SCUDDER
INVESTMENTS(SM)
[LOGO]
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BOND/TAX FREE
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Scudder California
Tax Free Fund
Fund #043
Annual Report
March 31, 2000
Scudder California Tax Free Fund seeks
income that is exempt from California
personal and regular federal income taxes.
No-load funds 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
14 Glossary of Investment Terms
15 Investment Portfolio
24 Financial Statements
27 Financial Highlights
28 Notes to Financial Statements
31 Report of Independent Accountants
32 Tax Information
33 Officers and Trustees
34 Investment Products and Services
36 Scudder Solutions
2
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Scudder California Tax Free Fund
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ticker symbol SCTFX fund number 043
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Date of Inception: o In a difficult environment for all
7/22/83 fixed-income instruments, Scudder California
Tax Free Fund posted a total return of
Total Net Assets as -0.21% for its most recent fiscal year ended
of 3/31/00: March 31, 2000, outpacing the -2.45% average
$309.4 million return of 109 similar funds tracked by
Lipper Analytical Services, Inc.
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30-Day Yield on March 31, 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
4.71 8.60
o Scudder California Tax Free Fund received a four-star
rating from Morningstar, reflecting "above average"
risk-adjusted performance through March 31, 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- and five-year
performance, and three stars for 10-year performance, and was rated
among 1682, 1394, and 403 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
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Letter from the Fund's President
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Dear Shareholders,
Municipal bonds endured a challenging investment environment during Scudder
California Tax Free Fund's most recent fiscal year ended March 31, 2000. The
fund posted a -0.21% total return during the period, but outperformed the -2.45%
average performance of its peers as compiled by Lipper. To match the fund's
tax-free 4.71% 30-day SEC yield on March 31, a taxable investment would have had
to yield 8.60%. Over the period, municipal bonds were negatively affected by
significant interest rate increases across all fixed-income markets, as the
Federal Reserve attempted to restrain surging U.S. economic growth and head off
a major increase in inflation by incrementally raising the federal funds rate to
6%.
Following this period of relative underperformance, we nevertheless believe the
municipal market offers attractive return potential: Adjusted for inflation,
municipal yields are high by historical standards and are attractive when
compared to yields of comparable Treasury bonds. As of March 31, yields of
10-year AAA-rated municipal bonds were 84% of comparable Treasuries. Second, a
recent reduction in the supply of municipal bonds should provide strong support
for bond prices. And third, fixed-income markets could be primed for a strong
rally once a
4
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consensus is reached that the Fed has completed its current cycle of interest
rate increases.
On a related note, we'd like to point out some of the advantages of owning a
municipal bond fund compared with holding individual municipal bonds. First and
foremost, municipal bond funds offer professional management: While many
investors believe that purchasing an individual bond is a relatively simple
process, knowing what price to pay for a municipal bond and what structure and
characteristics to seek can be confusing, and can make a dramatic difference in
how a bond will perform on a total return basis. Though investors understandably
value income and coupon level, they are not the only factors that determine
whether a bond will prove to be a worthwhile investment. Other important
advantages offered by municipal bond funds include portfolio diversification,
dividend reinvestment, and quarterly statements that display performance
information clearly and concisely.
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/ Linda C. Coughlin
Linda C. Coughlin
President,
Scudder California Tax Free Fund
5
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Performance Update
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March 31, 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:
Lehman Brothers
Scudder California Municipal Bond
Tax Free Fund Index*
'90 10000 10000
'91 10853 10922
'92 12018 12015
'93 13836 13520
'94 14015 13833
'95 14962 14861
'96 16160 16107
'97 17039 16985
'98 19058 18808
'99 20160 19974
'00 20118 19954
Yearly periods ended March 31
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 3/31/2000 $10,000 Cumulative Annual
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Scudder California Tax Free Fund
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1 year $ 9,979 -.21% -.21%
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5 year $ 13,446 34.46% 6.10%
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10 year $ 20,118 101.18% 7.24%
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Lehman Brothers Municipal Bond Index*
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1 year $ 9,990 -.10% -.10%
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5 year $ 13,427 34.27% 6.06%
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10 year $ 19,954 99.54% 7.15%
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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
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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 (%)
Yearly periods ended March 31
<TABLE>
<CAPTION>
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 (%) 8.53 10.74 15.13 1.30 6.75 8.01 5.44 11.85 5.78 -.21
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Index Total
Return (%) 9.22 10.02 12.52 2.32 7.43 8.38 5.45 10.73 6.20 -.10
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Net Asset
Value ($) 10.41 10.60 11.05 10.02 10.07 10.36 10.39 11.06 11.18 10.64
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Income
Dividends
($) .63 .61 .59 .53 .51 .51 .52 .52 .51 .51
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Capital
Gains
Distributions
($) .09 .28 .49 .68 .09 -- .01 .02 -- .01
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</TABLE>
7
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Portfolio Summary
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March 31, 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 10% The fund invests in a
County General Obligation/ broad selection of
Lease 9% California municipal
Housing Finance Authority 9% bonds.
Hospital/Health Revenue 8%
Other General Obligation/
Lease 8%
State General Obligation/
Lease 7%
Toll Revenue/Transportation 7%
Sales/Special Tax 7%
Electric Revenue 6%
Core City/Lease 5%
Miscellaneous Municipal 24%
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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.
Overall portfolio
AAA* 61% quality remains high,
AA 11% with 85% of portfolio
A 13% securities rated A or
BBB 6% better as of
SKI** 9% March 31.
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100%
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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 2% In a rising interest
1-5 years 15% rate environment, we
5-8 years 13% emphasized
8-15 years 36% longer-maturity bonds
Greater than 15 years 34% while the yield curve
- ------------------------------------ remained steep and then
100% resumed our usual
- ------------------------------------ strategy of
concentrating on
Weighted average effective intermediate maturities
maturity: 12.3 years when the yield curve
flattened.
