Scudder
Pennsylvania Tax Free Fund
Annual Report
March 31, 1997
For investors seeking double-tax-free income exempt from both Pennsylvania and
regular federal income taxes
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Investment Portfolio
14 Financial Statements
17 Financial Highlights
18 Notes to Financial Statements
20 Report of Independent Accountants
21 Tax Information
24 Officers and Trustees
25 Investment Products and Services
26 Scudder Solutions
In Brief
o Scudder Pennsylvania Tax Free Fund received a four-star rating from
Morningstar, reflecting "above-average" risk-adjusted performance through March
31, 1997.*
o As of March 31, 1997, Scudder Pennsylvania Tax Free Fund's 30-day net
annualized SEC yield was 5.07%, equivalent to an 8.64% taxable yield for
Pennsylvania investors subject to the 41.29% combined federal and state income
tax rate.
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE: 30-Day Yield on March 31, 1997
BAR CHART DATA:
Scudder Taxable Yield
Pennsylvania Needed to Equal
Tax Free Fund the Fund's Yield
5.07% 8.64%
o For the one-year period ended March 31, 1997, Scudder Pennsylvania Tax Free
Fund posted a total return of 5.30%, compared with the 4.95% average return of
63 similar funds tracked by Lipper Analytical Services over the same time frame.
See page 6 for additional information on the Fund's rankings.
* For your information, these ratings are subject to change every month and
are calculated from the Fund's five-year average annual return in excess of
90-day Treasury bill returns with appropriate fee adjustments, and a risk
factor that reflects fund performance below T-bill returns. The Fund
received four stars for three- and five-year performance, and was rated
among 1,237 and 601 municipal funds for the respective periods. Of the
funds rated, 10% received five stars, and 22.5% received four stars. Past
performance is no guarantee of future returns.
2 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Letter From the Fund's President
Dear Shareholders,
We are pleased to report to you on Scudder Pennsylvania Tax Free Fund's
performance over its most recent fiscal year ended March 31, 1997. In addition
to the Fund's four-star Morningstar rating as of March 31 (see "In Brief" on
page 2), the Fund placed in the top one third of similar Pennsylvania tax free
funds tracked by Lipper for total return performance over one-, three- and
five-year periods. The Fund posted a 5.07% 30-day net annualized SEC yield as of
March 31, which is equivalent to a taxable yield of 8.64% for investors in the
top Pennsylvania tax bracket. As outlined in the discussion that follows,
throughout the fiscal year the Fund's portfolio management team has focused on
intermediate-term noncallable bonds and kept overall portfolio quality high in
pursuit of high yields and favorable returns. Please read the discussion
beginning on page 6 for more information.
As part of Scudder's ongoing efforts to meet the needs of investors, last
fall we launched an innovative new product called Scudder Pathway Series. A
"fund of funds," Pathway Series is a collection of four distinct portfolios --
Conservative, Balanced, Growth, and International -- that offers flexibility,
diversification, and simplicity. Each portfolio invests in a diverse mix of
Scudder funds, and each is geared toward people with different investment goals
and risk tolerances. Moreover, a team of Scudder's investment professionals
rebalances the mix within the portfolios as market conditions warrant.
Before closing, we'd also like to take this opportunity to tell you that
the Scudder Family of Funds was recently recognized by Morningstar* for
stability in management and conformity to investment style. The mutual fund
rating service ranked Scudder fourth among 20 leading mutual fund companies for
overall management consistency. We are pleased with this superior track record
and will strive to maintain our reputation for consistency going forward. Please
see pages 25 through 27 for more information on Scudder products and services.
As always, please call a Scudder Investor Information representative at
1-800-225-2470 if you have questions about your account or any Scudder fund.
Sincerely,
/s/David S. Lee
David S. Lee
President,
Scudder Pennsylvania Tax Free Fund
* Morningstar Investor, February 1997
3 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
PERFORMANCE UPDATE as of March 31, 1997
- ----------------------------------------------------------------
Fund Index Comparisons
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
3/31/97 $10,000 Cumulative Annual
- --------------------------------------------
Scudder Pennsylvania Tax Free Fund
- --------------------------------------------
1 Year $ 10,530 5.30% 5.30%
5 year $ 14,086 40.86% 7.09%
Life of Fund* $ 20,951 109.51% 7.80%
- --------------------------------------------
Lehman Brothers Municipal Bond Index
- --------------------------------------------
1 Year $ 10,545 5.45% 5.45%
5 Year $ 14,137 41.37% 7.16%
Life of Fund* $ 21,834 118.34% 8.26%
- --------------------------------------------
*The Fund commenced operations on May 28, 1987. Index
comparisons begin May 31, 1987.
