February 7, 1995
Dear Scudder Investor,
The prospectus supplement on the reverse side is a formal notice of a
temporary change in Scudder Ohio Tax Free Fund's portfolio management team.
Donald C. Carleton is the new Lead Portfolio Manager of Scudder Ohio
Tax Free Fund. Mr. Carleton joins Portfolio Manager Philip G. Condon. Mr.
Carleton replaces Lead Portfolio Manager Kimberley R. Manning until such
time she returns from a short-term leave.
If you have any questions, please call us at 1-800-225-2470, between
8:00 a.m. and 8:00 p.m. eastern time, Monday through Friday. We will be
happy to assist you.
Sincerely,
/s/David S. Lee
David S. Lee
President, Scudder Investor Services, Inc.
This letter is for explanatory purposes and is not part of the prospectus
supplement on the reverse side.
(over please)
Scudder Ohio Tax Free Fund
Supplement to Prospectus
dated August 1, 1994
The following text replaces the section entitled "Shareholder benefits--A
team approach to investing."
Scudder Ohio Tax Free Fund is managed by a team of Scudder investment
professionals, who each play 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 Scudder's
large staff of economists, research analysts, traders and other investment
specialists. Scudder believes its team approach benefits Fund investors by
bringing together many disciplines and leveraging Scudder's extensive
resources.
Lead Portfolio Manager Donald C. Carleton assumed responsibilities for the
Fund's day-to-day management and investment strategies in January 1995. Mr.
Carleton has 25 years of investment management experience and has worked at
Scudder since 1983. Philip G. Condon, Portfolio Manager, became a member of
the team in 1987 and has worked at Scudder since 1983. Mr. Condon has 15
years of experience in municipal investing and portfolio management.
February 7, 1995
<PAGE>
This prospectus sets forth concisely the information about Scudder Ohio Tax Free
Fund, a series of Scudder State Tax Free Trust, that a prospective investor
should know before investing. Please retain it for future reference.
If you require more detailed information, a Statement of Additional Information
dated August 1, 1994, as amended from time to time, may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents_see page 4.
Scudder
Ohio
Tax Free Fund
Prospectus
August 1, 1994
A pure no-load(tm) (no sales charges) mutual fund series which seeks to provide
double tax-free income, exempt from both Ohio personal income tax and regular
federal income tax.
Expense information
How to compare a Scudder pure no-load(tm) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder Ohio Tax Free Fund (the "Fund"). By reviewing
this table and those in other mutual funds' prospectuses, you can compare the
Fund's fees and expenses with those of other funds. With Scudder's pure
no-load(tm) funds, you pay no commissions to purchase or redeem shares, or to
exchange from one fund to another. As a result, all of your investment goes to
work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Fund operating expenses (after expense maintenance): Expenses paid
by the Fund before it distributes its net investment income, expressed as a
percentage of the Fund's average daily net assets for the fiscal year ended
March 31, 1994.
Investment management fee 0.20%
12b-1 fees NONE
Other expenses 0.30%
------
Total Fund operating expenses 0.50%**
======
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to shareholders. (As noted above, the Fund has no redemption
fees of any kind.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$5 $16 $28 $63
See "Fund organization_Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.
* You may redeem by writing or calling the Fund. If you wish to receive your
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction information_Redeeming
shares."
** The Investment Adviser has agreed to maintain the annualized expenses of
the Fund at not more than 0.50% of the average daily net assets of the Fund
until July 31, 1995. If expense maintenance had not been in effect during
the year ended March 31, 1994, the investment management fee would have
been 0.60% and the total annualized Fund operating expenses would have been
0.90% of average daily net assets.
Financial highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements. If you would like more detailed information concerning the Fund's
performance, a complete portfolio listing and audited financial statements are
available in the Fund's Annual Report dated March 31, 1994 and may be obtained
without charge by writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
For the period
May 28, 1987
(commencement
Years Ended March 31, of operations)
----------------------------------------------------- to March 31,
1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $13.13 $12.47 $12.14 $11.97 $11.94 $11.65 $12.00
period ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (a) .70 .72 .75 .78 .82 .79 .66
Net realized and unrealized gain (.35) .85 .36 .23 .10 .36 (.40)
(loss) on investment transactions ------ ------ ------ ------ ------ ------ ------
Total from investment operations .35 1.57 1.11 1.01 .92 1.15 .26
------ ------ ------ ------ ------ ------ ------
Less distributions: From net (.70) (.72) (.75) (.78) (.82) (.84) (.61)
investment income
From net realized gains on (.08) (.19) (.03) (.06) (.07) (.02) _
investment transactions
In excess of net realized gains (.02) _ _ _ _ _ _
------ ------ ------ ------ ------ ------ ------
Total distributions (.80) (.91) (.78) (.84) (.89) (.86) (.61)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $12.68 $13.13 $12.47 $12.14 $11.97 $11.94 $11.65
====== ====== ====== ====== ====== ====== ======
Total Return (%) (b) 2.48 13.04 9.33 8.75 7.80 10.83 2.30**
Ratios and Supplemental Data
Net assets, end of period ($ 80 69 51 37 25 12 6
millions)
Ratio of operating expenses, net to .50 .50 .50 .50 .50 .50 .50*
average daily net assets (%) (a)
Ratio of net investment income to 5.23 5.61 6.05 6.50 6.74 7.13 7.17*
average daily net assets (%)
Portfolio turnover rate (%) 12.2 34.7 13.2 22.6 15.9 35.7 105.5*
(a) Reflects a per share amount of $_ $_ $_ $_ $.03 $.11 $.31
expenses, exclusive of management
fees, reimbursed by the Adviser of
Reflects a per share amount of $.05 $.06 $.07 $.07 $.07 $.07 $.05
management fee not imposed of
Operating expense ratio including .90 .95 1.03 1.21 1.62 2.14 4.51*
expenses reimbursed, management fee
and other expenses not imposed (%)
(b) Total returns are higher due to maintenance of the Fund's expenses.
* Annualized
** Not Annualized
</TABLE>
A message from Scudder's chairman
Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. Today, we manage in excess of $90 billion for many private accounts and
over 50 mutual fund portfolios. We manage the mutual funds in a special program
for the American Association of Retired Persons, as well as the fund options
available through Scudder Horizon Plan, a tax-advantaged variable annuity. We
also advise The Japan Fund and nine closed-end funds that invest in countries
around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to all shareholders include toll-free access to professional
service representatives at Scudder Service Corporation and the Scudder Investor
Information department, easy exchange among funds, shareholder reports,
informative newsletters and the walk-in convenience of Scudder Funds Centers.
All Scudder mutual funds are pure no-load(tm). This means you pay no commissions
to purchase or redeem your shares or to exchange from one fund to another. There
are no "12b-1" fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.
/s/Daniel Pierce
Scudder Ohio Tax Free Fund
Investment objective
* income exempt from Ohio personal income tax and regular federal income tax
Investment characteristics
* primarily long-term investment-grade municipal securities tax-exempt in
Ohio
* active professional management
* dividends declared daily and paid monthly
Contents
Investment objective and policies 5
Tax-exempt vs. taxable income 6
Why invest in the Fund? 7
Additional information about policies and investments 8
Purchases 12
Exchanges and redemptions 13
Distribution and performance information 14
Fund organization 15
Transaction information 16
Shareholder benefits 19
Trustees and Officers 21
Investment products and services 22
How to contact Scudder 23
Investment objective and policies
Scudder Ohio Tax Free Fund (the "Fund"), a series of Scudder State Tax Free
Trust, seeks to provide Ohio taxpayers with income exempt from both Ohio
personal income tax and regular federal income tax. The Fund is a professionally
managed portfolio consisting primarily of investment-grade municipal securities.
The Fund's investment adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"),
believes that investment results can be enhanced by active professional
management. Professional management distinguishes the Fund from unit investment
trusts, which cannot be actively managed.
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a shareholder vote. Shareholders will
receive written notice of any changes in the Fund's objective. If there is a
change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.
Quality
Normally, at least 75% of the intermediate- and long-term securities purchased
by the Fund will be investment-grade municipal securities, those rated Aaa, Aa,
A, or Baa by Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A, or BBB
by Standard & Poor's Corporation ("S&P") or Fitch Investors Service, Inc.
("Fitch"), or unrated securities judged by the Adviser to be of equivalent
quality, or securities issued or guaranteed by the U.S. Government. The Fund may
also invest up to 25% of its total assets in fixed-income securities rated below
investment-grade, that is, rated below Baa by Moody's or BBB by S&P or Fitch, or
in unrated securities considered to be of equivalent quality. The Fund may not
invest in fixed-income securities rated below B by Moody's, S&P or Fitch, or
their equivalent.
The Fund expects to invest principally in securities rated A or better by
Moody's, S&P or Fitch or unrated securities judged by the Adviser to be of
equivalent quality at the time of purchase. Securities in these three rating
categories are judged by the Adviser to have an adequate if not strong capacity
to repay principal and pay interest.
During the year ended March 31, 1994, the average monthly dollar-weighted market
value of the bonds in the Fund's portfolio were as follows: 49.68% rated AAA,
18.03% AA, 16.90% A and 10.76% BBB. The bonds are rated by Moody's, S&P or
Fitch, or of equivalent quality as determined by the Adviser.
High quality bonds, those within the two highest of the quality rating
categories, characteristically have a strong capacity to pay interest and repay
principal. Medium-grade bonds, those within the next two such categories, are
defined as having adequate capacity to pay interest and repay principal. In
addition, certain medium-grade bonds are considered to have speculative
characteristics. While some lower-grade bonds (so-called "junk bonds") have
produced higher yields in the past than investment-grade bonds, they are
considered to be predominantly speculative and, therefore, carry greater risk.
The Fund's investments must also meet credit standards applied by the Adviser.
Should the rating of a portfolio security be downgraded after being purchased by
the Fund, the Adviser will determine whether it is in the best interest of the
Fund to retain or dispose of the security.
Investments
The Fund invests in municipal securities of issuers located in Ohio and other
qualifying issuers (including Puerto Rico, the U.S. Virgin Islands and Guam) the
income from which is, in the opinion of bond counsel, exempt from both Ohio
personal income tax and regular federal income tax ("Ohio municipal
securities"). These securities include municipal bonds, which meet longer-term
capital needs and generally have maturities of more than one year when issued.