For more complete details about the Fund's investment portfolio, see page 15. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
8
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Portfolio Management Discussion
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March 31, 2000
Dear Shareholders,
Municipal bonds faced a difficult environment during Scudder California Tax Free
Fund's most recent fiscal year, as the Federal Reserve repeatedly raised
interest rates in an attempt to forestall inflationary pressures arising from
the strong U.S. economy. The fund's total return for its most recent fiscal year
ended March 31, 2000 was -0.21%, outpacing the -2.45% average return of 109
similar funds as tracked by Lipper Analytical Services, Inc. The fund's 30-day
SEC yield as of March 31 was 4.71%, equivalent to an 8.60% taxable yield for
California investors subject to the 45.22% combined federal and state income tax
rate.
Despite the negative posting over the most recent fiscal year, the fund's total
returns over three-, five-, and ten-year periods placed it in the top 11% of
similar California tax-free funds. Please see the table below for additional
information concerning the fund's returns.
Premium Bonds Aided Our
Defensive Posture
During the fund's most recent fiscal year, the U.S. Federal Reserve began to
raise interest rates to head off inflationary pressures as commodity prices
rebounded, the nation's unemployment index reached 30-year lows, and consumer
spending proceeded at a brisk pace. The Fed's
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Scudder California Tax Free Fund:
Consistent Top-Tier Performance
(Average annual returns for periods ended March 31, 2000)
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Scudder
California
Tax Free Fund Lipper Number of Percentile
Period Return Average Rank Funds Tracked Rank
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1 Year -0.21% -2.45% 7 of 109 Top 7%
3 Years 5.69% 4.46% 3 of 94 Top 4%
5 Years 6.10% 5.21% 10 of 82 Top 11%
10 Years 7.24% 6.44% 1 of 39 Top 3%
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Past performance does not guarantee future results.
9
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latest action, in March, raised its short-term interest rate target to 6%.
During the year, yields on 10-year Treasury bonds rose nearly 72 basis points
and their prices declined 4.9%, while municipal bond yields rose 61 basis points
and their prices also declined 4.9%. Also during the period, the Treasury yield
curve inverted causing short-term securities to yield more than longer-term
securities. Our strategy in light of these market conditions was to emphasize
longer maturity bonds because of the steep municipal yield curve between 10 and
30 years, and sell intermediate and short maturities. As the yield curve
flattened, we resumed our usual strategy of concentrating on intermediate
maturities.
During the 12-month period, we also maintained three 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. 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. Third, we sought
to avoid "market discount," a provision that can subject municipal bonds sold at
a discount to ordinary income tax. Key to this strategy was our emphasis on
purchasing premium bonds rather than par bonds (which can more easily decline to
a discount). The table on page 12 illustrates this element of our strategy,
showing the difference in the performance over the previous 12-month period of a
type of premium bond we favored versus a type of par bond we avoided. In a
difficult municipal bond market the premium bond posted positive performance,
while the par bond posted negative performance because of its exposure to the
market discount tax.
10
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Premium Coupon Bonds Avoided "Market Discount"
(12-month returns as of March 31, 2000, following a 60 basis point rise
in interest rates)
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Starting price Ending price Total Return
Type of Bond 3/31/99 3/31/00 Difference
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Premium bond with a
5.50% coupon due 2015 $105.92 $101.06 +0.68%
Par bond with a
5.0% coupon due 2020 $100.00 $91.92 -3.02%
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Result: The premium bond outperformed the par bond by 3.70%.
In addition, over the period, credit spreads for higher yielding securities
widened to historically high levels. Because of this, we chose to selectively
add to credits which we deemed to be appropriate credit 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, general
obligation, and housing finance bonds.
California Update
California's economy is exhibiting economic strength, and is leading the country
in job growth. In the 12-month period ended February 2000, the State added
445,000 jobs. The new jobs are concentrated in high technology industries,
specifically computer software and electronics manufacturing, as well as in
motion picture production. This growth helped reduce the State's unemployment
rate to an average of 5.2% in 1999. Both Fitch IBCA and Standard & Poor's
upgraded California bonds from A+ to AA- during the 12 months ended March 31.
International trade is a strong part of the State's economy. When economic
turmoil in Asia caused the State's exports to these countries to decline over
20% in 1998, increased trade with Europe and NAFTA countries helped to offset
the decline. In 1999, California's trade with Asian countries picked up,
increasing by 6% as Asia's economy improved.
11
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California is one of the largest issuers of municipal debt with $26.5 billion of
debt outstanding. The State's size and wealth levels mitigate the impact that
debt of this magnitude could have. Overall, California is benefiting from a
strong economy that has led to improved finances, specifically an improved cash
flow position. We will continue to monitor the State's mounting infrastructure
needs.
Outlook
Since it is widely expected that the Fed will continue to raise interest rates
into the summer, municipals will continue to face a challenging environment.
Still, we believe the municipal bond market represents attractive value, with
yields of longer maturity municipals approaching those of Treasury bonds, and
tax-equivalent yields near double-digit levels for investors in the highest tax
brackets (in January, municipal bond yields reached 6.35% on average*, the
highest level since August 1995). And the robust U.S. and California economies
should continue to bolster the credit ratings of individual California bond
issues.
In addition to the long-term strategy outlined above, we will seek to take
advantage of newly widened credit spreads (differences in yield between higher
and lower quality bonds). Wider credit spreads make it worthwhile to invest in
bonds with slightly lower credit ratings in an effort to boost the fund's yield.
We believe Scudder California Tax Free Fund remains an attractive investment
option for investors seeking a high level of income free from federal and
California income taxes.
Sincerely,
Your Portfolio Management Team
/s/Eleanor R. Brennan /s/Matthew J. Caggiano
Eleanor R. Brennan Matthew J. Caggiano
*Source: The Bond Buyer
12
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Scudder California Tax Free Fund:
A Team Approach to Investing
Scudder California Tax Free Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom plays an important
role in the fund's management process. Team members work together to develop
investment strategies and select securities for the fund's portfolio. They are
supported by the Adviser's large staff of economists, research analysts,
traders, and other investment specialists who work in offices across the United
States and abroad. The Adviser believes that a team approach benefits fund
investors by bringing together many disciplines and leveraging the firm's
extensive resources.