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Scudder Pennsylvania Tax Free Fund
Year Amount
- ----------------------
5/87* $10,000
88 $10,399
89 $11,484
90 $12,489
91 $13,436
92 $14,874
93 $16,835
94 $17,289
95 $18,516
96 $19,896
97 $20,951
LEHMAN BROTHERS MUNICIPAL BOND INDEX
Year Amount
- ----------------------
5/87* $10,000
88 $10,847
89 $11,627
90 $12,855
91 $14,040
92 $15,445
93 $17,380
94 $17,782
95 $19,104
96 $20,705
97 $21,834
Yearly periods ended March 31
The unmanaged Lehman Brothers Municipal Bond Index is a market-weighted
measure of municipal bonds issued across the United States. Index issues have a
credit rating of at least Baa and a maturity of at least two years. Index
returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
- -----------------------------------------------------------------
Returns and Per Share Information
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly Periods Ended March 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988* 1989 1990 1991 1992 1993 1994 1995 1996 1997
------------------------------------------------------------------------------------------------
NET ASSET VALUE... $ 11.80 $ 12.08 $ 12.27 $ 12.35 $ 12.80 $ 13.46 $ 13.01 $ 13.13 $ 13.31 $ 13.27
INCOME DIVIDENDS.. $ .59 $ .85 $ .84 $ .82 $ .77 $ .76 $ .75 $ .73 $ .71 $ .71
CAPITAL GAINS
DISTRIBUTIONS..... $ - $ .06 $ .01 $ - $ .07 $ .21 $ .09 $ .03 $ .07 $ .02
FUND TOTAL
RETURN (%)........ 3.39 11.00 8.75 7.58 10.70 13.19 2.70 7.09 7.45 5.30
INDEX TOTAL
RETURN (%)........ 8.48 7.21 10.56 9.22 10.02 12.52 2.32 7.43 8.38 5.45
</TABLE>
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate, so an investor's shares, when redeemed, may be
worth more or less than when purchased. If the Advisor had not temporarily
capped expenses, the average annual total return for the Fund for the one year,
five year, and life of Fund periods would have been lower.
4 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1997
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------
General Obligations 23%
Hospital/Health 23%
Water/Sewer Revenue 17%
Pollution Control/
Industrial Development 6%
Electric Utility Revenue 6%
Sales Specialty Tax 5%
Housing Finance Authority 4%
Core Cities/Lease 4%
Resource Recovery 4%
Miscellaneous Municipal 8%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
We continue to invest in a broad
selection of Pennsylvania
municipal bonds, including
hospital/healthcare, water and
sewer revenue, and general
obligation bonds.
- --------------------------------------------------------------------------
Quality
- --------------------------------------------------------------------------
AAA 71%
AA 4%
A 5%
BBB 15%
Not Rated 5%
- --------------------------------------
100%
- --------------------------------------
Weighted average quality: AA
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund's overall quality
remains high, with 80% of
portfolio securities rated A or
better.
- --------------------------------------------------------------------------
Effective Maturity
- --------------------------------------------------------------------------
Less than 1 year 4%
1-5 years 15%
5-10 years 31%
10-20 years 45%
Greater than 20 years 5%
- --------------------------------------
100%
- --------------------------------------
Weighted average effective maturity: 10.51 years
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
During the period, we took
advantage of opportunities to
lock in a substantial income
stream for the Fund over time by
purchasing 10- to 15-year
noncallable bonds.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 10.
5 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Scudder Pennsylvania Tax Free Fund performed well over a fiscal year that
witnessed mixed performance for Pennsylvania municipal bonds, and ended with an
interest rate hike by the Federal Reserve. On March 31, 1997, the Fund's 30-day
net annualized SEC yield was 5.07%, equivalent to a taxable yield of 8.64% for
shareholders subject to the 41.29% maximum combined state and federal income tax
rate. The Fund's "tax-equivalent" yield is significantly higher than current
yields available from taxable investments of similar maturity and credit
quality.
During a 12-month period that saw little price movement in the
intermediate-maturity municipal bonds the Fund primarily invests in, the Fund's
share price declined $0.04 to $13.27 per share. The modest decline in the Fund's
share price along with distributions during the fiscal year of $0.71 in interest
income and $0.02 in long-term capital gains combined to produce a total return
of 5.30% for the Fund over the fiscal year ended March 31, 1997. The Fund's
return compares favorably with the 4.95% average total return of similar funds
tracked by Lipper Analytical Services over the same period. The Fund also placed
in the top one third of similar Pennsylvania tax free funds tracked by Lipper
for total return performance over one-, three-, and five-year periods.
- ---------------------------------------------------------------
Scudder Pennsylvania Tax Free Fund:
Consistently Topping the Averages
Average annual returns for periods ended March 31, 1997
- ---------------------------------------------------------------
Scudder
Pennsylvania Lipper
Tax Free Fund average Number of Funds
Period return annual return tracked
- ---------------------------------------------------------------
1 year 5.30% 4.95% 63
3 years 6.60% 6.19% 43
5 years 7.09% 6.85% 24
- ---------------------------------------------------------------
Past performance does not guarantee future results.
Pennsylvania Update
The Commonwealth of Pennsylvania continues to benefit from the strength of the
local and national economies, although at a more subdued level than other states
in the Northeast. Job growth and revenue receipts are outpacing projections and
the Commonwealth is expected to complete its 1997 fiscal year with its fifth
consecutive General Fund surplus. Pennsylvania's fiscal year 1998 budget has
been restricted to growth of 2.7%. And the Commonwealth has a low debt burden.
Per capita debt is $418, or 66% of the national average.