Municipal bonds include general obligation bonds, which are secured by the
issuer's pledge of its faith, credit and taxing power for payment of principal
and interest, and revenue bonds, which may be issued to finance projects owned
or used by either private or public entities and which include bonds issued to
finance industrial enterprises and pollution control facilities. The Fund may
invest in other municipal securities such as variable rate demand instruments.
The Fund may also invest in municipal notes of issuers located in Ohio and other
qualifying issuers. They are generally used to provide short-term capital needs
and have maturities of one year or less. Municipal notes include tax
anticipation notes, revenue anticipation notes, bond anticipation notes and
construction loan notes. For federal income tax purposes, the income earned from
municipal securities may be entirely tax-free, taxable or subject to only the
alternative minimum tax.
Tax-exempt vs. taxable income
Tax Free Yields and Corresponding Taxable Equivalents. The table below shows
Ohio taxpayers what an investor would have to earn from a comparable taxable
investment to equal Scudder Ohio Tax Free Fund's double tax free yield.
Today many investors may find that federal tax and Ohio personal income tax
rates make Scudder Ohio Tax Free Fund an attractive alternative to investments
paying taxable income.
<TABLE>
<CAPTION>
TO EQUAL HYPOTHETICAL TAX-FREE
YIELDS OF 5%, 7% AND 9%, A
TAXABLE INVESTMENT WOULD HAVE
COMBINED TO EARN*:
1994 TAXABLE INCOME: MARGINAL TAX RATE: 5% 7% 9%
- -------------------- ------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
INDIVIDUAL
- -----------------------------------------
$20,000-22,750 18.79% 6.16% 8.62% 11.08%
22,751-40,000 31.21 7.27 10.18 13.08
40,001-55,100 31.74 7.33 10.26 13.19
55,101-80,000 34.59 7.64 10.70 13.76
80,001-100,000 35.10 7.70 10.79 13.87
100,001-115,000 35.76 7.78 10.90 14.01
115,001-200,000 40.42 8.39 11.75 15.10
200,001-250,000 40.80 8.45 11.82 15.20
OVER $250,000 44.13 8.95 12.53 16.11
JOINT RETURN
- -----------------------------------------
$20,000-38,000 18.79% 6.16% 8.62% 11.08%
38,001-40,000 31.21 7.27 10.18 13.08
40,001-80,000 31.74 7.33 10.26 13.19
80,001-91,850 32.28 7.38 10.34 13.29
91,851-100,000 35.10 7.70 10.79 13.87
100,001-140,000 35.76 7.78 10.90 14.01
140,001-200,000 40.42 8.39 11.75 15.10
200,001-250,000 40.80 8.45 11.82 15.20
OVER $250,000 44.13 8.95 12.53 16.11
<FN>
* These illustrations assume a marginal federal income tax rate of 28% to
39.6% and that the federal alternative minimum tax is not applicable. Upper
income individuals may be subject to an effective federal income tax rate
in excess of the applicable marginal rate as a result of the phase-out of
personal exemptions and itemized deductions made permanent by the Revenue
Reconciliation Act of 1993. Individuals subject to these phase-out
provisions would have to invest in taxable securities with a yield in
excess of those shown on the table in order to achieve an after-tax yield
equivalent to the yield on a comparable tax-exempt security.
</FN>
</TABLE>
Under normal market conditions, the Fund expects to invest principally in Ohio
municipal securities with long-term maturities (i.e., more than 10 years). The
Fund has the flexibility, however, to invest in Ohio municipal securities with
short- and medium-term maturities as well.
The Fund may also invest up to 20% of its total assets in municipal securities
the interest income from which is subject to the alternative minimum tax or to
federal income tax. Fund distributions from interest on certain municipal
securities subject to the alternative minimum tax such as private activity
bonds, will be a preference item for purposes of calculating individual and
corporate alternative minimum taxes, depending upon investors' particular
situations. In addition, state and local taxes may apply, depending upon your
state and local tax laws.
Ordinarily, the Fund expects that 100% of its portfolio securities will be Ohio
municipal securities. The Fund may also hold cash or invest its assets in
taxable securities.
The Fund may invest in stand-by commitments, third party puts, when-issued or
forward delivery securities, and enter into repurchase agreements and reverse
repurchase agreements, which may involve certain expenses and risks, including
credit risks. These securities and techniques are not expected to comprise a
major portion of the Fund's investments. The Fund may engage in strategic
transactions for hedging purposes and to seek gain. See "Additional information
about policies and investments" for more information about certain of these
investment techniques.
A portion of the Fund's income may be subject to federal, state and local income
taxes.
Why invest in the Fund?
The Fund is designed for investors seeking double tax-free income_exempt both
from Ohio personal income tax and regular federal income tax. Because the Fund
is intended for investors subject to Ohio personal income tax and regular
federal income tax, it may not be appropriate for all investors and is not
available in all states.
As illustrated by the chart on the preceding page, depending on your tax bracket
and individual situation, you may earn a substantially higher after-tax return
from the Fund than from comparable investments that pay income subject to both
Ohio state personal income tax and regular federal income tax. For example, if
your regular federal marginal tax rate is 36% and your Ohio tax rate is 6.9%,
your effective combined marginal tax rate is 40.42% when adjusted for the
deductibility of state taxes. Thus, you would need to earn a taxable return of
8.66% to receive after-tax income equal to the 5.16% tax-free yield provided by
Scudder Ohio Tax Free Fund for the 30-day period ended March 31, 1994. In other
words, it would be necessary to earn $1,678 from a taxable investment to equal
$1,000 of tax-free income you receive from the Fund. The yield levels of
tax-free and taxable investments continually change. Before investing in the
Fund, you should compare its yield to the after-tax yield you would receive from
a comparable investment paying taxable income. For up-to-date yield information
on the Fund, shareholders can call SAIL, Scudder Automated Information Line, for
toll-free information at any time.
In addition, the Fund offers all the benefits of the Scudder Family of Funds.
Scudder, Stevens & Clark, Inc. manages a diverse family of pure no-load(tm)
funds and provides a wide range of services to help investors meet their
investment needs. Please refer to "Investment products and services" for
additional information.
Additional information about policies and investments
Investment restrictions
The Fund has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to reduce the Fund's
investment risk. The Fund may not borrow money except as a temporary measure for
extraordinary or emergency purposes or except in connection with reverse
repurchase agreements and may not make loans except through the purchase of debt
obligations or through repurchase agreements.
Scudder Ohio Tax Free Fund is a non-diversified fund (except to the extent
diversification is required for federal income tax purposes). The Fund does not
invest more than 25% of its assets in pollution control and industrial
development bonds or taxable investments of private sector companies in the same
industry.
At least 80% of the Fund's net assets is normally invested in Ohio municipal
securities.
When the Adviser determines that market conditions warrant, the Fund may, for
temporary defensive purposes, invest more than 20% of its net assets in taxable
securities.
In addition, as a matter of nonfundamental policy, the Fund may not invest more
than 10% of its total assets, in the aggregate, in repurchase agreements
maturing in more than seven days, restricted securities or securities which are
not readily marketable. The Fund may not invest more than 5% of its net assets
in restricted securities, and will not invest more than 25% of its assets in
Ohio municipal securities which are secured by revenues from health facilities,
toll roads, ports and airports, or colleges and universities. The Fund does not
expect to invest in non-publicly offered securities.
Up to 20% of the Fund's assets may be held in cash or invested in short-term
taxable investments, including repurchase agreements, U.S. Government
obligations and other money market instruments.
A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Statement of Additional
Information.
Investing in Ohio
The Fund is more susceptible to factors adversely affecting issuers of Ohio
municipal securities than is a comparable municipal bond fund that does not
emphasize these issuers to this degree. Ohio encountered, successfully dealt
with, and abated some financial difficulties in prior years and may, as may any
state, face some long-term problems in certain regions of the State and in
certain sectors of its economy, which continues to rely in part on durable goods
manufacturing, largely concentrated in motor vehicles and equipment, steel,
rubber products and household appliances. For additional information about the
Ohio economy, see the Fund's Statement of Additional Information dated August 1,
1994.
When-issued securities
The Fund may purchase securities on a when-issued or forward delivery basis, for
payment and delivery at a later date. The price and yield are generally fixed on
the date of commitment to purchase. During the period between purchase and
settlement, no interest accrues to the Fund. At the time of settlement, the
market value of the security may be more or less than the purchase price.
Repurchase agreements
As a means of earning taxable income for periods as short as overnight, the Fund
may enter into repurchase agreements with selected banks and broker/dealers.
Under a repurchase agreement, the Fund acquires securities, subject to the
seller's agreement to repurchase at a specified time and price. Income from
repurchase agreements will be taxable when distributed to shareholders.
Stand-by commitments
To facilitate liquidity, the Fund may enter into "stand-by commitments"
permitting it to resell municipal securities to the original seller at a
specified price. Stand-by commitments generally involve no cost to the Fund, and
any costs would be, in any event, limited to no more than 0.50% of the value of
the total assets of the Fund. Any such costs may, however, reduce yield.
Third party puts
The Fund may purchase long-term fixed rate bonds that have been coupled with an
option granted by a third party financial institution allowing the Fund at
specified intervals to tender (or "put") its bonds to the institution and
receive the face value thereof. These third party puts are available in several
different forms, may be represented by custodial receipts or trust certificates
and may be combined with other features such as interest rate swaps.
Variable rate demand instruments
The Fund may purchase variable rate demand instruments that are tax-exempt
municipal obligations providing for a periodic adjustment in the interest rate
paid on the instrument according to changes in interest rates generally. These
instruments also permit the Fund to demand payment of the unpaid principal
balance plus accrued interest upon a specified number of days' notice to the
issuer or its agent.
Municipal lease obligations
The Fund may invest in municipal lease obligations and participation interests
in such obligations. These obligations, which may take the form of a lease, an
installment purchase contract or a conditional sales contract, are issued by
state and local governments and authorities to acquire land and a wide variety
of equipment and facilities. Generally, the Fund will not hold such obligations
directly, but will purchase a certificate of participation or other
participation interest in a municipal obligation from a bank or other financial
intermediary. A participation interest gives the Fund a proportionate interest
in the underlying obligation.