Lead portfolio manager Eleanor R. Brennan assumed responsibility for the fund's
day-to-day management in 1999. Ms. Brennan joined the Adviser in 1995 and has 13
years of experience in municipal investing and portfolio management.
Portfolio manager Matthew J. Caggiano joined the fund in 1999. Mr. Caggiano, who
joined the Adviser in 1989, is the principal trader for the Adviser's
institutional municipal bond accounts.
13
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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 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.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
14
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Investment Portfolio as of March 31, 2000
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<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
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Short-Term Municipal Investments 1.9%
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<S> <C> <C>
California
California Pollution Control Financing Authority,
Daily Demand Note, Series 1996C, 3.35%, 11/1/2026* ........ 1,000,000 1,000,000
Irvine, CA, Improvement Bond, Assessment District 89-10,
Daily Demand Note, 3.5%, 9/2/2015* ........................ 1,000,000 1,000,000
Irvine, CA, Ranch Water District, Daily Demand Note,
3%, 4/1/2033* ............................................. 1,000,000 1,000,000
Orange County, CA, Sanitation District, Series 1992C,
Daily Demand Note, 2.8%, 8/1/2017 (b)* .................... 3,000,000 3,000,000
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Total Short-Term Municipal Investments (Cost $6,000,000) 6,000,000
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Long-Term Municipal Investments 98.1%
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California
ABAG Finance Authority, CA:
Nonprofit Corporations, Certificate of Participation,
5.25%, 10/1/2007 ........................................ 1,640,000 1,628,061
Stanford Health Systems, Certificate of Participation, ETM,
6%, 11/1/2007 (b)*** .................................... 605,000 655,862
Alameda County, CA, Water District Revenue, Series 1998,
4.625%, 6/1/2016 (b) (e) .................................. 2,450,000 2,207,597
Anaheim County, CA, Convention Center Financing,
Certificate of Participation, Zero Coupon, 8/1/2005 (b) ... 1,250,000 973,138
Anaheim, CA, Public Finance Authority:
5.25%, 2/1/2018 (b) ....................................... 2,000,000 1,934,660
Lease Revenue Public Improvements Project:
Series 1997A, 6%, 9/1/2024 (b) (e) ...................... 3,500,000 3,684,905
Series 1997C, 6%, 9/1/2014 (b) .......................... 1,000,000 1,085,700
Series 1997C, 6%, 9/1/2016 (b) .......................... 1,000,000 1,080,640
Series 1997C, Zero Coupon, 9/1/2017 (b) ................. 1,455,000 539,333
Series 1997C, Zero Coupon, 9/1/2018 (b) ................. 1,000,000 346,410
California Community Development Authority, Apartment
Development Revenue Bond:
Series 1998A-3, 5.1%, 5/15/2025 ......................... 1,000,000 953,500
Series 1998A-4, 5.25%, 5/15/2025 ........................ 1,000,000 940,260
California Educational Facilities Authority:
Pepperdine University, Series 1999A, 5%, 11/1/2018 ........ 1,000,000 911,810
Santa Clara University, Series 1999, 5.25%, 9/1/2018 (b) .. 230,000 224,423
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
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<S> <C> <C>
California Health Facilities, Financial Authority:
Capital Appreciation, Kaiser Permanente:
Series 1989A, Zero Coupon, 10/1/2010 (b) ............ 3,040,000 1,791,533
Series 1989A, Zero Coupon, 10/1/2012 (b) (e) ........ 4,900,000 2,505,076
Cedars-Sinai Medical Center, Revenue,
Series 1999A, 6.125%, 12/1/2030 (e) ................. 2,500,000 2,480,925
Enloe Health Systems, Series 1998A, 5%,
11/15/2018 (b) ...................................... 1,000,000 921,330
California Housing Finance Agency:
Home Mortgage Revenue:
Series F1, AMT, 6.2%, 8/1/2005 (b) .................. 840,000 860,009
Series F1, AMT, 6.3%, 8/1/2006 (b) .................. 1,310,000 1,350,466
Series 1995G, AMT, 5.7%, 2/1/2007 (b) ............... 500,000 513,490
Series 1995G, AMT, 5.8%, 2/1/2008 (b) ............... 1,330,000 1,374,262
Series 1995G, AMT, 5.9%, 2/1/2009 (b) ............... 200,000 207,222
Multi-Unit Rental Housing Revenue:
Series A, 7.35%, 8/1/2000 (e) ....................... 2,615,000 2,636,548
Series A, 7.4%, 8/1/2001 ............................ 1,555,000 1,597,747
Series A, 7.45%, 8/1/2002 ........................... 1,015,000 1,063,791
Series A, 7.6%, 8/1/2006 ............................ 4,030,000 4,298,156
Series A, 7.65%, 8/1/2007 ........................... 2,335,000 2,492,916
Series A, 7.7%, 8/1/2009 ............................ 700,000 748,097
Series A, 7.75%, 8/1/2016 ........................... 2,440,000 2,589,255
Series A, 7.8%, 8/1/2023 ........................... 2,635,000 2,799,029
Series II, 7.3%, 8/1/2000 ........................... 345,000 347,384
Series II, 7.3%, 8/1/2001 ........................... 375,000 384,544
Series II, 7.35%, 8/1/2002 .......................... 400,000 415,600
Series II, 7.35%, 8/1/2003 .......................... 430,000 450,683
Series II, 7.35%, 8/1/2004 .......................... 460,000 486,744
Series ll, 7.35%, 8/1/2005 .......................... 495,000 527,611
California Pollution Control Financing Authority,
Solid Waste Disposal Revenue, CanFibre of
Riverside PJ, Series 1997A, 9%, 7/1/2019 .............. 2,250,000 2,403,720
California Public Works Board , Department of Corrections,
Lease Based Revenue, Medera Prison, Series A-2,
7.4%, 9/1/2010 (b) .................................... 1,000,000 1,195,130
California Resource Efficiency Financing Authority,
Certificate of Participation, Capital Improvement
Program:
Series 1997, 6%, 4/1/2010 (b) ......................... 1,500,000 1,630,455
Series 1997, 6%, 4/1/2011 (b) ......................... 1,590,000 1,733,132
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- -------------------------------------------------------------------------------------
<S> <C> <C>
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 1,077,830
California Statewide Community Development Authority:
Certificates of Participation:
Catholic Healthcare West, Series 1999, 6.5%, 7/1/2020 .. 2,000,000 1,990,820
Children's Hospital, Series 1993, 6%, 6/1/2010 (b) ..... 1,000,000 1,077,210
Lutheran Homes, Series 1993, 5.5%, 11/15/2008 .......... 1,500,000 1,558,305