The Commonwealth has been able to channel the growth in its economy into
additional new jobs, resulting in an unemployment rate of 5.3% in 1996, the
lowest figure in six years and slightly below the national average. Growth in
service-related jobs continues to surpass all other sectors and was up 2% in
January 1997 from 12 months before. Pennsylvania's manufacturing sector has
lagged, however.
6 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Under newly enacted welfare reform the Commonwealth will be a net beneficiary
for the next two to three years, with federal block grants surpassing the recent
level of aid. Pennsylvania plans to display fiscal prudence by setting aside a
portion of the surplus for welfare needs in the outlying years. The remaining
surplus has been designated to fund worker training and child care programs.
Municipals Outperform
Treasuries
Scudder Pennsylvania Tax Free Fund's most recent fiscal year witnessed a healthy
U.S. economy spurred on by increased consumer spending with continued low
inflation. The economy experienced real (inflation-adjusted) Gross Domestic
Product (GDP) growth of 2.4% during 1996, and at the close of the first quarter
was on track for GDP growth of 2.5% or higher in 1997. The stock market scaled
unprecedented heights until mid-March, and the bond market struggled
unsuccessfully to keep up. In the midst of this healthy environment for
corporate profits and the stock market, bond market participants continued to
closely monitor indicators for signs of economic overheating and accelerating
inflation. Their worry was reflected in the performance of the Treasury market
over the Fund's most recent fiscal year, where yields of 10-year Treasury bonds
rose almost one half of a percentage point, and prices declined 3.64%. Concern
over the Federal Reserve Open Market Committee's decision to raise the Fed Funds
rate by one quarter of a percentage point on March 25 was balanced by the
feeling in some quarters that this and any further increases had already been
priced into the market.
Municipals outperformed Treasuries during the 12-month period, as yields of
10-year municipals rose only one tenth of a percentage point, and prices
declined 0.66%. Municipal bond prices were supported by shrinking overall supply
as large numbers of bonds were called away in June and July, a moderate level of
new issuance, and steady demand from both individuals and institutions such as
insurance companies.
Focus on Intermediate
Noncallable Bonds
Our portfolio strategy over the Fund's most recent fiscal year has been to take
advantage of opportunities to lock in a substantial income stream for the Fund
over time by purchasing 10- to 15-year noncallable bonds. As of March 31, 24% of
the Fund's securities had maturities in this range. We also looked for
opportunities to add BBB-rated and non-rated bonds to the portfolio, though we
were only able to find a few such issues that met our requirements, including
Philadelphia Airport bonds. Higher yielding bonds, while carrying some
additional credit risk, generally exhibit less interest rate sensitivity than
municipal bonds rated A or above. The Fund held 20% of bonds in these two
categories as of March 31. (For a summary of the Fund's quality,
diversification, and maturity structure, see page 5.) Our continuing goal is to
have an average effective maturity similar to that of the Lehman Brothers
Municipal Bond Index, the Fund's benchmark, but with a superior,
7 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
call-protected structure. As of March 31, the Fund's average effective maturity
was 10.5 years.
The Fund's overall quality remains high, with 80% of portfolio securities rated
A or better as of March 31. We continue to invest in a broad selection of
Pennsylvania municipal bonds, including hospital/health care, water and sewer
revenue, and general obligation bonds.
Three-Tiered Long-Term
Strategy
The Fund seeks to provide investors with a competitive level of federal and
state tax-exempt income with total return as an additional objective. We
continue to pursue these objectives by concentrating on three broad categories
of Pennsylvania municipal bonds:
o Noncallable bonds, which an issuer cannot redeem before the maturity date.
When interest rates fall, bond issuers tend to reduce their borrowing expenses
by redeeming "callable" existing bonds and issuing new securities that pay lower
interest rates. Noncallable bonds provide a relatively stable stream of income
and solid price appreciation potential over time. During the period, we sold
bonds with weak call protection in favor of those with better call protection.
As of March 31, 59% of bonds the Fund held were noncallable.
o Steeply discounted callable bonds, which are unlikely to be subject to early
redemption at par value by their issuers.
o "Cushion" bonds. We balance the Fund's long- maturity bonds by purchasing
so-called cushion bonds -- bonds with high coupons that compensate investors for
the fact that they are likely to be redeemed by their issuer in a relatively
short time and which demonstrate the price stability of shorter-term issues.
8 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Our Outlook
Though it is possible that the economy's favorable momentum will carry over for
the remainder of 1997, we believe that a slight slowdown could occur in the
spring or summer. U.S. consumers, the major drivers of the country's economic
growth, continue to be overextended: Credit card defaults recently matched
levels last seen just after the 1989-90 recession. Deregulation of key
industries worldwide, the globalization of economic activity, and technological
advances continue to dampen any resurgence of inflation, and any signs that the
economy is slowing even slightly could soothe the bond market and diminish
upward pressure on rates coming from the Federal Reserve or market participants.
In the near term, we will continue to focus on bonds with favorable call
structures as well as search for high yield bonds that meet our credit
standards. We will maintain a neutral average maturity for the Fund and, as
always, pay close attention to credit quality as we pursue double-tax-free
income and competitive total return for Scudder Pennsylvania Tax Free Fund
shareholders.