Indexed securities
The Fund may invest in indexed securities, the value of which is linked to
currencies, interest rates, commodities, indices or other financial indicators
("reference instruments"). The interest rate or (unlike most fixed-income
securities) the principal amount payable at maturity of an indexed security may
be increased or decreased, depending on changes in the value of the reference
instrument.
Strategic Transactions
The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates and broad or specific market movements), to manage the effective maturity
or duration of the Fund's portfolio, or to enhance potential gain. Such
strategies are generally accepted as modern portfolio management and are
regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
fixed-income indices and other financial instruments, purchase and sell
financial futures contracts and options thereon, and enter into various interest
rate transactions such as swaps, caps, floors or collars (collectively, all the
above are called "Strategic Transactions"). Strategic Transactions may be used
to attempt to protect against possible changes in the market value of securities
held in or to be purchased for the Fund's portfolio resulting from securities
markets fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Some Strategic Transactions may
also be used to enhance potential gain although no more than 5% of the Fund's
assets will be committed to Strategic Transactions entered into for non-hedging
purposes. Any or all of these investment techniques may be used at any time and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes. Please refer to "Risk factors_Strategic
Transactions" for more information.
Risk factors
The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Fund may use from time to time.
Non-diversified investment company. As a "non-diversified" investment company,
the Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers. The investment of a large percentage of the Fund's
assets in the securities of a small number of issuers may cause the Fund's share
price to fluctuate more than that of a diversified investment company.
Investing in Ohio. If either Ohio or any of its local governmental entities were
to be unable to meet its financial obligations, the income derived by the Fund,
its net asset value or liquidity and the ability to preserve or realize
appreciation of the Fund's capital could be adversely affected.
Since the Fund will invest primarily in securities of Ohio issuers, political
and economic factors affecting Ohio could affect the creditworthiness and the
value of the securities in its portfolio. The Ohio economy, while diversifying
more into the service and other non-manufacturing areas, continues to rely in
part on durable goods manufacturing largely concentrated in motor vehicles and
equipment, steel, rubber products and household appliances. As a result, general
economic activity in Ohio, as in many other industrially developed states, tends
to be more cyclical than in some other states and in the nation as a whole.
Agriculture is an important segment of the economy, with over half the State's
area devoted to farming and approximately 15% of total employment in
agribusiness. In prior years, the State's overall unemployment rate was somewhat
higher than the national figure. For example, the reported 1990 average monthly
State rate was 5.7%, compared to the 5.5% national figure. However, for 1991,
1992 and 1993 the State rates (6.4%, 7.2% and 6.5%) were below the national
rates (6.7%, 7.4% and 6.8%). The unemployment rate and its effects vary among
particular geographic areas of the State. Future national, regional or statewide
economic difficulties, and the resulting impact on State or local government
finances generally, could adversely affect the market value of Ohio municipal
securities held in the portfolio of the Fund or the ability of particular
obligors to make timely payments of debt service on those obligations. See
"Investing in Ohio" in the Fund's Statement of Additional Information for
further details about the risks of investing in Ohio obligations.
Debt securities. The Fund may invest in securities rated below Baa by Moody's or
BBB by S&P or Fitch. Moody's considers bonds it rates Baa to have speculative
elements as well as investment-grade characteristics. Securities rated below
investment-grade are commonly referred to as "junk bonds" and involve greater
price volatility and higher degrees of speculation with respect to the payment
of principal and interest than higher quality fixed-income securities. The
market prices of such lower-rated debt securities may decline significantly in
periods of general economic difficulty. In addition, the trading market for
these securities is generally less liquid than for higher rated securities and
the Fund may have difficulty disposing of these securities at the time it wishes
to do so. The lack of a liquid secondary market for certain securities may also
make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing its portfolio and calculating its net asset value.
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of securities may be restricted. In the
event of the commencement of bankruptcy or insolvency proceedings of the seller
of the securities before repurchase of the securities under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the securities. Also, if a seller defaults, the value of such securities
might decline before the Fund is able to dispose of them.
Third party puts. In connection with a third party put, the financial
institution granting the option does not provide credit enhancement, and
typically if there is a default on or significant downgrading of the bond or a
loss of its tax-exempt status, the put option will terminate automatically and
the risk to the Fund will be that of holding a long-term bond.
Municipal lease obligations. Municipal lease obligations and participation
interests in such obligations frequently have risks distinct from those
associated with general obligation or revenue bonds. Municipal lease obligations
are not secured by the governmental issuer's credit, and if funds are not
appropriated for lease payments, the lease may terminate, with the possibility
of default on the lease obligation and significant loss to the Fund. Although
"non-appropriation" obligations are secured by the leased property, disposition
of that property in the event of foreclosure might prove difficult, time
consuming and costly. In addition, the tax treatment of such obligations in the
event of non-appropriation is unclear. In evaluating the credit quality of a
municipal lease obligation that is unrated, the Adviser will consider a number
of factors including the likelihood that the governmental issuer will
discontinue appropriating funding for the leased property. For more information
please refer to the Fund's Statement of Additional Information.
Indexed securities. Indexed securities may be positively or negatively indexed,
so that appreciation of the reference instrument may produce an increase or a
decrease in the interest rate or value at maturity of the security. In addition,
the change in the interest rate or value at maturity of the security may be some
multiple of the change in the value of the reference instrument. Thus, in
addition to the credit risk of the security's issuer, the Fund will bear the
market risk of the reference instrument.
(Continued on page 14)
Purchases
Opening an account
Minimum initial investment: $1,000; IRAs $500
Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks payable to "The Scudder Funds."
* By Mail
Send your completed and signed application and check
by regular mail to: or by express,
registered,
or certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 1099 Hingham Street
Boston, MA Rockland, MA
02107-2291 02370-1052
* By Wire
Please see Transaction information_Purchasing shares following these tables
for details, including the ABA wire transfer number. Then call
1-800-225-5163 for instructions.
* In Person
Visit one of our Funds Centers to complete your application with the help
of a Scudder representative. Funds Center locations are listed under
Shareholder benefits.
Purchasing additional shares
Minimum additional investment: $100; IRAs $50
Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks payable to "The Scudder Funds."
* By Mail
Send a check with a Scudder investment slip, or with a letter of
instruction including your account number and the complete Fund name, to
the appropriate address listed above.
* By Wire
Please see Transaction information_Purchasing shares following these tables
for details, including the ABA wire transfer number.
* In Person
Visit one of our Funds Centers to make an additional investment in your
Scudder fund account. Funds Center locations are listed under Shareholder
benefits.
* By Automatic Investment Plan ($50 minimum)
You may arrange to make investments on a regular basis through automatic
deductions from your bank checking account. Please call 1-800-225-5163 for
more information and an enrollment form.
Exchanges and redemptions
Exchanging shares
Minimum investments: $1,000 to establish a new account; $100 to exchange among
existing accounts
* By Phone
To speak with a service representative, call 1-800-225-5163 from 8 a.m. to
6 p.m. eastern time or to access SAIL(tm), Scudder's Automated Information
Line, call 1-800-343-2890 (24 hours a day).
* By Mail or Fax
Print or type your instructions and include:
- the name of the Fund and the account number you are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into; and
- your signature(s) as it appears on your account and a daytime phone
number.
Send your instructions
by regular mail to: or by express, or by fax to:
registered, or
certified mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 1099 Hingham Street
Boston, MA Rockland, MA
02107-2291 02370-1052
Redeeming shares
* By Phone
To speak with a service representative, call 1-800-225-5163 from 8 a.m. to
6 p.m. eastern time or to access SAIL(tm), Scudder's Automated Information
Line, call 1-800-343-2890 (24 hours a day). You may redeem any amount to
your predesignated bank account, and up to $50,000 to your address of
record.
* By Mail or Fax
Send your instructions for redemption to the appropriate address or fax
number above and include:
- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem; and
- your signature(s) as it appears on your account and a daytime phone
number.
A signature guarantee is required for redemptions over $50,000. See Transaction
information_Redeeming shares following these tables.
* By Automatic Withdrawal Plan
You may arrange to receive automatic cash payments periodically if the
value of your account is $10,000 or more. Call 1-800-225-5163 for more
information and an enrollment form.
(Continued from page 11)
Strategic Transactions. Strategic Transactions have risks associated with them
including possible default by the other party to the transaction, illiquidity
and, to the extent the Adviser's view as to certain market movements is
incorrect, the risk that the use of such Strategic Transactions could result in
losses greater than if they had not been used. Use of put and call options may
result in losses to the Fund, force the purchase or sale of portfolio securities
at inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, limit the amount
of appreciation the Fund can realize on its investments or cause the Fund to
hold a security it might otherwise sell. The use of options and futures
transactions entails certain other risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in
the related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures contracts and options transactions for hedging should tend to minimize
the risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's Statement of Additional Information.
Distribution and performance information
Dividends and capital gains distributions
The Fund's dividends from net investment income are declared daily and
distributed monthly. The Fund intends to distribute net realized capital gains
after utilization of capital loss carryforwards, if any, in November or December
to prevent application of federal excise tax, although an additional
distribution may be made within three months of the Fund's fiscal year end, if
necessary. Any dividends or capital gains distributions declared in October,
November or December with a record date in such a month and paid during the
following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared. According
to preference, shareholders may receive distributions in cash or have them
reinvested in additional shares of the Fund.
Distributions derived from interest on Ohio municipal securities are not subject
to regular federal income taxes, except for the possible applicability of the
federal alternative minimum tax. For federal income tax purposes, a portion of
the Fund's income may be taxable to shareholders as ordinary income. Long-term
capital gains distributions, if any, are taxable as long-term capital gains for
federal income tax purposes, regardless of the length of time shareholders have
owned their shares. Short-term capital gains and any other taxable income
distributions are taxable as ordinary income. Distributions of tax-exempt income
are taken into consideration in computing the portion, if any, of Social
Security and railroad retirement benefits subject to federal and, in some cases,
state taxes. Under Ohio law, provided that at all times the Fund qualifies as a
regulated investment company for federal income tax purposes and at least 50% of
the value of the total assets of the Fund consist of obligations issued by or on
behalf of the State of Ohio, political subdivisions thereof and agencies and
instrumentalities of the State or its political subdivisions ("Ohio
Obligations") or similar obligations of other states or their subdivisions, (i)
individuals otherwise subject to the Ohio personal income tax will not be
subject to such tax on dividends paid by the Fund to the extent such dividends
are derived from interest payments on Ohio Obligations; and (ii) dividends paid
by the Fund will be excluded from the net income base for purposes of the Ohio
corporation franchise tax to the extent such dividends are excluded from gross
income for federal income tax purposes or are derived from interest payments on
Ohio Obligations. However, the Fund's shares will be included in the net worth
base for purposes of the Ohio corporation franchise tax.