Lutheran Homes, Series 1993, 5.6%, 11/15/2013 .......... 4,750,000 4,840,488
Series 1999, 6%, 8/15/2017 (b) ......................... 1,000,000 1,043,870
The Internext Group, Series 1999, 5.375%, 4/1/2030 ..... 2,000,000 1,603,020
Capistrano, CA, Unified School District,
Improvement District No. 1, Series 2000A,
6.25%, 8/1/2018 (b) ...................................... 1,000,000 1,066,890
Castaic Lake, CA, Water Agency, Certificate of Participation,
Water System Improvement Project, Series 1994A,
7.25%, 8/1/2007 (b) ...................................... 1,000,000 1,152,200
Center, CA, Unified School District, Capital
Appreciation, Series 1997C, Zero Coupon, 9/1/2014 (b) .... 2,240,000 1,023,120
Central Valley, CA, School District, Finance Authority,
Capital Appreciation:
Zero Coupon, 2/1/2007 (b) ................................ 1,960,000 1,406,084
Zero Coupon, 8/1/2007 (b) ................................ 5,510,000 3,857,937
Chino Basin, CA, Regional Finance Authority, Municipal
Water District, Sewer System, Series 1994,
5.9%, 8/1/2011 (b) ....................................... 1,290,000 1,397,096
Delmar, CA, Race Track Authority, Series 1996,
6%, 8/15/2006 ............................................ 2,000,000 2,040,080
Dry Creek, CA, Joint Elementary School District,
Capital Appreciation:
Series 1997A, Zero Coupon, 8/1/2010 (b) .................. 1,120,000 661,595
Series 1997A, Zero Coupon, 8/1/2011 (b) .................. 1,180,000 658,759
Series 1997A, Zero Coupon, 8/1/2016 (b) .................. 555,000 223,038
Series 1997A, Zero Coupon, 8/1/2021 (b) .................. 1,920,000 555,360
Series 1997A, Zero Coupon, 5/1/2022 (b) .................. 1,385,000 381,055
Duarte, CA, Certificates of Participation, City of Hope
Medical Center:
Series 1993, 5.75%, 4/1/2002 ............................. 3,525,000 3,619,223
Series 1993, 6%, 4/1/2008 ................................ 3,750,000 3,979,463
Series 1999A, 5.25%, 4/1/2024 ............................ 1,250,000 1,079,013
Encinitas, CA, Certificate of Participation, Series 1997A,
5%, 12/1/2016 (b) ........................................ 1,000,000 952,110
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Escondido County, CA, Unified School District,
Capital Appreciation, Zero Coupon, 11/1/2018 (b) ..... 4,605,000 1,594,343
Foothill Eastern Transportation Corridor Agency, CA,
Toll Road Revenue:
Capital Appreciation:
Series 1995A, ETM, Zero Coupon 1/1/2020*** ......... 5,000,000 1,607,150
Series 1999, Zero Coupon, 1/15/2017 (b) ............ 1,475,000 555,677
Senior Lien:
Series 1995A, 5%, 1/1/2035 (b) ..................... 2,500,000 2,244,950
Series 1995A, Step-up Coupon, 0% to 1/1/2005,
6.95% to 1/1/2007 ................................ 575,000 469,246
Series 1995A, Step-up Coupon, 0% to 1/1/2005,
7.1% to 1/1/2011 (c) ............................. 6,000,000 5,151,420
Series 1995A, Step-up Coupon, 0% to 1/1/2005,
7.15% to 1/1/2013 (c) ............................ 975,000 839,836
Series 1995A, Step-up Coupon,0% to 1/1/2005,
7.15% to 1/1/2014 (c) ............................ 2,875,000 2,476,439
Series 1999, 5.75%, 1/15/2040 ...................... 1,250,000 1,170,438
Series 1999, Zero Coupon, 1/15/2026 ................ 1,250,000 647,900
Fresno, CA, Unified School District, Series 1999C, 5.9%,
2/1/2017 (b) ......................................... 1,760,000 1,873,661
Healdsburg, CA, Unified School District, Capital
Appreciation:
Series 1997, Zero Coupon, 7/15/2011 (b) .............. 400,000 223,820
Series 1997, Zero Coupon, 7/15/2012 (b) .............. 400,000 210,068
Series 1997, Zero Coupon, 7/15/2013 (b) .............. 400,000 197,036
Series 1997, Zero Coupon, 7/15/2014 (b) .............. 400,000 183,976
Inland Empire Solid Waste Financing Authority, California
Landfill Improvement Financing Project, Series 1996B,
AMT, 6%, 8/1/2006 (b) ................................ 1,000,000 1,069,290
Irvine, CA, Improvement Bond Act 1915, Special
Assessment, Improvement District No. 94-13,
Series 1999, 6%, 9/2/2022 ............................ 250,000 235,898
Las Virgenes, CA, Unified School District, Capital
Appreciation, Zero Coupon, 11/1/2016 (b) ............. 1,500,000 593,490
Long Beach, CA, BD Finance Authority Lease Revenue,
Rainbow Harbor, Series 1999A, 5.125%, 5/1/2020 (b) ... 2,750,000 2,571,525
Los Angeles County, CA , Certificate of Participation:
Capital Appreciation, Disney Parking Project:
Zero Coupon, 9/1/2006 .............................. 2,500,000 1,795,000
Zero Coupon, 3/1/2008 .............................. 2,780,000 1,817,647
Zero Coupon, 9/1/2008 .............................. 4,865,000 3,096,621
Marina Del Ray:
Series A, 6.25%, 7/1/2003 .......................... 2,060,000 2,099,531
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Series A, 6.5%, 7/1/2008 ............................................... 2,500,000 2,631,175
Los Angeles County, CA, Metropolitan Transportation
Authority, Revenue Bond, Series 1999A, 5%,
7/1/2019 (b) ............................................................. 2,000,000 1,852,880
Los Angeles County, CA, Convention and Exhibition
Center Authority Lease Revenue, Series 1993A,
6.125%, 8/15/2011 (b) .................................................... 1,000,000 1,099,810
Los Angeles, CA, State Building Authority, Lease Revenue:
General Services, Series 1993A, 5.6%, 5/1/2008 ........................... 7,000,000 7,332,990
Revenue Bond, Series 1999A, 5.5%, 10/1/2017 .............................. 3,600,000 3,568,104
Los Angeles, CA, Unified School District,
Series 1997A, 5%, 7/1/2021 (b) 6,000,000 5,499,660 Merced, CA, High School
District Capital Appreciation:
Series 1999A, Zero Coupon, 8/1/2016 (b) .................................. 2,140,000 858,632
Series 1999A, Zero Coupon, 8/15/2015 (b) ................................. 2,090,000 894,771
Midpeninsula Regional Open Space District, CA,
Finance Authority Revenue, Capital Appreciation,
Zero Coupon, 9/1/2020 (b) ................................................ 1,190,000 364,497
Millbrae, CA, Residential Facilities Revenue, Magnolia
of Millbrae Project, Series 1997A, AMT,
7.375%, 9/1/2027 ......................................................... 4,000,000 3,941,800
Modesto, CA, Certificate of Participation, Community
Project, Series A, 5.6%, 11/1/2014 (b) ................................... 1,370,000 1,436,061
Modesto, CA, Wastewater Facilities Treatment Revenue,
Series 1997, AMT, 6%, 11/1/2011 (b) ...................................... 1,255,000 1,372,368
Mojave Desert & Mountain Region, CA, Solid Waste Joint