Sincerely,
Your Portfolio Management Team
/s/Donald C. Carleton /s/Philip G. Condon
Donald C. Carleton Philip G. Condon
Scudder Pennsylvania
Tax Free Fund:
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. They are supported by Scudder's large staff of
economists, research analysts, traders, and other investment specialists who
work in our offices across the United States and abroad. We believe our 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 over 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 17 years of
experience in municipal investing and portfolio management.
Your Portfolio Management Team: Donald C. Carleton and Philip G. Condon
9 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Investment Portfolio as of March 31, 1997
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Short-Term Municipal Investments 1.2%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pennsylvania
Delaware County, PA, Airport Facilities Revenue, United Parcel Service,
Daily Demand Note, 3.8%, 12/01/15* ........................................... 200,000 AAA 200,000
Pennsylvania Economic Development Financing Authority,
Adelphoi Project Weekly Demand Note, Series 1996 E, 3.6%, 8/01/12* ........... 500,000 A1 500,000
Pennsylvania State Higher Education Facilities Authority Revenue, Daily
Demand Note, 3.85%, 11/02/29* ................................................ 200,000 A1+ 200,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Municipal Investments (Cost $900,000) 900,000
- ------------------------------------------------------------------------------------------------------------------------------
Long-Term Municipal Investments 98.8%
- ------------------------------------------------------------------------------------------------------------------------------
Pennsylvania
Allegheny County, PA, Sanitary Authority, Sewer Revenues, Series 1986B,
Prerefunded 6/1/99, 7.5%, 12/01/16 (c) *** ................................... 500,000 AAA 532,190
Armstrong County, PA, Hospital Authority, St. Frances Medical Center,
Series A, 6.25%, 6/01/13 (c) ................................................. 1,000,000 AAA 1,036,050
Berks County, PA, Municipal Authority Hospital Revenue, Reading Hospital and
Medical Center Project:
5.5%, 10/01/08 (c) .......................................................... 2,000,000 AAA 2,027,240
5.7%, 10/01/14 (c) .......................................................... 1,000,000 AAA 996,060
Bethlehem, PA, Water Authority, Refunding:
4.875%, 11/15/14 (c) ......................................................... 1,000,000 AAA 895,630
Series 1992, Prerefunded 11/15/01, 6.25%, 11/15/11 (c) *** ................... 1,000,000 AAA 1,062,380
Blair County, PA, Hospital Authority, Altoona Hospital Project, 5.5%,
7/01/07 (c) .................................................................. 1,000,000 AAA 1,020,330
Bucks County, PA, Water and Sewer Authority Revenue, ETM, 6.375%, 12/01/08** ... 425,000 NR 453,199
Clearfield, PA, Hospital Authority Revenue, Clearfield Hospital, 6.875%,
6/01/16 ...................................................................... 1,450,000 BBB 1,484,510
Commonwealth of Pennsylvania, Certificate of Participation, Lease Revenue:
Series A, 5%, 7/01/15 (c) .................................................... 1,000,000 AAA 900,150
Series A, 5.25%, 7/01/10 (c) ................................................. 1,890,000 AAA 1,835,398
Delaware County Authority, Commonwealth of Pennsylvania, University Revenue,
Villanova University, 7.75%, Prerefunded 8/1/98, 8/01/18 *** ................. 200,000 AAA 213,150
Delaware County, PA, Health Facilities Revenue, Mercy Health Corporation of
Southeastern Pennsylvania, Series B, 6%, 11/15/07 ............................ 1,500,000 BBB 1,515,660
Delaware County, PA, Hospital Revenue, Memorial Hospital, 5.5%, 8/15/13 ........ 1,750,000 AAA 1,707,475
Delaware County, PA, White Horse Village, Series 1996A,
6.6%, 7/01/06 ................................................................ 1,000,000 NR 1,002,540
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Erie County, PA, Prison Authority, Commonwealth Lease Revenue, Prerefunded
11/1/01, 6.25%, 11/01/11 (c) *** ............................................. 1,000,000 AAA 1,061,930
Erie, PA, Higher Education Building Authority, College Revenue, Mercyhurst
College Project, 5.75%, 3/15/20 .............................................. 1,000,000 BBB 906,740
Harrisburg, PA, Water Authority Revenue, Series 1993 B, Inverse Floater,
8.02%, 6/18/15 (c)**** ....................................................... 1,000,000 AAA 970,000
Indiana County, PA, Industrial Development Authority, Pennsylvania Electric
Company, Pollution Control Revenue, 5.35%, 11/01/10 (c) ...................... 1,000,000 AAA 993,090
Lebanon County, PA, Good Samaritan Hospital Authority Revenue, Series 1989B,
Prerefunded 11/1/99, 8.25%, 11/01/18 *** ..................................... 600,000 AAA 663,948
Lehigh County, PA, Hospital Revenue, Healtheast, Series B, 9%, Prerefunded
7/1/97, 7/01/15 *** .......................................................... 200,000 AAA 206,502
Montgomery County, PA, Holy Redeemer Hospital, 6.75%, 2/01/09 (c) .............. 500,000 AAA 516,695
Montgomery County, PA, Redevelopment Authority, Multi-Family
Housing Revenue Refunding, KBF Associates, LP Project, 6.375%, 7/01/12 ....... 1,500,000 BBB 1,488,990
Pennsylvania Convention Center Authority, Funding Revenue, 6%, 9/01/19 (c) ..... 2,200,000 AAA 2,348,566
Pennsylvania Economic Development Financing Authority, Resource Recovery
Revenue, Series 1994D, 7.125%, 12/01/15 ...................................... 2,700,000 BBB 2,822,337
