleznick
o Trustee; President and Caroline Pearson*
Chief Executive Officer, o Assistant Secretary
AARP Services, Inc.
*Scudder Kemper Investments, Inc.
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Investment Products and Services
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Scudder Funds
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series -- Scudder Value Fund
Prime Reserve Shares Scudder Small Company Value Fund
Premium Shares
Managed Shares Growth
Scudder Tax Free Money Fund Scudder Classic Growth Fund
Scudder Capital Growth Fund
Tax Free Scudder Large Company Growth Fund
Scudder Medium Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder High Yield Tax Free Fund Scudder Small Company Stock Fund
Scudder California Tax Free Fund Scudder 21st Century Growth Fund
Scudder Massachusetts Tax Free Fund
Scudder New York Tax Free Fund Global Equity
Worldwide
U.S. Income Scudder Global Fund
Scudder Short Term Bond Fund Scudder International Fund
Scudder GNMA Fund Scudder Global Discovery Fund
Scudder Income Fund Scudder Emerging Markets Growth Fund
Scudder Corporate Bond Fund Scudder Gold Fund
Scudder High Yield Bond Fund
Regional
Global Income Scudder Greater Europe Growth Fund
Scudder Global Bond Fund Scudder Pacific Opportunities Fund
Scudder Emerging Markets Income Fund Scudder Latin America Fund
The Japan Fund, Inc.
Asset Allocation
Scudder Pathway Conservative Portfolio Industry Sector Funds
Scudder Pathway Balanced Portfolio Scudder Health Care Fund
Scudder Pathway Growth Portfolio Scudder Technology Fund
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
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--------------------------------------------------------------------------------
Retirement Programs and Education Accounts
--------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
--------------------------------------------------------------------------------
Closed-End Funds
--------------------------------------------------------------------------------
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>
Scudder funds are offered by prospectus only. For more complete information on
any fund or variable annuity registered in your state, including information
about a fund's objectives, strategies, risks, advisory fees, distribution
charges, and other expenses, please order a free prospectus. Read the prospectus
before investing in any fund to ensure the fund is appropriate for your goals
and risk tolerance. There is no assurance that the objective of any fund will be
achieved, and fund returns and net asset values fluctuate. Shares are redeemable
at current net asset value, which may be more or less than their original cost.
A money market mutual fund investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although a
money market mutual fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in such a fund.
The services and products described should not be considered a solicitation to
buy or an offer to sell a security to any person in any jurisdiction where such
offer, solicitation, purchase, or sale would be unlawful under the securities
laws of such jurisdiction.
Scudder Investor Services, Inc.
34
<PAGE>
Account Management Resources
--------------------------------------------------------------------------------
For shareholders of Scudder funds including those in the AARP Investment Program
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- Automated Information Lines
clock electronic
account Scudder Class S Shareholders:
service and Call SAIL(TM) -- 1-800-343-2890
information,
including some AARP Investment Program Shareholders:
transactions Call Easy-Access Line -- 1-800-631-4636
Personalized account information, the ability to
exchange or redeem shares, and information on other
Scudder funds and services via touchtone telephone.
Web Site
Scudder Class S Shareholders --
www.scudder.com
AARP Investment Program Shareholders --
aarp.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 you need
them. Scudder's site also provides news about Scudder
funds, retirement planning information, and more.
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<PAGE>
--------------------------------------------------------------------------------
Those who Automatic Withdrawal Plan
depend on
investment You designate the bank account, determine the
proceeds for schedule (as frequently as once a month) and amount
living expenses of the redemptions, and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into
automated the bank account you designate within three business
withdrawal days after 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 Scudder Class S Shareholders:
information
about these Call a Scudder representative at
services 1-800-SCUDDER
AARP Investment Program Shareholders:
Call an AARP Investment Program representative at
1-800-253-2277
Please address For Scudder Class S Shareholders:
all written
correspondence The Scudder Funds
to PO Box 2291
Boston, Massachusetts
02107-2291
For AARP Investment Program Shareholders:
AARP Investment Program from Scudder
PO Box 2540
Boston, Massachusetts
02208-2540
36
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<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 Services Group