Power Authority, 7.875%, 6/1/2020 ........................................ 2,350,000 2,511,140
Northern California Power Agency Public Power Revenue,
Hydroelectric Project No. 1, Series 1998A, 5%,
7/1/2017 (b) ............................................................. 2,500,000 2,348,400
Oakland, CA, Port Revenue:
Series 2000K, 5.5%, 11/1/2010 (b)(d) ..................................... 2,500,000 2,579,950
Series 2000K, 5.75%, 11/1/2014 (b)(d) .................................... 2,500,000 2,579,000
Series 1997G, AMT, 5.375%, 11/1/2025 (b) ................................. 1,000,000 936,070
Pomona, CA, Unified School District,
ETM, Series 1992B, 6.25%, 8/1/2014 (b)*** ................................ 1,020,000 1,120,674
Port of Hueneme, CA, Certificate of Participation, Capital
Improvement, 6%, 4/1/2019 (b) ............................................ 925,000 987,012
Richmond, CA , Joint Powers Finance Authority:
Series 1996, 5.875%, 9/1/2006 ............................................ 500,000 518,055
Series 1996, 6.6%, 9/1/2016 .............................................. 1,000,000 1,045,580
Riverside County, CA, Asset Leasing Corp., Leasehold
Revenue Project:
Series 1997, Zero Coupon, 6/1/2016 (b) ................................... 2,395,000 951,821
Series 1998, Zero Coupon, 6/1/2015 (b) ................................... 1,750,000 742,875
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------------
<S> <C> <C>
Rocklin, CA, Unified School District, Community Facilities:
Zero Coupon, 9/1/2019 (b) ................................. 1,675,000 548,814
Zero Coupon, 9/1/2020 (b) ................................. 1,415,000 434,278
Sacramento, CA, Municipal Utility District, Electric Revenue,
Series 1997L, 5.125%, 7/1/2022 (b) ........................ 1,750,000 1,623,860
Sacramento, CA, City Finance Authority Revenue:
Revenue Bond, Convention Center Hotel,
Series 1999A, 6.25%, 1/1/2030 ........................... 4,000,000 3,668,040
Lease Revenue, Series 1993B, 5%, 11/1/2014 ................ 4,200,000 4,060,518
Capital Appreciation, Tax Allocation, Series 1993B,
Zero Coupon, 11/1/2016 (b) .............................. 2,685,000 1,064,066
Sacramento, CA, Power Authority Cogeneration Project,
Series 1995, 6.5%, 7/1/2004 ............................... 2,000,000 2,083,880
Saddleback Valley, CA, Unified School District, Public Finance
Authority, Special Tax Revenue:
Series A, 4.75%, 9/1/2020 (b) ............................. 3,215,000 2,838,491
Series 1997A, 6%, 9/1/2013 (b) ............................ 1,000,000 1,089,680
Series 1997A, 6%, 9/1/2014 (b) ............................ 1,000,000 1,085,700
Series 1997A, 6%, 9/1/2015 (b) ............................ 1,000,000 1,079,650
San Bernadino, CA, Certificate of Participation, Medical
Center Financing Project:
Series 1994, 6%, 8/1/2009 (b) ............................. 3,000,000 3,223,650
Series 1994, 5.5%, 8/1/2017 (b) ........................... 3,965,000 4,026,854
San Francisco, CA, Airport Revenue:
Inverse Floating Rate, RITES,
5/1/2015 (b)(d)** ....................................... 1,530,000 1,610,325
Inverse Floating Rate, RITES,
5/1/2016 (b)(d)** ....................................... 1,625,000 1,728,480
San Francisco, CA, City and County Redevelopment Agency:
San Francisco CA, Hotel Tax Revenue, Series 1998,
5%, 7/1/2018 (b) ....................................... 4,000,000 3,727,480
Residential Facility, Coventry Park Project, Series 1996A,
AMT, 8.5%, 12/1/2026 .................................... 2,000,000 2,039,940
San Francisco, CA, Redevelopment Finance Agency,
Tax Allocation Revenue, Series A, Zero Coupon,
8/1/2003 (b) .............................................. 1,080,000 928,692
San Joaquin Hills CA, Transportation Corridor Agency,
Toll Road Revenue:
Capital Appreciation:
Series 1997 A, Zero Coupon, 1/15/2010 (b) ............... 3,500,000 2,123,590
Series 1997 A, Zero Coupon, 1/15/2012 (b) .............. 2,500,000 1,346,250
Junior Lien, ETM:
Series 1993, Zero Coupon, 1/1/2002*** ................... 515,000 476,988
Series 1993, Zero Coupon, 1/1/2006*** ................... 200,000 152,430
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Series 1993, Zero Coupon, 1/1/2010*** ............... 1,500,000 916,260
Senior Lien:
Series 1993, Zero Coupon, 1/1/2004*** ............... 1,000,000 962,570
Series 1993, Step-up Coupon, 0% to 1/1/2002,
7.35% to 1/1/2005*** .............................. 2,500,000 2,452,925
Series 1993, Zero Coupon, 1/1/2014*** ............... 2,500,000 1,190,375
Series 1993, 5%, 1/1/2033 (b) ....................... 1,000,000 891,190
Series 1993, Step-up Coupon, 0% to 1/1/2002,
7.4% to 1/1/2007*** ............................... 6,000,000 6,084,000
Series 1997A, Zero Coupon, 1/15/2015 (b) ............ 2,065,000 911,099
San Jose, CA, Financing Revenue, Community
Facilities Project:
Series 1993B, Zero Coupon, 11/15/2003 ................. 735,000 619,186
Series 1993B, Zero Coupon, 11/15/2004 ................. 1,605,000 1,285,525
Series 1993B, Zero Coupon, 11/15/2005 ................. 1,605,000 1,219,222
Series 1993B, Zero Coupon, 11/15/2006 ................. 1,605,000 1,154,300
San Jose, CA, Unified School District, Santa Clara County,
Capital Appreciation, Series 1997A, Zero Coupon,
8/1/2013 (b) .......................................... 2,445,000 1,201,522
Santa Ana, CA, Finance Authority, Lease Revenue
Bonds, Police Administration and Holding Facility,
Series 1994A, 6.25%, 7/1/2024 (b) ..................... 2,000,000 2,157,180
Santa Clara, CA, Unified School District, Series 1997,
5%, 8/1/2022 (b) ...................................... 2,000,000 1,821,880
Santa Clara County, CA, Finance Authority, Lease Revenue,
VMC Replacement Project, 7.75%, 11/15/2008 (b) ........ 3,250,000 3,906,175
Santa Cruz County, CA, Certificates of Participation,
Capital Facilities Project: Series 1997, 5.5%,
9/1/2016 (b) .......................................... 955,000 978,885
Series 1997, 5.5%, 9/1/2017 (b) ....................... 1,005,000 1,024,185
Series 1997, 5.5%, 9/1/2018 (b) ....................... 1,060,000 1,075,942
Series 1997, 5.6%, 9/1/2019 (b) ....................... 1,115,000 1,139,943
Series 1997, 5.6%, 9/1/2020 (b) ....................... 1,180,000 1,197,204
Series 1997, 5.65%, 9/1/2024 (b) ...................... 1,445,000 1,454,479
Series 1997, 5.65%, 9/1/2025 (b) ...................... 1,520,000 1,528,102
Series 1997, 5.65%, 9/1/2026 (b) ...................... 1,605,000 1,611,500
Santa Margarita/Dana Point, CA:
Improvement Districts 1-2-2A and 8 , Series 1994A,
7.25%, 8/1/2006 (b) ................................. 465,000 530,765
Improvement Districts 3, 3A, 4 and 4A, Series 1994B,
7.25%, 8/1/2005 (b) ................................. 2,895,000 3,257,570
Simi Valley CA, Certificate of Participation, Series 1998,
5.25%, 8/1/2017 (b) ................................... 575,000 567,238
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Solano County, CA, Vallejo Sanitation & Flood
Control District, Certificates of Participation,
5%, 7/1/2019 (b) ...................................... 2,500,000 2,332,800
South Tahoe, CA, Joint Powers Financing Authority,
Series 1999A, 7.3%, 10/1/2007 ......................... 2,500,000 2,482,000
Southern California Public Power Authority:
Series 1989, 6.75%, 7/1/2010 .......................... 6,000,000 6,771,840
Transmission Project Revenue, Capital Appreciation,
Zero Coupon, 7/1/2015 ............................... 2,000,000 861,460
State of California, General Obligation:
Series 1991, 6.5%, 9/1/2010 ........................... 1,305,000 1,473,697
Series 1998, 5.25%, 10/1/2012 ......................... 5,000,000 5,096,500
Series 1998, 4.375%, 10/1/2017 ........................ 6,830,000 5,856,452
Series 1997, 5%, 10/1/2018 (b) ........................ 2,150,000 2,004,918
Tahoe Truckee, CA, Unified School District, Improvement
District No. 1, Series 1999A, 5.75%, 8/1/2020 (b) ..... 1,000,000 1,011,560
Torrance, CA, Redevelopment Agency, Tax Allocation,
Sub Lien, 5.4%, 9/1/2011 .............................. 665,000 635,920
Ukiah, CA, Unified School District, Series 1997,
Zero Coupon, 8/1/2010 (b) ............................. 1,200,000 708,852
Washington TWP., CA, Health Care District, Revenue Bond,
Series 1999, 5.125%, 7/1/2023 ......................... 500,000 428,200
Watsonville, CA, Community Hospital Revenue,
Series 1996, 5.95%, 7/1/2007 .......................... 1,135,000 1,214,745
West Covina, CA, Queen of the Valley Hospital, Certificate
of Participation, Hospital Revenue:
Series 1994, ETM, 5.7%, 8/15/2000*** .................. 380,000 382,576
Series 1994, ETM, 5.8%, 8/15/2001*** .................. 750,000 766,710
West Covina, CA , Redevelopment Agency Facility,
Series 1996, ETM, 5.75%, 9/1/2009*** .................. 865,000 899,375
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 2,850,970
Puerto Rico
Puerto Rico Commonwealth, Inverse Floating Rate,
RITES-PA 620 B, 6.73%, 7/1/2014 (b)** ................. 1,500,000 1,743,900
Puerto Rico Municipal Finance Authority,
Inverse Floating Rate, RITES-PA 645B, 6.32%,
8/1/2013 (b)** ........................................ 1,145,000 1,256,420
Inverse Floating Rate, RITES-PA 645D, 6.74%,
8/1/2015 (b)** ...................................... 1,225,000 1,368,558
Puerto Rico Public Building Authority,
Government Facilities Revenue, Series 1995A, 6.25%,
7/1/2013 .............................................. 1,000,000 1,109,690
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------------
<S> <C> <C>
Puerto Rico Commonwealth Highway & Transportation
Authority, Highway Revenue, Series 1996Z, 6.25%,
7/1/2014 (b) ........................................... 1,000,000 1,106,790
Virgin Islands
Virgin Islands, Special Tax Bonds, Hugo Bonds,
Prerefunded 10/1/2001, 7.75%, 10/1/2006 (c) ............ 1,330,000 1,392,509
Virgin Islands Public Finance Authority, Revenue Bond,
Series 1999A, 6.5%, 10/1/2024 .......................... 2,500,000 2,524,175
Virgin Islands, Public Finance Authority, Matching Fund
Loan Notes, ETM, Series 1992A, 7%, 10/1/2002*** ........ 1,000,000 1,060,070
- --------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $295,304,917) 303,555,572
- --------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $301,304,917) (a) 309,555,572
- --------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $301,304,917. At March 31,
2000, net unrealized appreciation for all securities based on tax cost
was $8,250,655. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $11,424,920 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over value of $3,174,265.
(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.
(d) When-issued or forward delivery securities.
(e) At March 31, 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 March 31, 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: Subject to alternative minimum tax
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of March 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- ----------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $301,304,917) ................ $ 309,555,572
Cash ................................................................... 581,200
Receivable for investments sold ........................................ 5,895,561
Receivable for when-issued securities .................................. 6,495,923
Interest receivable .................................................... 3,691,065
Receivable for Fund shares sold ........................................ 522,995
Other assets ........................................................... 4,009
---------------
Total assets ........................................................... 326,746,325
Liabilities
- ----------------------------------------------------------------------------------------
Payable for investments purchased ...................................... 1,544,327
Payable for when-issued securities ..................................... 14,968,213
Dividends payable ...................................................... 458,502
Payable for Fund shares redeemed ....................................... 186,756
Accrued management fee ................................................. 156,396
Other accrued expenses and payables .................................... 75,004
---------------
Total liabilities ...................................................... 17,389,198
- ----------------------------------------------------------------------------------------
Net assets, at value $ 309,357,127
- ----------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments .............. 8,250,655
Accumulated net realized gain (loss) ................................... (6,824,689)
Paid-in capital ........................................................ 307,931,161
- ----------------------------------------------------------------------------------------
Net assets, at value $ 309,357,127
- ----------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($309,357,127 /