Pennsylvania General Obligation:
10%, 4/15/02 (c) ............................................................. 2,500,000 AAA 3,059,375
6.25%, 7/01/10 ............................................................... 1,000,000 AA 1,076,650
Zero Coupon, Prerefunded 12/15/98, 12/15/02 *** .............................. 2,040,000 AAA 1,388,200
Pennsylvania Higher Education Facilities Authority, Health Services,
Series 1996A, 5.6%, 11/15/10 (c) ............................................. 2,480,000 AAA 2,474,222
Pennsylvania Housing Finance Agency, Single Family Mortgage Revenue:
Series 1991-32, 7.15%, 4/01/15 ............................................... 865,000 AA 911,252
Series 1992-33, 6.85%, 10/01/09 .............................................. 840,000 AA 889,165
Pennsylvania Industrial Development Authority, Economic Development Revenue:
5.8%, 1/01/08 (c) ............................................................ 1,000,000 AAA 1,043,320
Series 1996, 6%, 7/01/08 (c) ................................................. 1,000,000 AAA 1,063,010
Pennsylvania Intergovernmental Cooperation Authority, Special Tax
Revenue, City of Philadelphia, 6.8%, Prerefunded 6/15/02, 6/15/12 *** ........ 1,000,000 AAA 1,090,590
Philadelphia PA Authority for Industrial Development, Commercial Development
Revenue, 6.5%, 10/1/27 ....................................................... 1,000,000 NR 975,830
Philadelphia, PA, Airport Revenue, Philadelphia Airport System, 9%, 6/15/15 .... 100,000 BBB 103,500
Philadelphia, PA, Gas Works Revenue, Series A, Prerefunded 7/1/97, 7.3%,
7/01/99 *** .................................................................. 1,000,000 AAA 1,028,360
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Philadelphia, PA, General Obligation:
11.5%, 8/01/98 (c) ........................................................... 500,000 AAA 546,855
Refunding Revenue, Series A, 11.5%, 8/01/99 (c) .............................. 710,000 AAA 817,380
School District, Series A, 6.25%, 9/01/09 (c) ................................ 1,000,000 AAA 1,078,000
Philadelphia, PA, Hospital and Higher Education Facilities Authority:
Hospital Revenue:
Children's Seashore House, Series A, 7%, 8/15/12 (c) ........................ 1,000,000 A 1,050,280
Graduate Health System Obligation Group, 6.625%, 7/01/21 .................... 500,000 BBB 488,735
Albert Einstein Medical Center, 7.5%, 4/01/99 ............................... 535,000 A 543,576
Temple University Hospital, Series 1993A, 6.625%, 11/15/23 ................... 1,100,000 BBB 1,121,934
Philadelphia, PA, Municipal Authority, Lease Revenue Refunding,
Series A, 5.625%, 11/15/14 (c) ............................................... 1,000,000 AAA 982,930
Philadelphia, PA, Water & Wastewater Refunding Revenue, 5.625%,
6/15/09 (c) .................................................................. 2,000,000 AAA 2,045,060
Philadelphia, PA, Water Revenue, 6.25%, 8/01/10 (c) ............................ 1,000,000 AAA 1,077,000
Philadelphia, PA, Port Authority Lease Revenue, Series 1993, 6.2%,
9/01/13 (c) .................................................................. 2,000,000 AAA 2,054,360
Pittsburgh, PA, General Obligation, Series 1993 A, 5.5%, 9/01/14 (c) ........... 1,500,000 AAA 1,478,460
Pittsburgh, PA, Water and Sewer System Revenue:
ETM, 7.25%, 9/01/14 (c)** .................................................... 150,000 AAA 176,483
Series A, Prerefunded 9/1/01, 6.5%, 9/01/14 (c)*** ........................... 1,250,000 AAA 1,357,538
Series A, 4.75%, 9/01/16 (c) ................................................. 2,000,000 AAA 1,725,740
Pottsville, PA, Hospital Authority, Warne Clinic, 7.25%, 7/01/24 ............... 1,000,000 BBB 1,041,160
Somerset County, PA, General Authority, Commonwealth Lease Revenue, 6.25%,
Prerefunded 10/15/01, 10/15/11 (c) *** ....................................... 1,000,000 AAA 1,061,410
Union County, PA, Higher Education Facilities Authority, University Revenue,
Bucknell University, 6.2%, 4/01/07 (c) ....................................... 1,000,000 AAA 1,049,470
University Area, PA, Sewer Revenue, 5.25%, 11/01/14 (c) ........................ 1,750,000 AAA 1,680,070
Washington County, PA, Lease Revenue, Shadyside Hospital Project, 7.375%,
Prerefunded 6/15/00, 12/15/09 (c) *** ........................................ 1,000,000 AAA 1,105,760
York County, PA, Resource Recovery Solid Waste Authority, General Obligation,
Series C, 8.2%, 12/01/14 ..................................................... 315,000 A 329,723
Puerto Rico
Puerto Rico Electric Power Authority, Power Revenue Refunding, Series N,
Zero Coupon, 7/01/03 (c) ..................................................... 1,500,000 AAA 1,115,175
Puerto Rico Public Building Authority, Government Facilities Revenue, 6.25%,
7/01/13 (c) .................................................................. 1,000,000 AAA 1,083,160
Puerto Rico, General Obligation, Public Improvement Refunding, 5.4% 7/01/07 .... 1,500,000 A 1,502,203
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Virgin Islands
Virgin Islands Public Finance Authority, General Obligation, Matching Fund
Loan Notes, Series A, 7.25%, 10/01/18 ....................................... 1,500,000 NR 1,619,700
- ------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $69,431,563) 71,896,396
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio - 100.0% (Cost $70,331,563) (a) 72,796,396
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $70,331,563. At March 31,
1997, net unrealized appreciation for all securities based on tax cost
was $2,464,833. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $2,799,447 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $334,614.