The Fund ordinarily provides income that is 100% free from Ohio personal income
tax and regular federal income tax. However, income from repurchase agreements
and gains from certain Strategic Transactions are taxable. Some of the Fund's
interest income may be treated as a tax preference item that may subject an
individual investor to liability (or increased liability) under the alternative
minimum tax, depending upon an investor's particular situation. However, at
least 80% of the Fund's net assets will normally be invested in Ohio municipal
securities whose interest income is not treated as a tax preference item under
the individual alternative minimum tax. Tax-exempt income may also subject a
corporate investor to liability (or increased liability) under the corporate
alternative minimum tax.
The Fund sends detailed tax information to shareholders about the amount and
type of its distributions by January 31 of the following year.
Performance information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature, or shareholder reports. All performance
figures are historical, show the performance of a hypothetical investment and
are not intended to indicate future performance. The "yield" of the Fund refers
to income generated by an investment in the Fund over a specified 30-day (one
month) period. Yield is expressed as an annualized percentage. The Fund's
"tax-equivalent yield" is calculated by determining the rate of return that
would have to be achieved on a fully taxable investment to produce the after-tax
equivalent of the Fund's yield, assuming certain tax brackets for a Fund
shareholder. "Total return" is the change in value of an investment in the Fund
for a specified period. The "average annual total return" of the Fund is the
average annual compound rate of return of an investment in the Fund assuming the
investment has been held for one year, five years and the life of the Fund as of
a stated ending date. "Cumulative total return" represents the cumulative change
in value of an investment in the Fund for various periods. Total return
calculations assume that all dividends and capital gains distributions during
the period were reinvested in shares of the Fund. Performance will vary based
upon, among other things, changes in market conditions and the level of the
Fund's expenses.
Fund organization
Scudder Ohio Tax Free Fund is a series of Scudder State Tax Free Trust (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). The Trust was organized as a
Massachusetts business trust in May 1983.
The Fund's activities are supervised by the Trust's Board of Trustees.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Trust is not required to hold, and has no current
intention of holding annual shareholder meetings, although special meetings may
be called for purposes such as electing or removing Trustees, changing
fundamental investment policies or approving an investment management contract.
Shareholders will be assisted in communicating with other shareholders in
connection with removing a Trustee as if Section 16(c) of the 1940 Act were
applicable.
Investment adviser
The Fund retains the investment management firm of Scudder, Stevens & Clark,
Inc., a Delaware corporation, to manage the Fund's daily investment and business
affairs subject to the policies established by the Board of Trustees. The
Trustees have overall responsibility for the management of the Fund under
Massachusetts law.
The Adviser receives monthly an investment management fee for its services,
which fee equals approximately 0.60% of the Fund's average daily net assets on
an annual basis.
The Adviser has agreed to maintain the annualized expenses of the Fund at not
more than 0.50% of the average daily net assets of the Fund until July 31, 1995.
For the fiscal year ended March 31, 1994, the Adviser received an investment
management fee of 0.20% of the Fund's average daily net assets on an annual
basis.
All of the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment services.
Scudder, Stevens & Clark, Inc. is located at Two International Place, Boston,
Massachusetts.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
wholly-owned subsidiary of the Adviser, is the transfer, shareholder servicing
and dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a wholly-owned subsidiary of the Adviser, is
the Fund's principal underwriter. Scudder Investor Services, Inc. confirms, as
agent, all purchases of shares of the Fund. Scudder Investor Information is a
telephone information service provided by Scudder Investor Services, Inc.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent in Boston receives the purchase request in good order.
Purchases are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be cancelled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared,
which may take up to seven business days. If you purchase shares by federal
funds wire, you may avoid this delay. Redemption or exchange requests by
telephone prior to the expiration of the seven-day period will not be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent in Boston. Accounts cannot
be opened without a completed, signed application and a Scudder fund account
number. Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
_ the name of the fund in which the money is to be invested,
_ the account number of the fund, and
_ the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By exchange. Your new account will have the same registration and address as
your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
Redeeming shares
The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.
By telephone. This is the quickest and easiest way to sell Fund shares. If you
elected telephone redemption to your bank on your application, you can call to
request that federal funds be sent to your authorized bank account. If you did
not elect telephone redemption to your bank on your application, call
1-800-225-5163 for more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemptions will be mailed to
your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $50,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $50,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be wired
to a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.
Share price
Purchases and redemptions, including exchanges, are made at net asset value. The
Fund's custodian, State Street Bank and Trust Company, determines net asset
value per share as of the close of regular trading on the New York Stock
Exchange (the "Exchange"), normally 4 p.m. eastern time, on each day the
Exchange is open for trading. Net asset value per share is calculated by
dividing the value of total Fund assets, less all liabilities, by the total
number of shares outstanding.
Processing time
All purchase and redemption requests must be received in good order by the
Fund's transfer agent in Boston. Those requests received by the close of regular
trading on the Exchange are executed at the net asset value per share calculated
at the close of trading that day. Purchase and redemption requests received
after the close of regular trading on the Exchange will be executed the
following business day. Purchases made by federal funds wire before noon eastern
time will begin earning income that day; all other purchases received before the
close of regular trading on the Exchange will begin earning income the next
business day. Redeemed shares will earn income on the day on which the
redemption request is executed.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Service Corporation by calling 1-800-225-5163.
The Fund will normally send redemption proceeds within one business day
following the redemption request, but may take up to seven days (or longer in
the case of shares recently purchased by check).
Short-term trading
Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to restrict
purchases of Fund shares (including exchanges) when a pattern of frequent
purchases and sales made in response to short-term fluctuations in the Fund's
share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or tax identification number and certain
other certified information or upon notification from the IRS or a broker that
withholding is required. The Fund reserves the right to reject new account
applications without a certified Social Security or tax identification number.
The Fund also reserves the right, following 30 days' notice, to redeem all
shares in accounts without a certified Social Security or tax identification
number. A shareholder may avoid involuntary redemption by providing the Fund
with a tax identification number during the 30-day notice period.
Minimum balances
Shareholders should maintain a share balance worth at least $1,000, which amount
may be changed by the Board of Trustees. The Fund reserves the right, following
60 days' written notice to shareholders, to redeem all shares in sub-minimum
accounts, including accounts of new investors, where a reduction in value has
occurred due to a redemption or exchange out of the account. Reductions in value
that result solely from market activity will not trigger an involuntary
redemption. The Fund will mail the proceeds of the redeemed account to the
shareholder. The shareholder may restore the share balance to $1,000 or more
during the 60-day notice period and must maintain it at no lower than that
minimum to avoid involuntary redemption.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Shareholder benefits
Experienced professional management
Scudder, Stevens & Clark, Inc., one of the nation's most experienced investment
management firms, actively manages your Scudder fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.
A team approach to investing
Scudder Ohio Tax Free Fund is managed by a team of Scudder investment
professionals, who each play an important role in the Fund's management process.
Team members work closely together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by Scudder's large staff
of economists, research analysts, traders and other investment specialists.
Scudder believes its team approach benefits Fund investors by bringing together
many disciplines and leveraging Scudder's extensive resources.
Lead Portfolio Manager Kimberley R. Manning has overseen the Fund's investment
strategy and daily operation since 1991. Ms. Manning, who has 13 years of
experience in municipal trading, joined Scudder in 1987. Philip G. Condon,
Portfolio Manager, became a member of the team in 1987 and has worked at Scudder
since 1983. Mr. Condon has 14 years of experience in municipal investing and
portfolio management.
SAIL(tm)_Scudder Automated Information Line
For touchtone access to account information, prices and yields, or to perform
transactions in existing Scudder fund accounts, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890. During periods of extreme
economic or market changes, or other conditions, it may be difficult for you to
effect telephone transactions in your account. In such an event you should write
to the Fund; please see "How to contact Scudder" for the address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, tax free and
growth funds with a simple toll-free call or, if you prefer, by sending your
instructions through the mail or by fax. Telephone and fax redemptions and
exchanges are subject to termination and their terms are subject to change at
any time by the Fund or the transfer agent. In some cases, the transfer agent or
Scudder Investor Services, Inc. may impose additional conditions on telephone
transactions.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.
Newsletters
Four times a year, Scudder sends you At the Helm, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Funds Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
Cincinnati, Los Angeles, New York, Portland (OR), San Francisco and Scottsdale.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
* Scudder No-Fee IRA
* Keogh Plans
* 401(k) Plans
* Profit Sharing and Money Purchase Pension Plans
* 403(b) Plans
* SEP-IRA
* Scudder Horizon Plan (a variable annuity)
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA or a Scudder
Horizon Plan, please call 1-800-225-2470. For information about 401(k)s,
403(b)s, Profit Sharing Plans, Money Purchase Pension Plans or SEP-IRAs, please
call 1-800-323-6105. To effect transactions in existing IRA, SEP-IRA, Profit
Sharing or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company +++S 1802(tm)).
The contract is offered by Scudder Insurance Agency, Inc. (in New York State,
Nevada and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is
the Principal Underwriter. Scudder Horizon Plan is not available in all states.
Trustees and Officers
David S. Lee*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
Amey A. DeFriez
Trustee; Corporate Director and Trustee
Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director
Peter B. Freeman
Trustee; Corporate Director and Trustee
Dudley H. Ladd*
Trustee
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
College of Business Administration
Juris Padegs*
Trustee
Daniel Pierce*
Trustee
Donald C. Carleton*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Coleen Downs Dinneen*
Assistant Secretary
* Scudder, Stevens & Clark, Inc.
Investment products and services
The Scudder Family of Funds
Money market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax free money market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Short Term Global Income Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Development Fund
Scudder Global Fund
Scudder Global Small Company Fund
Scudder Gold Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans
Closed-end Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities Fund, Inc.
Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++
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. +A portion of the income from the tax-free funds may
be subject to federal, state and local taxes. *Not available in all states. +++A
no-load variable annuity contract provided by Charter National Life Insurance
Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are
traded on various stock exchanges. ++For information on Scudder Treasurers
Trust(tm), an institutional cash management service that utilizes certain
portfolios of Scudder Fund, Inc. ($100,000 minimum), call: 1-800-541-7703.
How to contact Scudder
Account Service and Information:
For existing account service and transactions
Scudder Service Corporation
1-800-225-5163
For account updates, prices, yields, exchanges and redemptions
Scudder Automated Information Line (SAIL)
1-800-343-2890
Investment Information:
To receive information about the Scudder funds, for additional applications
and prospectuses, or for investment questions
Scudder Investor Information
1-800-225-2470
For establishing Keogh, 401(k) and 403(b) plans
Scudder Group Retirement Services
1-800-323-6105
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Funds Center:
Many shareholders enjoy the personal, one-on-one service of the Scudder
Funds Centers. Check for a Funds Center near you_they can be found in the
following cities:
Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Francisco
Scottsdale
For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts which
utilizes certain portfolios of Scudder Fund, Inc.* ($100,000 minimum), call:
1-800-541-7703.
For information on Scudder Institutional Funds*, funds designed to meet the
broad investment management and service needs of banks and other institutions,
call: 1-800-854-8525.
Scudder Investor Information and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees and
expenses. Please read it carefully before you invest or send money.
<PAGE>
February 7, 1995
Dear Scudder Investor,
The prospectus supplement on the reverse side is a formal notice
of a temporary change in Scudder Pennsylvania Tax Free Fund's
portfolio management team.
Donald C. Carleton is the new Lead Portfolio Manager of Scudder
Pennsylvania Tax Free Fund. Mr. Carleton joins Portfolio Manager
Philip G. Condon. Mr. Carleton replaces Lead Portfolio Manager
Kimberley R. Manning until such time she returns from a short-term
leave.
If you have any questions, please call us at 1-800-225-2470,
between 8:00 a.m. and 8:00 p.m. eastern time, Monday through Friday.
We will be happy to assist you.
Sincerely,
/s/David S. Lee
David S. Lee
President, Scudder Investor Services, Inc.
This letter is for explanatory purposes and is not part of the
prospectus supplement on the reverse side.
(over please)
Scudder Pennsylvania Tax Free Fund
Supplement to Prospectus
dated August 1, 1994
The following text replaces the section entitled "Shareholder benefits-
- -A team approach to investing."
Scudder Pennsylvania Tax Free Fund is managed by a team of Scudder
investment professionals, who each play 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 Scudder's large staff of economists, research
analysts, traders and other investment specialists. Scudder believes
its team approach benefits Fund investors by bringing together many
disciplines and leveraging Scudder's extensive resources.
Lead Portfolio Manager Donald C. Carleton assumed responsibilities for
the Fund's day-to-day management and investment strategies in January
1995. Mr. Carleton has 25 years of investment management experience
and has worked at Scudder since 1983. Philip G. Condon, Portfolio
Manager, became a member of the team in 1987 and has worked at Scudder
since 1983. Mr. Condon has 15 years of experience in municipal
investing and portfolio management.
February 7, 1995
<PAGE>
This prospectus sets forth concisely the information about Scudder Pennsylvania
Tax Free Fund, a series of Scudder State Tax Free Trust, that a prospective
investor should know before investing. Please retain it for future reference.
If you require more detailed information, a Statement of Additional Information
dated August 1, 1994, as amended from time to time, may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents--see page 4.
Scudder Pennsylvania Tax Free Fund
Prospectus
August 1, 1994
A pure no-load(tm) (no sales charges) mutual fund series which seeks to provide
double tax-free income, exempt from both Pennsylvania personal income tax and
regular federal income tax.
Expense information
How to compare a Scudder pure no-load(tm) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder Pennsylvania Tax Free Fund (the "Fund"). By
reviewing this table and those in other mutual funds' prospectuses, you can
compare the Fund's fees and expenses with those of other funds. With Scudder's
pure no-load(tm) funds, you pay no commissions to purchase or redeem shares, or
to exchange from one fund to another. As a result, all of your investment goes
to work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Fund operating expenses (after expense maintenance): Expenses paid
by the Fund before it distributes its net investment income, expressed as a
percentage of the Fund's average daily net assets for the fiscal year ended
March 31, 1994.
Investment management fee 0.15%
12b-1 fees NONE
Other expenses 0.35%
------
Total Fund operating expenses 0.50%**
======
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to shareholders. (As noted above, the Fund has no redemption
fees of any kind.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- -------
$5 $16 $28 $63
See "Fund organization_Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.
* You may redeem by writing or calling the Fund. If you wish to receive your
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction information_Redeeming
shares."
** The Investment Adviser has agreed to maintain the annualized expenses of
the Fund at not more than 0.50% of the average daily net assets of the Fund
until July 31, 1995. If expense maintenance had not been in effect during
the year ended March 31, 1994, the investment management fee would have
been 0.60%, and the total annualized Fund operating expenses would have
been 0.95% of average daily net assets.
Financial highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements. If you would like more detailed information concerning the Fund's
performance, a complete portfolio listing and audited financial statements are
available in the Fund's Annual Report dated March 31, 1994 and may be obtained
without charge by writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
For the period
May 28, 1987
(commencement
Years Ended March 31, of operations)
------------------------------------------------- to March 31,
1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $13.46 $12.80 $12.35 $12.27 $12.08 $11.80 $12.00
period ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income (a) .75 .76 .77 .82 .84 .79 .65
Net realized and unrealized (.36) .87 .52 .08 .20 .40 (.26)
gain (loss) on investment ------ ------ ------ ------ ------ ------ ------
transactions
Total from investment .39 1.63 1.29 .90 1.04 1.19 .39
operations ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment income (.75) (.76) (.77) (.82) (.84) (.85) (.59)
From net realized gains on (.09) (.21) (.07) _ (.01) (.06) _
investment transactions ------ ------ ------ ------ ------ ------ ------
Total distributions (.84) (.97) (.84) (.82) (.85) (.91) (.59)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of $13.01 $13.46 $12.80 $12.35 $12.27 $12.08 $11.80
period ====== ====== ====== ====== ====== ====== ======
Total Return (%) (b) 2.70 13.19 10.70 7.58 8.75 11.00 3.39**
Ratios and Supplemental Data
Net assets, end of period 74 61 39 26 18 11 5
($ millions)
Ratio of operating expenses, .50 .50 .50 .50 .50 .50 .50*
net to average daily net
assets (%) (a)
Ratio of net investment 5.42 5.79 6.05 6.67 6.78 7.09 7.16*
income to average daily net
assets (%)
Portfolio turnover rate (%) 17.4 29.2 11.2 7.8 2.0 13.5 97.6*
(a) Reflects a per share $_ $_ $_ $.02 $.06 $.15 $.43
amount of expenses, exclusive
of management fees,
reimbursed by the Adviser of
Reflects a per share amount $.06 $.07 $.08 $.07 $.07 $.07 $.05
of management fees and other
fees not imposed of
Operating expense ratio .95 1.02 1.13 1.43 1.84 2.43 5.75*
including expenses
reimbursed, management fee
and other expenses not
imposed (%)
(b) Total returns are higher due to maintenance of the Fund's expenses.
* Annualized
** Not Annualized
</TABLE>
A message from Scudder's chairman
Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. Today, we manage in excess of $90 billion for many private accounts and
over 50 mutual fund portfolios. We manage the mutual funds in a special program
for the American Association of Retired Persons, as well as the fund options
available through Scudder Horizon Plan, a tax-advantaged variable annuity. We
also advise The Japan Fund and nine closed-end funds that invest in countries
around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to all shareholders include toll-free access to professional
service representatives at Scudder Service Corporation and the Scudder Investor
Information department, easy exchange among funds, shareholder reports,
informative newsletters and the walk-in convenience of Scudder Funds Centers.
All Scudder mutual funds are pure no-load(tm). This means you pay no commissions
to purchase or redeem your shares or to exchange from one fund to another. There
are no "12b-1" fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.
/s/Daniel Pierce
Scudder Pennsylvania Tax Free Fund
Investment objective
* income exempt from Pennsylvania personal income tax and regular federal
income tax
Investment characteristics
* primarily long-term investment-grade municipal securities tax-exempt in
Pennsylvania
* active professional management
* dividends declared daily and paid monthly
Contents
Investment objective and policies 5
Tax-exempt vs. taxable income 6
Why invest in the Fund? 7
Additional information about policies and investments 8
Distribution and performance information 10
Purchases 12
Exchanges and redemptions 13
Fund organization 14
Transaction information 15
Shareholder benefits 17
Trustees and Officers 20
Investment products and services 21
How to contact Scudder 22
Investment objective and policies
Scudder Pennsylvania Tax Free Fund (the "Fund"), a series of Scudder State Tax
Free Trust, seeks to provide Pennsylvania taxpayers with income exempt from both
Pennsylvania personal income tax and regular federal income tax. Shares of the
Fund are also not subject to Pennsylvania personal property tax, to the extent
the Fund's assets would not be subject to such tax if held directly by
individual shareholders. The Fund is a professionally managed portfolio
consisting primarily of investment-grade municipal securities.
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a shareholder vote. Shareholders will
receive written notice of any changes in the Fund's objective. If there is a
change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.
Quality
Normally, at least 75% of the intermediate- and long-term securities purchased
by the Fund will be investment-grade municipal securities, those rated Aaa, Aa,
A, or Baa by Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A, or BBB
by Standard & Poor's Corporation ("S&P") or Fitch Investors Service, Inc.
("Fitch"), or unrated securities judged by Scudder, Stevens & Clark, Inc. (the
"Adviser") to be of equivalent quality, or securities issued or guaranteed by
the U.S. Government. The Fund may also invest up to 25% of its total assets in
fixed-income securities rated below investment-grade, that is, rated below Baa
by Moody's or BBB by S&P or Fitch, or in unrated securities considered to be of
equivalent quality. The Fund may not invest in fixed-income securities rated
below B by Moody's, S&P or Fitch, or their equivalent.