29,087,807 outstanding shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) .............................. $ 10.64
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
Statement of Operations for the year ended March 31, 2000
Investment Income
- -------------------------------------------------------------------------------
Interest ....................................................... $ 17,735,691
---------------
Expenses:
Management fee ................................................. 1,971,797
Services to shareholders ....................................... 238,598
Custodian and accounting fees .................................. 91,958
Auditing ....................................................... 47,272
Legal .......................................................... 18,462
Trustees' fees and expenses .................................... 21,960
Reports to shareholders ........................................ 17,218
Registration fees .............................................. 9,962
Other .......................................................... 26,051
---------------
Total expense, before expense reductions ....................... 2,443,278
Expense reductions ............................................. (11,749)
---------------
Total expenses, after expense reductions ....................... 2,431,529
- -------------------------------------------------------------------------------
Net investment income 15,304,162
- -------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -------------------------------------------------------------------------------
Net realized gain (loss) from investments ...................... (2,198,636)
Net unrealized appreciation (depreciation) on investments during
the period on investments .................................. (14,884,705)
- -------------------------------------------------------------------------------
Net gain (loss) on investment transactions (17,083,341)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (1,779,179)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended March 31,
Increase (Decrease) in Net Assets 2000 1999
- ------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income ............................. $ 15,304,162 $ 15,243,751
Net realized gain (loss) on investment transactions (2,198,636) 3,308,849
Net unrealized appreciation (depreciation) on
investment transactions during the period ...... (14,884,705) 363,460
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations ................................ (1,779,179) 18,916,060
--------------- ---------------
Distributions to shareholders from:
Net investment income ............................. (15,304,162) (15,243,751)
--------------- ---------------
Net realized gains ................................ (147,090) --
--------------- ---------------
Fund share transactions:
Proceeds from shares sold ......................... 62,587,325 60,022,937
Reinvestment of distributions ..................... 9,886,007 9,780,792
Cost of shares redeemed ........................... (86,144,466) (57,666,190)
--------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions ............................. (13,671,134) 12,137,539
--------------- ---------------
Increase (decrease) in net assets ................. (30,901,565) 15,809,848
Net assets at beginning of period ................. 340,258,692 324,448,844
Net assets at end of period ....................... $ 309,357,127 $ 340,258,692
Other Information
- ------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 30,428,525 29,339,439
--------------- ---------------
Shares sold ....................................... 5,815,536 5,371,062
Shares issued to shareholders in reinvestment of
distributions .................................. 928,209 874,961
Shares redeemed ................................... (8,084,463) (5,156,937)
--------------- ---------------
Net increase (decrease) in Fund shares ............ (1,340,718) 1,089,086
Shares outstanding at end of period ............... 29,087,807 30,428,525
</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>
- ----------------------------------------------------------------------------------
Years Ended March 31, 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.18 $11.06 $10.39 $10.36 $10.07
------------------------------------------
- ----------------------------------------------------------------------------------
Income from investment operations:
- ----------------------------------------------------------------------------------
Net investment income .51 .51 .52 .52 .51
- ----------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions (.53) .12 .69 .04 .29
------------------------------------------
- ----------------------------------------------------------------------------------
Total from investment operations (.02) .63 1.21 .56 .80
- ----------------------------------------------------------------------------------
Less distributions from:
- ----------------------------------------------------------------------------------
Net investment income (.51) (.51) (.52) (.52) (.51)
- ----------------------------------------------------------------------------------
Net realized gains on investment
transactions (.01) -- (.02) (.01) --
------------------------------------------
- ----------------------------------------------------------------------------------
Total distributions (.52) (.51) (.54) (.53) (.51)
- ----------------------------------------------------------------------------------
Net asset value, end of period $10.64 $11.18 $11.06 $10.39 $10.36
------------------------------------------
- ----------------------------------------------------------------------------------
Total Return (%) (.21) 5.78 11.85 5.44 8.01
- ----------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ----------------------------------------------------------------------------------
Net assets, end of period ($ millions) 309 340 324 289 293
- ----------------------------------------------------------------------------------
Ratio of expenses (%) .76 .76 .78 .78 .77
- ----------------------------------------------------------------------------------
Ratio of net investment income (%) 4.78 4.55 4.79 4.98 4.88
- ----------------------------------------------------------------------------------
Portfolio turnover rate (%) 40 41 22 71 49
- ----------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 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. The Fund's portfolio debt securities purchased with an
original maturity greater than sixty days are valued by pricing agents approved