(b) All of the securities held have been determined to be of appropriate
credit quality as required by the Fund's investment objectives. Credit
ratings shown are assigned by either Standard & Poor's Ratings Group,
Moody's Investors Service, Inc. or Fitch Investors Service, Inc. Unrated
securities (NR) have been determined to be of comparable quality to
rated eligible securities.
(c) Bond is insured by one of these companies: AMBAC, FGIC or MBIA.
* Floating rate and monthly, weekly, or daily demand notes are securities
whose yields vary with a designated market index or market rate, such as
the coupon-equivalent of the Treasury bill rate. Variable rate demand
notes are securities whose yields are periodically reset at levels that
are generally comparable to tax-exempt commercial paper. These
securities are payable on demand within seven calendar days and normally
incorporate an irrevocable letter of credit from a major bank. These
notes are carried, for purposes of calculating average weighted
maturity, at the longer of the period remaining until the next rate
change or to the extent of the demand period.
** ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by a
trustee and used to pay principal and interest on bonds so designated.
*** Prerefunded: Bonds which are prerefunded are collateralized by U.S.
Treasury securities which are held in escrow and are used to pay
principal and interest, if any, on the tax-exempt issue and to retire
the bonds in full at the earliest refunding date.
**** Inverse floating rate notes are instruments whose yields have an inverse
relationship to benchmark interest rates. These securities are shown at
their rate as of March 31, 1997.
The accompanying notes are an integral part of the financial statements.
13 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of March 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Assets
----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $70,331,563) ............... $ 72,796,396
Cash ............................................................... 14,855
Receivable for investments sold .................................... 275,000
Interest receivable ................................................ 1,267,808
Receivable for Fund shares sold .................................... 30,268
Other assets ....................................................... 1,766
----------------
Total assets ....................................................... 74,386,093
Liabilities
----------------------------------------------------------------------------------------------------------------------------
Dividends payable .................................................. 131,679
Payable for Fund shares redeemed ................................... 4,528
Accrued management fee ............................................. 17,817
Other accrued expenses ............................................. 54,072
----------------
Total liabilities .................................................. 208,096
-------------------------------------------------------------------------------------------
Net assets, at market value $ 74,177,997
-------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation on investments ............................. 2,464,833
Paid-in capital .................................................... 71,713,164
-------------------------------------------------------------------------------------------
Net assets, at market value $ 74,177,997
-------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($74,177,997 / 5,591,548 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ...................................................... $ 13.27
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Statement of Operations
year ended March 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Investment Income
------------------------------------------------------------------------------------------------------------------------------
Income:
Interest ........................................................... $ 4,383,951
-----------------
Expenses:
Management fee ..................................................... 452,373
Services to shareholders ........................................... 88,492
Custodian and accounting fees ...................................... 60,537
Trustees' fees and expenses ........................................ 15,042
Auditing ........................................................... 30,512
Reports to shareholders ............................................ 30,444
Registration fees .................................................. 3,389
Legal .............................................................. 7,109
Other .............................................................. 5,234
-----------------
Total expenses before reductions ................................... 693,132
Expense reductions ................................................. (316,193)
-----------------
Expenses, net ...................................................... 376,939
--------------------------------------------------------------------------------------------
Net investment income 4,007,012
--------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment transactions ..................... 84,346
Net unrealized depreciation on investments during the period ....... (190,591)
--------------------------------------------------------------------------------------------
Net loss on investment transactions (106,245)
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 3,900,767
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended March 31,
Increase (Decrease) in Net Assets 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................... $ 4,007,012 $ 4,007,114
Net realized gain from investment transactions ........... 84,346 268,513
Net unrealized appreciation (depreciation) on investments
during the period ...................................... (190,591) 1,138,390
---------------- ---------------
Net increase in net assets resulting from operations ..... 3,900,767 5,414,017
---------------- ---------------
Distributions to shareholders:
From net investment income ............................... (4,007,012) (4,007,114)
---------------- ---------------
From net realized gains from investment transactions ..... (130,973) (406,975)
---------------- ---------------