The Fund expects to invest principally in securities rated A or better by
Moody's, S&P or Fitch or unrated securities judged by the Adviser, to be of
equivalent quality at the time of purchase. Securities in these three rating
categories are judged by the Adviser to have an adequate if not strong capacity
to repay principal and pay interest.
During the year ended March 31, 1994, the average monthly dollar-weighted market
value of the bonds in the Fund's portfolio were as follows: 60.50% rated AAA,
11.92% AA, 10.91% A and 2.87% BBB. The bonds are rated by Moody's, S&P or Fitch,
or of equivalent quality as determined by the Adviser.
High quality bonds, those within the two highest of the quality rating
categories, characteristically have a strong capacity to pay interest and repay
principal. Medium-grade bonds, those within the next two such categories, are
defined as having adequate capacity to pay interest and repay principal. In
addition, certain medium-grade bonds are considered to have speculative
characteristics. While some lower-grade bonds (so-called "junk bonds"), have
produced higher yields in the past than investment-grade bonds, they are
considered to be predominantly speculative and, therefore, carry greater risk.
The Fund's investments must also meet credit standards applied by the Adviser.
Should the rating of a portfolio security be downgraded after being purchased by
the Fund, the Adviser will determine whether it is in the best interest of the
Fund to retain or dispose of the security.
Investments
The Fund invests in municipal securities of issuers located in Pennsylvania and
other qualifying issuers (including Puerto Rico, the U.S. Virgin Islands and
Guam) the income from which is, in the opinion of bond counsel, exempt from both
Pennsylvania personal income tax and regular federal income tax ("Pennsylvania
municipal securities"). These securities include municipal bonds, which meet
longer-term capital needs and generally have maturities of more than one year
when issued. Municipal bonds include general obligation bonds, which are secured
by the issuer's pledge of its faith, credit and taxing power for payment of
principal and interest, and revenue bonds, which may be issued to finance
projects owned or used by either private or public entities and which include
bonds issued to finance industrial enterprises and pollution control facilities.
The Fund may invest in other municipal securities such as variable rate demand
instruments. The Fund may also invest in municipal notes of issuers located in
Pennsylvania and other qualifying issuers. They are generally used to provide
short-term capital needs and have maturities of one year or less.
Tax-exempt vs. taxable income
Tax Free Yields and Corresponding Taxable Equivalents. The table below shows
Pennsylvania taxpayers what an investor would have to earn from a comparable
taxable investment to equal Scudder Pennsylvania Tax Free Fund's double tax free
yield.
Today many investors may find that federal tax and Pennsylvania personal income
tax rates make Scudder Pennsylvania Tax Free Fund an attractive alternative to
investments paying taxable income.
<TABLE>
<CAPTION>
TO EQUAL HYPOTHETICAL TAX-FREE
YIELDS OF 5%, 7% AND 9%, A
TAXABLE INVESTMENT WOULD HAVE
COMBINED TO EARN*:
1994 TAXABLE INCOME: MARGINAL TAX RATE: 5% 7% 9%
- -------------------- ------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
INDIVIDUAL
- -----------------------------------------
$22,751-55,100 30.02% 7.15% 10.00% 12.86%
55,101-115,000 32.93 7.45 10.44 13.42
115,001-250,000 37.79 8.04 11.25 14.47
OVER $250,000 41.29 8.52 11.92 15.33
JOINT RETURN
- -----------------------------------------
$38,001-91,850 30.02% 7.15% 10.00% 12.86%
91,851-140,000 32.93 7.45 10.44 13.42
140,001-250,000 37.79 8.04 11.25 14.47
OVER $250,000 41.29 8.52 11.92 15.33
<FN>
* These illustrations assume a marginal federal income tax rate of 28% to
39.6%, an effective Pennsylvania personal income tax rate of 2.80% for 1994
and that the federal alternative minimum tax is not applicable. Upper
income individuals may be subject to an effective federal income tax rate
in excess of the applicable marginal rate as a result of the phase-out of
personal exemptions and itemized deductions made permanent by the Revenue
Reconciliation Act of 1993. Individuals subject to these phase-out
provisions would have to invest in taxable securities with a yield in
excess of those shown on the table in order to achieve an after-tax yield
equivalent to the yield on a comparable tax-exempt security.
</FN>
</TABLE>
Municipal notes include tax anticipation notes, revenue anticipation notes, bond
anticipation notes and construction loan notes. For federal income tax purposes,
the income earned from municipal securities may be entirely tax-free, taxable or
subject to only the alternative minimum tax.
Under normal market conditions, the Fund expects to invest principally in
Pennsylvania municipal securities with long-term maturities (i.e., more than 10
years). The Fund has the flexibility, however, to invest in Pennsylvania
municipal securities with short- and medium-term maturities as well.
The Fund may also invest up to 20% of its total assets in municipal securities
the interest income from which is subject to the alternative minimum tax or to
federal income tax. Fund distributions from interest on certain municipal
securities subject to the alternative minimum tax such as private activity
bonds, will be a preference item for purposes of calculating individual and
corporate alternative minimum taxes, depending upon investors' particular
situations. In addition, state and local taxes may apply, depending upon your
state and local tax laws.
Ordinarily, the Fund expects that 100% of its portfolio securities will be
Pennsylvania municipal securities. The Fund may also hold cash or invest its
assets in taxable securities.
The Fund may invest in stand-by commitments, third party puts, when-issued or
forward delivery securities, and enter into repurchase agreements and reverse
repurchase agreements, which may involve certain expenses and risks, including
credit risks. These securities and techniques are not expected to comprise a
major portion of the Fund's investments. See "Additional information about
policies and investments" for more information about certain of these investment
techniques.
A portion of the Fund's income may be subject to federal, state and local income
taxes.
Why invest in the Fund?
The Fund is designed for investors seeking double tax-free income_exempt both
from Pennsylvania personal income tax and regular federal income tax. Because
the Fund is intended for investors subject to Pennsylvania personal income tax
and regular federal income tax, it may not be appropriate for all investors and
is not available in all states.
As illustrated by the chart on the preceding page, depending on your tax bracket
and individual situation, you may earn a substantially higher after-tax return
from the Fund than from comparable investments that pay income subject to both
Pennsylvania state personal income tax and regular federal income tax. For
example, if your regular federal marginal tax rate is 36% and your Pennsylvania
tax rate is 2.8%, your effective combined marginal tax rate is 37.8% when
adjusted for the deductibility of state taxes. Thus, you would need to earn a
taxable return of 8.63% to receive after-tax income equal to the 5.37% tax-free
yield provided by Scudder Pennsylvania Tax Free Fund for the 30-day period ended
March 31, 1994. In other words, it would be necessary to earn $1,607 from a
taxable investment to equal $1,000 of tax-free income you receive from the Fund.
The yield levels of tax-free and taxable investments continually change. Before
investing in the Fund, you should compare its yield to the after-tax yield you
would receive from a comparable investment paying taxable income. For up-to-date
yield information on the Fund, shareholders can call SAIL, Scudder Automated
Information Line, for toll-free information at any time.
In addition, the Fund offers all the benefits of the Scudder Family of Funds.
Scudder, Stevens & Clark, Inc. manages a diverse family of pure no-load(tm)
funds and provides a wide range of services to help investors meet their
investment needs. Please refer to "Investment products and services" for
additional information.
Additional information about policies and investments
Investment restrictions
The Fund has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to reduce the Fund's
investment risk. The Fund may not borrow money except as a temporary measure for
extraordinary or emergency purposes or except in connection with reverse
repurchase agreements and may not make loans except through the purchase of debt
obligations or through repurchase agreements.
Scudder Pennsylvania Tax Free Fund is a non-diversified fund (except to the
extent diversification is required for federal income tax purposes). The Fund
does not invest more than 25% of its assets in pollution control and industrial
development bonds or taxable investments of private sector companies in the same
industry.
At least 80% of the Fund's net assets is normally invested in Pennsylvania
municipal securities.
When the Adviser determines that market conditions warrant, the Fund may, for
temporary defensive purposes, invest more than 20% of its net assets in taxable
securities.
In addition, as a matter of nonfundamental policy, the Fund may not invest more
than 10% of its net assets, in the aggregate, in restricted securities,
repurchase agreements maturing in more than seven days, and securities which are
not readily marketable. The Fund may not invest more than 5% of its net assets
in restricted securities, and will not invest more than 25% of its assets in
Pennsylvania municipal securities which are secured by revenues from health
facilities, toll roads, ports and airports. The Fund does not expect to invest
in non-publicly offered securities.
Up to 20% of the Fund's assets may be held in cash or invested in short-term
taxable investments, including repurchase agreements, U.S. Government
obligations and other money market instruments.
A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Statement of Additional
Information.
Investing in Pennsylvania
The Fund is more susceptible to factors adversely affecting issuers of
Pennsylvania municipal securities than is a comparable municipal bond fund that
does not emphasize these issuers to this degree. Pennsylvania encountered some
financial difficulties in prior years and may, as may any state, face some
long-term problems in certain regions of the State and in certain sectors of the
economy, which is concentrated in agriculture, heavy industry, medical and
health services, financial institutions, education and trade. For additional
information about the Pennsylvania economy, see the Fund's Statement of
Additional Information dated August 1, 1994.
When-issued securities
The Fund may purchase securities on a when-issued or forward delivery basis, for
payment and delivery at a later date. The price and yield are generally fixed on
the date of commitment to purchase. During the period between purchase and
settlement, no interest accrues to the Fund. At the time of settlement, the
market value of the security may be more or less than the purchase price.
Repurchase agreements
As a means of earning taxable income for periods as short as overnight, the Fund
may enter into repurchase agreements with selected banks and broker/dealers.
Under a repurchase agreement, the Fund acquires securities, subject to the
seller's agreement to repurchase at a specified time and price. Income from
repurchase agreements will be taxable when distributed to shareholders.
Stand-by commitments
To facilitate liquidity, the Fund may enter into "stand-by commitments"
permitting it to resell municipal securities to the original seller at a
specified price. Stand-by commitments generally involve no cost to the Fund, and
any costs would be, in any event, limited to no more than 0.50% of the value of
the total assets of the Fund. Any such costs may, however, reduce yield.