by the officers of the Fund, whose quotations reflect broker/dealer-supplied
valuations and electronic data processing techniques. If the pricing agents are
unable to provide such quotations, the most recent bid quotation supplied by a
bona fide market maker shall be used. Money market instruments purchased with an
original maturity of sixty days or less are valued at amortized cost. All other
securities are valued at their fair value as determined in good faith by the
Valuation Committee of the Board of Trustees.
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
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<PAGE>
March 31, 2003 ($2,000,000), March 31, 2004 ($400,000) and March 31, 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 generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
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 year ended March 31, 2000, purchases and sales of long-term municipal
securities aggregated $126,529,041 and $144,764,949, 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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<PAGE>
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 year ended March 31, 2000, the fee pursuant to the Agreement
amounted to $1,971,797, which was equivalent to an annual effective rate of
0.62% 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
year ended March 31, 2000, the amount charged to the Fund by SSC aggregated
$137,464, of which $21,079 is unpaid at March 31, 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 year ended
March 31, 2000, the amount charged to the Fund by SFAC aggregated $68,021, of
which $3,060 is unpaid at March 31, 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 year
ended March 31, 2000, Trustees' fees and expenses aggregated $21,960.
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 year ended March 31, 2000, the
Fund's custodian and transfer agent fees were reduced by $2,635 and $9,114,
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.
30
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of Scudder California Tax Free Trust and the Shareholders of
Scudder California Tax Free Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder California Tax Free Fund
(the "Fund") at March 31, 2000, the results of its operations, the changes in
its net assets, and the financial highlights for each of the periods indicated
therein, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at March 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
May 19, 2000
31
<PAGE>
Tax Information
- --------------------------------------------------------------------------------
Of the dividends paid from net investment income for the taxable year ended
March 31, 2000, 100% are designated as exempt interest dividends for federal
income tax purposes.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
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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. Ann M. McCreary*
o Trustee; President and General o Vice President
Manager, WGBH Educational Foundation
Frank J. Rachwalski, Jr.*
Dawn-Marie Driscoll o Vice President
o Trustee; President, Driscoll
Associates; Executive Fellow, Center John Millette*
for Business Ethics, Bentley College o Vice President and Secretary
Peter B. Freeman John R. Hebble*
o Trustee; Corporate Director and o Treasurer
Trustee
Caroline Pearson*
George M. Lovejoy, Jr. o Assistant Secretary
o Trustee; President and Director,
Fifty Associates
* Scudder Kemper Investments, 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
* Scudder Kemper Investments, Inc.
33
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund***
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund***
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Health 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>
34
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Closed-End Funds#
- -----------------------------------------------------------------------------------------
<S> <C>
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
+++ Funds within categories are listed in order from expected least
risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange.
+ A portion of the income from the tax-free funds may be subject to
federal, state, and local taxes.
* A class of shares of the fund.
** Not available in all states.
*** Only the Scudder Shares of the fund are part of the Scudder Family
of Funds.
++ Only the International Shares of the fund are part of the Scudder
Family of Funds.
+++ +++ A no-load variable annuity contract provided by Charter National
Life Insurance Company and its affiliate, offered by Scudder's
insurance agencies, 1-800-225-2470.
+++ +++ +++ A no-load variable annuity contract issued by Glenbrook Life and
Annuity Company and underwritten by Allstate Financial Services,
Inc., sold by Scudder's insurance agencies, 1-800-225-2470.
# These funds, advised by Scudder Kemper Investments, Inc., are
traded on the New York Stock Exchange and, in some cases, on
various other stock exchanges.
35
<PAGE>
Scudder Solutions
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average" --
buy more shares when the fund's price is lower and fewer
when it's higher, which can reduce your average purchase
price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government checks
-- invested in up to four Scudder funds at one time.
* Dollar cost averaging involves continuous investment in
securities regardless of price fluctuations and does not
assure a profit or protect against loss in declining
markets. Investors should consider their ability to
continue such a plan through periods of low price
levels.
Around-the- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.scudder.com
Personal Investment Organizer: Offering account information
and transactions, interactive worksheets, prospectuses and
applications for all Scudder funds, plus your current asset
allocation, whenever your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
36
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal each distribution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
37
<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.
Shares of the funds are not insured or guaranteed by the U.S. Government.
Scudder California Tax Free Money Fund seeks to maintain a constant net asset
value of $1.00 per share but there can be no assurance that the stable net asset
value will be maintained.
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