Fund share transactions:
Proceeds from shares sold ................................ 13,660,695 13,628,858
Net asset value of shares issued to shareholders in
reinvestment of distributions .......................... 2,572,041 2,848,989
Cost of shares redeemed .................................. (17,335,755) (14,251,658)
---------------- ---------------
Net increase (decrease) in net assets from Fund share
transactions ........................................... (1,103,019) 2,226,189
---------------- ---------------
Increase (decrease) in net assets ........................ (1,340,237) 3,226,117
Net assets at beginning of period ........................ 75,518,234 72,292,117
---------------- ---------------
Net assets at end of period .............................. $74,177,997 $75,518,234
---------------- ---------------
Other Information
---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................ 5,674,116 5,507,084
---------------- ---------------
Shares sold .............................................. 1,024,372 1,013,230
Shares issued to shareholders in reinvestment of
distributions .......................................... 192,785 212,399
Shares redeemed .......................................... (1,299,725) (1,058,597)
---------------- ---------------
Net increase (decrease) in Fund shares ................... (82,568) 167,032
---------------- ---------------
Shares outstanding at end of period ...................... 5,591,548 5,674,116
---------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Financial Highlights
The following table included selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
May 28, 1987
(commencement of
Years Ended March 31, operations) to
March 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning ----------------------------------------------------------------------------------------------
of period ............... $13.31 $13.13 $13.01 $13.46 $12.80 $12.35 $12.27 $12.08 $11.80 $12.00
----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income ...... .71 .71 .73 .75 .76 .77 .82 .84 .79 .65
Net realized and unrealized
gain (loss) on
investment transactions . (.02) .25 .15 (.36) .87 .52 .08 .20 .40 (.26)
Total from investment ----------------------------------------------------------------------------------------------
operations .............. .69 .96 .88 .39 1.63 1.29 .90 1.04 1.19 .39
----------------------------------------------------------------------------------------------
Less distributions:
From net investment
income .................. (.71) (.71) (.73) (.75) (.76) (.77) (.82) (.84) (.85) (.59)
From net realized gains on
investment transactions . (.02) (.07) (.03) (.09) (.21) (.07) -- (.01) (.06) --
----------------------------------------------------------------------------------------------
Total distributions ........ (.73) (.78) (.76) (.84) (.97) (.84) (.82) (.85) (.91) (.59)
----------------------------------------------------------------------------------------------
Net asset value, end of ----------------------------------------------------------------------------------------------
period .................. $13.27 $13.31 $13.13 $13.01 $13.46 $12.80 $12.35 $12.27 $12.08 $11.80
----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) ....... 5.30 7.45 7.09 2.70 13.19 10.70 7.58 8.75 11.00 3.39**
Ratios and Supplemental Data
Net assets, end of period
($ millions) ............ 74 76 72 74 61 39 26 18 11 5
Ratio of operating expenses,
net to average daily net
assets (%) .............. .50 .50 .50 .50 .50 .50 .50 .50 .50 .50*
Ratio of operating expenses
before expense
reductions, to average
daily net assets (%) .... .92 .91 .94 .95 1.02 1.13 1.43 1.84 2.43 5.75*
Ratio of net investment
income to average daily
net assets (%) .......... 5.32 5.30 5.74 5.42 5.79 6.05 6.67 6.78 7.09 7.16*
Portfolio turnover
rate (%) ................ 11.64 11.1 26.2 17.4 29.2 11.2 7.8 2.0 13.5 97.6*
</TABLE>
(a) Total returns are higher due to maintenance of the Fund's expenses.
* Annualized
** Not annualized
17 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Pennsylvania Tax Free Fund (the "Fund") is a non-diversified series of
Scudder State Tax Free Trust (the "Trust"). The Trust is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. There are
currently six series in the Trust.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the Officers of the
Fund, which quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. All other debt securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Trustees.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
Amortization and Accretion. All premiums and original issue discounts are
amortized/accreted for both tax and financial reporting purposes.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable and tax-exempt income to its shareholders.
Accordingly, the Fund paid no federal income taxes and no provision for federal
income taxes was required.
Distribution of Income and Gains. All of the net investment income of the Fund
is declared as a dividend to shareholders of record as of the close of business
each day and is paid to shareholders monthly. During any particular year, net
realized gains from investment transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not distributed and, therefore,
will be distributed to shareholders. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined in accordance with federal tax regulations which
may differ from generally accepted accounting principles. As a result, net
investment income and net realized gain (loss) on investment transactions for a
reporting period may differ significantly from distributions during such period.
Accordingly, the Fund may periodically make reclassifications among certain of
its capital accounts without impacting the net asset value of the Fund.
The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
Other. Investment security transactions are accounted for on a trade date basis.
Distributions of net realized gains to shareholders are recorded on the
ex-dividend date. Interest income is accrued pro rata to the earlier of the call
or maturity date.
B. Purchases and Sales of Securities
During the year ended March 31, 1997, purchases and sales of municipal
securities (excluding short-term investments) aggregated $8,293,361 and
$8,344,728, respectively.
