Scudder
Pennsylvania
Tax Free Fund
Semiannual Report
September 30, 1998
Pure No-Load(TM) Funds
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 (logo)
<PAGE>
Scudder Pennsylvania Tax Free Fund
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Date of Inception: 5/28/87 Total Net Assets as of Ticker Symbol: SCPAX
9/30/98: $84.9 million
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o For its most recent semiannual period ended September 30, 1998, Scudder
Pennsylvania Tax Free Fund posted a total return of 4.14%, compared with the
3.91% average return of 62 similar funds tracked by Lipper Analytical Services.
o As of September 30, 1998, Scudder Pennsylvania Tax Free Fund's 30-day net
annualized SEC yield was 3.99%, equivalent to a 6.80% taxable yield for
Pennsylvania investors subject to the 41.29% combined federal and state income
tax rate.
o Scudder Pennsylvania Tax Free Fund received a four-star overall rating from
Morningstar, reflecting "above average" risk-adjusted performance for the Fund
through September 30, 1998.^1
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
30-Day Yield on September 30, 1998
BAR CHART DATA:
Scudder Taxable Yield
Pennsylvania Needed to Equal
Tax Free Fund the Fund's Yield
------------- ----------------
3.99% 6.80%
Table of Contents
3 Letter from the Fund's President 14 Financial Statements
4 Performance Update 17 Financial Highlights
5 Portfolio Summary 18 Notes to Financial Statements
6 Portfolio Management Discussion 20 Officers and Trustees
9 Glossary of Investment Terms 21 Investment Products and Services
10 Investment Portfolio 22 Scudder Solutions
^1 For your information, these ratings are subject to change every month and
are calculated from the Fund's five-year average annual return in excess of
90-day Treasury bill returns with appropriate fee adjustments, and a risk
factor that reflects fund performance below T-bill returns. The Fund
received four stars for three- and five-year performance, and three stars
for ten-year performance, and was rated among 1581, 943, and 359 municipal
funds for the respective periods. Of the funds rated, the top 10% received
five stars, and the next 22.5% received four stars. Past performance is no
guarantee of future returns.
2 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
The municipal bond market has made a strong case for portfolio
diversification over the past several months. While volatility swept through
most global markets, including the U.S. stock market, municipal bonds posted
steady gains. We continue to see signs that investors, especially those in
higher tax brackets, are choosing to rebalance their portfolios with municipal
bond investments. Another positive sign for municipal bond investors: As shown
by the graph on page 8 of the Portfolio Management Discussion, intermediate-term
municipals (which make up most of Scudder Pennsylvania Tax Free Fund's
portfolio) represent their most attractive value versus Treasury bonds in ten
years. Moreover, as outlined in the Portfolio Management Discussion that begins
on page 6, Pennsylvania municipal bonds are benefiting from the state's growing
economy, which continues to improve following a brief slowdown in 1996.
Scudder Pennsylvania Tax Free Fund's total return over its most recent
semiannual period was 4.14%, outpacing the average performance of its peers as
tracked by Lipper. The Fund's 30-day net annualized SEC yield was 3.99% as of
September 30, 1998, equivalent to a 6.80% taxable yield for Pennsylvania
investors subject to the top combined federal and state income tax rate.
For those of you interested in new Scudder funds, we recently introduced
two international funds: Scudder International Growth Fund -- which seeks to
invest in high growth opportunities in both developed and developing markets,
and Scudder International Value Fund -- which seeks to invest in undervalued
foreign securities.
Please call a Scudder Investor Information representative at 1-800-225-2470
or visit our Web site at www.scudder.com if you have questions about your Fund.