Third party puts
The Fund may purchase long-term fixed rate bonds that have been coupled with an
option granted by a third party financial institution allowing the Fund at
specified intervals to tender (or "put") its bonds to the institution and
receive the face value thereof. These third party puts are available in several
different forms, may be represented by custodial receipts or trust certificates
and may be combined with other features such as interest rate swaps.
Variable rate demand instruments
The Fund may purchase variable rate demand instruments that are tax-exempt
municipal obligations providing for a periodic adjustment in the interest rate
paid on the instrument according to changes in interest rates generally. These
instruments also permit the Fund to demand payment of the unpaid principal
balance plus accrued interest upon a specified number of days' notice to the
issuer or its agent.
Municipal lease obligations
The Fund may invest in municipal lease obligations and participation interests
in such obligations. These obligations, which may take the form of a lease, an
installment purchase contract or a conditional sales contract, are issued by
state and local governments and authorities to acquire land and a wide variety
of equipment and facilities. Generally, the Fund will not hold such obligations
directly, but will purchase a certificate of participation or other
participation interest in a municipal obligation from a bank or other financial
intermediary. A participation interest gives the Fund a proportionate interest
in the underlying obligation.
Risk factors
The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Fund may use from time to time.
Non-diversified investment company. As a "non-diversified" investment company,
the Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers. The investment of a large percentage of the Fund's
assets in the securities of a small number of issuers may cause the Fund's share
price to fluctuate more than that of a diversified investment company.
Investing in Pennsylvania. If either Pennsylvania or any of its local
governmental entities were to be unable to meet its financial obligations, the
income derived by the Fund, its net asset value or liquidity and the ability to
preserve or realize appreciation of the Fund's capital could be adversely
affected. Also, the Fund is not a diversified fund. Because it may invest a
larger percentage of its assets in the securities of fewer issuers than a
diversified fund, investment in the Fund may involve greater risk than
investment in a diversified fund. Since the Fund will invest primarily in
securities of Pennsylvania issuers, political and economic factors affecting
Pennsylvania could affect the creditworthiness and the value of the securities
in its portfolio. See "Investing in Pennsylvania" in the Fund's Statement of
Additional Information for further details about the risks of investing in
Pennsylvania obligations.
Debt securities. The Fund may invest in securities rated below Baa by Moody's or
BBB by S&P or Fitch. Moody's considers bonds it rates Baa to have speculative
elements as well as investment-grade characteristics. Securities rated below
investment-grade are commonly referred to as "junk bonds" and involve greater
price volatility and higher degrees of speculation with respect to the payment
of principal and interest than higher quality fixed-income securities. The
market prices of such lower-rated debt securities may decline significantly in
periods of general economic difficulty. In addition, the trading market for
these securities is generally less liquid than for higher rated securities and
the Fund may have difficulty disposing of these securities at the time it wishes
to do so. The lack of a liquid secondary market for certain securities may also
make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing its portfolio and calculating its net asset value.
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of securities may be restricted. In the
event of the commencement of bankruptcy or insolvency proceedings of the seller
of the securities before repurchase of the securities under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the securities. Also, if a seller defaults, the value of such securities
might decline before the Fund is able to dispose of them.
Third party puts. In connection with a third party put, the financial
institution granting the option does not provide credit enhancement, and
typically if there is a default on or significant downgrading of the bond or a
loss of its tax-exempt status, the put option will terminate automatically and
the risk to the Fund will be that of holding a long-term bond.
Municipal lease obligations. Municipal lease obligations and participation
interests in such obligations frequently have risks distinct from those
associated with general obligation or revenue bonds. Municipal lease obligations
are not secured by the governmental issuer's credit, and if funds are not
appropriated for lease payments, the lease may terminate, with the possibility
of default on the lease obligation and significant loss to the Fund. Although
"non-appropriation" obligations are secured by the leased property, disposition
of that property in the event of foreclosure might prove difficult, time
consuming and costly. In addition, the tax treatment of such obligations in the
event of non-appropriation is unclear. In evaluating the credit quality of a
municipal lease obligation that is unrated, the Adviser will consider a number
of factors including the likelihood that the governmental issuer will
discontinue appropriating funding for the leased property. For more information
please refer to the Fund's Statement of Additional Information.
Distribution and performance information
Dividends and capital gains distributions
The Fund's dividends from net investment income are declared daily and
distributed monthly. The Fund intends to distribute net realized capital gains
after utilization of capital loss carryforwards, if any, in November or December
to prevent application of federal excise tax, although an additional
distribution may be made within three months of the Fund's fiscal year end, if
necessary. Any dividends or capital gains distributions declared in October,
November or December with a record date in such a month and paid during the
following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared. According
to preference, shareholders may receive distributions in cash or have them
reinvested in additional shares of the Fund.
Distributions derived from interest on Pennsylvania municipal securities are not
subject to regular federal income taxes, except for the possible applicability
of the federal alternative minimum tax. For federal income tax purposes, a
portion of the Fund's income may be taxable to shareholders as ordinary income.
Long-term capital gains distributions, if any, are taxable as long-term capital
gains for federal income tax purposes, regardless of the length of time
shareholders have owned their shares. Short-term capital gains and any other
taxable income distributions are taxable as ordinary income. Distributions of
tax-exempt income are taken into consideration in computing the portion, if any,
of Social Security and railroad retirement benefits subject to federal and, in
some cases, state taxes.
Under Pennsylvania law, distributions paid by the Fund are exempt from
Pennsylvania personal income tax for individuals who reside in Pennsylvania to
the extent such distributions constitute dividends derived from interest
payments on Pennsylvania municipal securities or distributions of gain from the
sale of Pennsylvania municipal securities issued before February 1, 1994.
Other distributions, including capital gains not described in the preceding
sentence, are taxable. Dividends derived from interest payments on Pennsylvania
municipal securities or distributions of gain from the sale of Pennsylvania
municipal securities issued before February 1, 1994 are not included in the
Pennsylvania taxable income of a corporate shareholder subject to the
Pennsylvania corporate net income tax.
Based upon written advice received by the Fund from the counties in which
Harrisburg, Philadelphia and Pittsburgh are located, the Fund believes that
individual shareholders of the Fund who are subject to the personal property tax
levied by all Pennsylvania counties and cities that impose such a tax will be
exempt from such tax on their shares of the Fund to the extent that the Fund's
portfolio consists entirely of Pennsylvania municipal securities and certain
other obligations not subject to the personal property tax on the annual
assessment date. Corporations are not subject to Pennsylvania personal property
taxes.
Information will also be provided to individual Pennsylvania shareholders
regarding the portion of the value of their shares, if any, subject to
Pennsylvania personal property tax.
The Fund ordinarily provides income that is 100% free from Pennsylvania personal
income tax and regular federal income tax. However, income from repurchase
agreements is taxable.
Some of the Fund's interest income may be treated as a tax preference item that
may subject an individual investor to liability (or increased liability) under
the federal alternative minimum tax, depending upon an investor's particular
situation. However, at least 80% of the Fund's net assets will normally be
invested in Pennsylvania municipal securities whose interest income is not
treated as a tax preference item under the individual alternative minimum tax.
Tax-exempt income may also subject a corporate investor to liability (or
increased liability) under the corporate alternative minimum tax.
The Fund sends detailed tax information to shareholders about the amount and
type of its distributions by January 31 of the following year.
Performance information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature, or shareholder reports. All performance
figures are historical, show the performance of a hypothetical investment and
are not intended to indicate future performance. The "yield" of the Fund refers
to income generated by an investment in the Fund over a specified 30-day (one
month) period. Yield is expressed as an annualized percentage. The Fund's
"tax-equivalent yield" is calculated by determining the rate of return that
would have to be achieved on a fully taxable investment to produce the after-tax
equivalent of the Fund's yield, assuming certain tax brackets for a Fund
shareholder. "Total return" is the change in value of an investment in the Fund
for a specified period. The "average annual total return" of the Fund is the
average annual compound rate of return of an investment in the Fund assuming the
investment has been held for one year, five years and the life of the Fund as of
a stated ending date. "Cumulative total return" represents the cumulative change
in value of an investment in the Fund for various periods. Total return
calculations assume that all dividends and capital gains distributions during
the period were reinvested in shares of the Fund. Performance will vary based
upon, among other things, changes in market conditions and the level of the
Fund's expenses.
Purchases
Opening an account
Minimum initial investment: $1,000; IRAs $500
Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks payable to "The Scudder Funds."
* By Mail
Send your completed and signed application and check
by regular mail to: or by express,
registered,
or certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 1099 Hingham Street
Boston, MA Rockland, MA
02107-2291 02370-1052
* By Wire
Please see Transaction information_Purchasing shares following these tables
for details, including the ABA wire transfer number. Then call
1-800-225-5163 for instructions.
* In Person
Visit one of our Funds Centers to complete your application with the help
of a Scudder representative. Funds Center locations are listed under
Shareholder benefits.
Purchasing additional shares
Minimum additional investment: $100; IRAs $50
Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks payable to "The Scudder Funds."
* By Mail
Send a check with a Scudder investment slip, or with a letter of
instruction including your account number and the complete Fund name, to
the appropriate address listed above.
* By Wire
Please see Transaction information_Purchasing shares following these tables
for details, including the ABA wire transfer number.
* In Person
Visit one of our Funds Centers to make an additional investment in your
Scudder fund account. Funds Center locations are listed under Shareholder
benefits.
* By Automatic Investment Plan ($50 minimum)
You may arrange to make investments on a regular basis through automatic
deductions from your bank checking account. Please call 1-800-225-5163 for
more information and an enrollment form.
Exchanges and redemptions
Exchanging shares
Minimum investments: $1,000 to establish a new account; $100 to exchange among
existing accounts
* By Phone
To speak with a service representative, call 1-800-225-5163 from 8 a.m. to
6 p.m. eastern time or to access SAIL(tm), Scudder's Automated Information
Line, call 1-800-343-2890 (24 hours a day).
* By Mail or Fax
Print or type your instructions and include:
- the name of the Fund and the account number you are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into; and
- your signature(s) as it appears on your account and a daytime phone
number.