18 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
C. Related Parties
Under the Fund's Investment Advisory Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a fee
equal to an annual rate of approximately 0.60% of the Fund's average daily net
assets, computed and accrued daily and payable monthly. The Adviser determines
the securities, instruments, and other contracts relating to investments to be
purchased, sold or entered into by the Fund. In addition to portfolio management
services, the Adviser provides certain administrative services in accordance
with the Agreement. The Adviser has agreed not to impose all or a portion of its
management fee until July 31, 1997, and during such period to maintain the
annualized expenses of the Fund at not more than 0.50% of average daily net
assets. For the year ended March 31, 1997, the Adviser imposed fees amounting to
$136,180, of which $17,817 is unpaid at March 31, 1997, and the portion not
imposed amounted to $316,193.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend-paying and shareholder service agent for the Fund. For the
year ended March 31, 1997, the amount charged to the Fund by SSC aggregated
$62,522, of which $5,480 is unpaid at March 31, 1997.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
March 31, 1997, the amount charged to the Fund by SFAC aggregated $36,000, of
which $3,000 is unpaid at March 31, 1997.
The Trust pays each Trustee not affiliated with the Adviser $12,000 annually,
divided equally among the series of the Trust, plus specified amounts for
attended board and committee meetings. For the year ended March 31, 1997,
Trustees' fees and expenses charged to the Fund aggregated $15,042.
19 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Report of Independent Accountants
To the Trustees of Scudder State Tax Free Trust and the Shareholders of Scudder
Pennsylvania Tax Free Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
Pennsylvania Tax Free Fund, including the investment portfolio, as of March 31,
1997, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the nine years in the period
then ended, and for the period May 28, 1987 (commencement of operations) to
March 31, 1988. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1997, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Pennsylvania Tax Free Fund as of March 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the nine years in the period then ended, and for the period May 28, 1987
(commencement of operations) to March 31, 1988, in conformity with generally
accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
May 12, 1997
20 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Tax Information
The Fund paid distributions of $0.023 per share from net long-term capital gains
during its year ended March 31, 1997. Pursuant to Section 852 of the Internal
Revenue Code, the Fund designates $85,345 as capital gain dividends for its year
ended March 31, 1997.
Of the dividends paid by the Fund from net investment income for the year ended
March 31, 1997, 100% constituted exempt interest dividends for regular federal
income tax and Pennsylvania personal income tax purposes.
Please consult a tax adviser if you have any questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Investor
Relations Representative at 1-800-225-5163.
21 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
This Page
intentionally
left blank.
22 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
This Page
intentionally
left blank.
23 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Officers and Trustees
David S. Lee*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
E. Michael Brown*
Trustee
Dawn-Marie Driscoll
Trustee; Executive Fellow; President, Driscoll Associates
Peter B. Freeman
Trustee; Corporate Director and Trustee
Dudley H. Ladd*
Trustee
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
Daniel Pierce*
Trustee
Jean C. Tempel
Trustee; General Partner,
TL Ventures
Donald C. Carleton*
Vice President
Philip G. Condon*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Jeremy L. Ragus*
Vice President
Rebecca Wilson*
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
*Scudder, Stevens & Clark, Inc.
24 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
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 Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan *+++ +++
(a variable annuity)
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.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. +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.
25 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Scudder Solutions
<TABLE>
<S> <C> <C>
Convenient ways to invest, quickly and reliably:
- --------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plan AutoBuy
A convenient investment program in which you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is higher and electronically debited from that account.
fewer when it's lower, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- --------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(tm) Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient, timely, and reliable
automated withdrawal programs:
- --------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan AutoSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- --------------------------------------------------------------------------------------------------------------------------
26 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- --------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund FolioSM provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies-with no Personal Counsel from Scudder(sm)
transaction fees or commissions. Scudder Developed for investors who prefer the benefits of no-load
shareholders can take advantage of a Scudder Scudder funds but want ongoing professional assistance in
Brokerage account already reserved for them, with managing a portfolio. Personal Counsel(sm) is a highly
no minimum investment. For information about customized, fee-based asset management service for
Scudder Brokerage Services, call 1-800-700-0820. individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(sm) and Personal Counsel(sm) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- --------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- --------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Funds Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Funds Centers. Check for a Funds Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
New From Scudder: Pathway Series
In a complex financial world, Scudder Pathway Series is a refreshingly simple concept. With one
investment, Pathway gives you instant access to broad diversification in U.S. markets and
across the globe. Select from four Portfolios -- Conservative, Balanced, Growth, or
International -- each with a distinct investment objective that can match your goals. Each
Portfolio, rather than investing in individual securities, invests in carefully selected
Scudder mutual funds.
The share price of each Pathway Series portfolio will fluctuate and the risk associated with
each portfolio is determined by the securities held in each underlying Scudder fund. Contact
Scudder Investor Services, Inc., Distributor, for a prospectus which contains more complete
information, including management fees and other expenses. Please read it carefully before you
invest or send money.
</TABLE>
27 -- Scudder Pennsylvania Tax Free Fund
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the investment
industry. In 1928, we introduced the nation's first no-load mutual fund. Today
we offer over 40 pure no load(TM) funds, including the first international
mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