Send your instructions
by regular mail to: or by express, or by fax to:
registered, or
certified mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 1099 Hingham Street
Boston, MA Rockland, MA
02107-2291 02370-1052
Redeeming shares
* By Phone
To speak with a service representative, call 1-800-225-5163 from 8 a.m. to
6 p.m. eastern time or to access SAIL(tm), Scudder's Automated Information
Line, call 1-800-343-2890 (24 hours a day). You may redeem any amount to
your predesignated bank account, and up to $50,000 to your address of
record.
* By Mail or Fax
Send your instructions for redemption to the appropriate address or fax
number above and include:
- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem; and
- your signature(s) as it appears on your account and a daytime phone
number.
A signature guarantee is required for redemptions over $50,000. See
Transaction information_Redeeming shares following these tables.
* By Automatic Withdrawal Plan
You may arrange to receive automatic cash payments periodically if the
value of your account is $10,000 or more. Call 1-800-225-5163 for more
information and an enrollment form.
Fund organization
Scudder Pennsylvania Tax Free Fund is a series of Scudder State Tax Free Trust
(the "Trust"), an open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). The Trust was organized as a
Massachusetts business trust in May 1983.
The Fund's activities are supervised by the Trust's Board of Trustees.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Trust is not required to hold, and has no current
intention of holding annual shareholder meetings, although special meetings may
be called for purposes such as electing or removing Trustees, changing
fundamental investment policies or approving an investment management contract.
Shareholders will be assisted in communicating with other shareholders in
connection with removing a Trustee as if Section 16(c) of the 1940 Act were
applicable.
Investment adviser
The Fund retains the investment management firm of Scudder, Stevens & Clark,
Inc., a Delaware corporation, to manage the Fund's daily investment and business
affairs subject to the policies established by the Board of Trustees. The
Trustees have overall responsibility for the management of the Fund under
Massachusetts law.
The Adviser receives monthly an investment management fee for its services,
which fee equals approximately 0.60% of the Fund's average daily net assets on
an annual basis.
The Adviser has agreed to maintain the annualized expenses of the Fund at not
more than 0.50% of the average daily net assets of the Fund until July 31, 1995.
For the year ended March 31, 1994, the Adviser received an investment management
fee of 0.15% of the Fund's average daily net assets on an annual basis.
All of the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment services.
Scudder, Stevens & Clark, Inc. is located at Two International Place, Boston,
Massachusetts.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
wholly-owned subsidiary of the Adviser is the transfer, shareholder servicing
and dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a wholly-owned subsidiary of the Adviser, is
the Fund's principal underwriter. Scudder Investor Services, Inc. confirms, as
agent, all purchases of shares of the Fund. Scudder Investor Information is a
telephone information service provided by Scudder Investor Services, Inc.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent in Boston receives the purchase request in good order.
Purchases are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be cancelled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared,
which may take up to seven business days. If you purchase shares by federal
funds wire, you may avoid this delay. Redemption or exchange requests by
telephone prior to the expiration of the seven-day period will not be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent in Boston. Accounts cannot
be opened without a completed, signed application and a Scudder fund account
number. Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
_ the name of the fund in which the money is to be invested,
_ the account number of the fund, and
_ the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By exchange. Your new account will have the same registration and address as
your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
Redeeming shares
The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.
By telephone. This is the quickest and easiest way to sell Fund shares. If you
elected telephone redemption to your bank on your application, you can call to
request that federal funds be sent to your authorized bank account. If you did
not elect telephone redemption to your bank on your application, call
1-800-225-5163 for more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemptions will be mailed to
your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $50,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $50,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be wired
to a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.
Share price
Purchases and redemptions, including exchanges, are made at net asset value. The
Fund's custodian, State Street Bank and Trust Company, determines net asset
value per share as of the close of regular trading on the New York Stock
Exchange (the "Exchange"), normally 4 p.m. eastern time, on each day the
Exchange is open for trading. Net asset value per share is calculated by
dividing the value of total Fund assets, less all liabilities, by the total
number of shares outstanding.
Processing time
All purchase and redemption requests must be received in good order by the
Fund's transfer agent in Boston. Those requests received by the close of regular
trading on the Exchange are executed at the net asset value per share calculated
at the close of trading that day. Purchase and redemption requests received
after the close of regular trading on the Exchange will be executed the
following business day.
Purchases made by federal funds wire before noon eastern time will begin earning
income that day; all other purchases received before the close of regular
trading on the Exchange will begin earning income the next business day.
Redeemed shares will earn income on the day on which the redemption request is
executed.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Service Corporation by calling 1-800-225-5163.
The Fund will normally send redemption proceeds within one business day
following the redemption request, but may take up to seven days (or longer in
the case of shares recently purchased by check).
Short-term trading
Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to restrict
purchases of Fund shares (including exchanges) when a pattern of frequent
purchases and sales made in response to short-term fluctuations in the Fund's
share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or tax identification number and certain
other certified information or upon notification from the IRS or a broker that
withholding is required. The Fund reserves the right to reject new account
applications without a certified Social Security or tax identification number.
The Fund also reserves the right, following 30 days' notice, to redeem all
shares in accounts without a certified Social Security or tax identification
number. A shareholder may avoid involuntary redemption by providing the Fund
with a tax identification number during the 30-day notice period.
Minimum balances
Shareholders should maintain a share balance worth at least $1,000, which amount
may be changed by the Board of Trustees. The Fund reserves the right, following
60 days' written notice to shareholders, to redeem all shares in sub-minimum
accounts, including accounts of new investors, where a reduction in value has
occurred due to a redemption or exchange out of the account. Reductions in value
that result solely from market activity will not trigger an involuntary
redemption. The Fund will mail the proceeds of the redeemed account to the
shareholder. The shareholder may restore the share balance to $1,000 or more
during the 60-day notice period and must maintain it at no lower than that
minimum to avoid involuntary redemption.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Shareholder benefits
Experienced professional management
Scudder, Stevens & Clark, Inc., one of the nation's most experienced investment
management firms, actively manages your Scudder fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.
A team approach to investing
Scudder Pennsylvania Tax Free Fund is managed by a team of Scudder investment
professionals, who each play an important role in the Fund's management process.
Team members work closely together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by Scudder's large staff
of economists, research analysts, traders and other investment specialists.
Scudder believes its team approach benefits Fund investors by bringing together
many disciplines and leveraging Scudder's extensive resources.
Lead Portfolio Manager Kimberley R. Manning has overseen the Fund's investment
strategy and daily operation since 1991. Ms. Manning, who has 13 years of
experience in municipal trading, joined Scudder in 1987. Philip G. Condon,
Portfolio Manager, became a member of the team in 1987 and has worked at Scudder
since 1983. Mr. Condon has 14 years of experience in municipal investing and
portfolio management.
SAIL(tm)_Scudder Automated Information Line
For touchtone access to account information, prices and yields, or to perform
transactions in existing Scudder fund accounts, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890. During periods of extreme
economic or market changes, or other conditions, it may be difficult for you to
effect telephone transactions in your account. In such an event you should write
to the Fund; please see "How to contact Scudder" for the address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, tax free and
growth funds with a simple toll-free call or, if you prefer, by sending your
instructions through the mail or by fax. Telephone and fax redemptions and
exchanges are subject to termination and their terms are subject to change at
any time by the Fund or the transfer agent. In some cases, the transfer agent or
Scudder Investor Services, Inc. may impose additional conditions on telephone
transactions.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.
Newsletters
Four times a year, Scudder sends you At the Helm, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Funds Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
Cincinnati, Los Angeles, New York, Portland (OR), San Francisco and Scottsdale.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
* Scudder No-Fee IRA
* Keogh Plans
* 401(k) Plans
* Profit Sharing and Money Purchase Pension Plans
* 403(b) Plans
* SEP-IRA
* Scudder Horizon Plan (a variable annuity)
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA or a Scudder
Horizon Plan, please call 1-800-225-2470. For information about 401(k)s,
403(b)s, Profit Sharing Plans, Money Purchase Pension Plans or SEP-IRAs, please
call 1-800-323-6105. To effect transactions in existing IRA, SEP-IRA, Profit
Sharing or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company +++S 1802(tm)).
The contract is offered by Scudder Insurance Agency, Inc. (in New York State,
Nevada and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is
the Principal Underwriter. Scudder Horizon Plan is not available in all states.
Trustees and Officers
David S. Lee*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
Amey A. DeFriez
Trustee; Corporate Director and Trustee
Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director
Peter B. Freeman
Trustee; Corporate Director and Trustee
Dudley H. Ladd*
Trustee
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
College of Business Administration
Juris Padegs*
Trustee
Daniel Pierce*
Trustee
Donald C. Carleton*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
Investment products and services
The Scudder Family of Funds
Money market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax free money market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Short Term Global Income Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Development Fund
Scudder Global Fund
Scudder Global Small Company Fund
Scudder Gold Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans
Closed-end Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities Fund, Inc.
Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++
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. +A portion of the income from the tax-free funds may
be subject to federal, state and local taxes. *Not available in all states. +++A
no-load variable annuity contract provided by Charter National Life Insurance
Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are
traded on various stock exchanges. ++For information on Scudder Treasurers
Trust(tm), an institutional cash management service that utilizes certain
portfolios of Scudder Fund, Inc. ($100,000 minimum), call: 1-800-541-7703.
How to contact Scudder
Account Service and Information:
For existing account service and transactions
Scudder Service Corporation
1-800-225-5163
For account updates, prices, yields, exchanges and redemptions
Scudder Automated Information Line (SAIL)
1-800-343-2890
Investment Information:
To receive information about the Scudder funds, for additional applications
and prospectuses, or for investment questions
Scudder Investor Information
1-800-225-2470
For establishing Keogh, 401(k) and 403(b) plans
Scudder Group Retirement Services
1-800-323-6105
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Funds Center:
Many shareholders enjoy the personal, one-on-one service of the Scudder
Funds Centers. Check for a Funds Center near you_they can be found in the
following cities:
Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Francisco
Scottsdale
For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts which
utilizes certain portfolios of Scudder Fund, Inc.* ($100,000 minimum), call:
1-800-541-7703.
For information on Scudder Institutional Funds*, funds designed to meet the
broad investment management and service needs of banks and other institutions,
call: 1-800-854-8525.
Scudder Investor Information and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees and
expenses. Please read it carefully before you invest or send money.