Thank you for choosing Scudder Pennsylvania Tax Free Fund to help meet your
investment needs.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Pennsylvania Tax Free Fund
3 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Performance Update as of September 30, 1998
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Fund Index Comparisons
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Total Return
- ---------------------------------------------
Period Ended Growth of Average
9/30/98 $10,000 Cumulative Annual
- ---------------------------------------------
Scudder Pennsylvania Tax Free Fund
- ---------------------------------------------
1 Year $10,793 7.93% 7.93%
5 Year $13,257 32.57% 5.80%
10 Year $21,818 118.18% 8.11%
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Lehman Brothers Municipal Bond Index
- ---------------------------------------------
1 Year $10,872 8.72% 8.72%
5 Year $13,635 36.35% 6.39%
10 Year $22,311 123.11% 8.35%
- ---------------------------------------------
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Growth of a $10,000 Investment
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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:
Yearly periods ended September 30
SCUDDER PENNSYLVANIA TAX FREE FUND
Year Amount
- ----------------------
88 $10,000
89 $10,954
90 $11,451
91 $13,047
92 $14,411
93 $16,457
94 $15,887
95 $17,557
96 $18,574
97 $20,215
98 $21,818
LEHMAN BROTHERS MUNICIPAL BOND INDEX
Year Amount
- ----------------------
88 $10,000
89 $10,868
90 $11,608
91 $13,138
92 $14,514
93 $16,363
94 $15,964
95 $17,750
96 $18,821
97 $20,522
98 $22,311
The unmanaged Lehman Brothers Municipal Bond Index is a market value-weighted
measure of municipal bonds issued across the United States. Index issues have a
credit rating of at least Baa and a maturity of at least two years. Index
returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
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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 September 30
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
------------------------------------------------------------------------------------------------
NET ASSET VALUE... $ 12.26 $ 11.98 $ 12.78 $ 13.20 $ 14.06 $ 12.76 $ 13.31 $ 13.32 $ 13.73 $ 14.08
INCOME DIVIDENDS.. $ .84 $ .82 $ .80 $ .75 $ .76 $ .74 $ .72 $ .71 $ .71 $ .68
CAPITAL GAINS
DISTRIBUTIONS..... $ .02 $ .01 $ .02 $ .12 $ .18 $ .08 $ .03 $ .04 $ .02 $ .03
FUND TOTAL
RETURN (%)........ 9.54 4.54 13.94 10.45 14.20 -3.47 10.51 5.79 8.83 7.93
INDEX TOTAL
RETURN (%)........ 8.68 6.80 13.19 10.45 12.74 -2.44 11.18 6.04 9.04 8.72
</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 Adviser had not temporarily
capped expenses, the average annual total return for the Fund for the one year,
five year, and ten year periods would have been lower.
4 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Portfolio Summary as of September 30, 1998
Diversification
- ---------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Hospital/Health 24%
Water/Sewer Revenue 17%
General Obligation 9%
Pollution Control/Industrial
Development 9%
Higher Education 8%
County General Obligation/Lease 6%
Sales & Specialty Tax 6%
Port/Airport Revenue 5%
Housing Finance Authority 4%
Miscellaneous Municipals 12%
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100%
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The Fund invests in a broad selection of Pennsylvania tax-free bonds.
Quality
- -------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
AAA* 75%
AA 4%
A 7%
BBB 5%
SKI 9%
--------------------------------------
100%
--------------------------------------
Weighted average quality: AA
*Includes cash equivalents
Overall portfolio quality remains high, with over 85% of portfolio securities
rated A or better as of September 30.
Effective Maturity
- ------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Less than 1 year 5%
1-5 years 30%
5-8 years 7%
8-15 years 40%
Greater than 15 years 18%
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100%
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Weighted average effective maturity:
9.16 years
We have been focusing on bonds in the 15- to 20-year maturity range, which is
slightly longer than the duration we had been emphasizing previously.
For more complete details about the Fund's investment portfolio, see page 10. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Municipal bonds registered gains in the wake of a strong U.S. Treasury bond
rally during Scudder Pennsylvania Tax Free Fund's most recent semiannual period
ended September 30, 1998. During the six-month period, the Fund posted a total
return of 4.14%, outpacing the 3.91% average return of 62 Pennsylvania
tax-exempt funds as tracked by Lipper Analytical Services, Inc. As of September
30, 1998, Scudder Pennsylvania Tax Free Fund's 30-day net annualized SEC yield
was 3.99%, equivalent to a 6.80% taxable yield for Pennsylvania investors
subject to the 41.29% combined federal and state income tax rate.
Pennsylvania Update
The Commonwealth of Pennsylvania has experienced stronger economic growth in
1997 and so far in 1998, after a slowdown in 1996. After finishing its 1998
fiscal year with a sixth consecutive budget surplus, Pennsylvania is on track to
finish its 1999 fiscal year with yet another surplus. The Commonwealth's economy
is still creating jobs, although growth is slowing. During the 12-month period
ended July 1998, Pennsylvania added 55,400 new jobs, with the service/finance,
insurance, and real estate sectors accounting for three-fourths of them.
Pennsylvania's unemployment rate for August 1998 was 4.5%, equal to the national
average. Growth in per capita income in the Commonwealth mirrored the growth in
the national average; both figures increased 5.6%.
The Commonwealth has a low debt burden. Per capita debt is $420, or 63% of the
national average. Pennsylvania's future capital plans call for steady debt
issuance through 2001 of approximately $600 million per year. Retirement of
outstanding debt is expected to offset any future issuance, however. Overall,
the Commonwealth is benefiting from a favorable economy, which has led to
improved finances.
Bonds Provided a Safe Haven
Investors worldwide went in search of a relative "safe haven" in the form of
U.S. Treasury bonds during the period, as a series of dramatic financial crises
rocked the global markets. In the international capital markets, the most
damaging developments were Russia's economic collapse -- including its
short-term debt default and ruble devaluation, Japan's failure to initiate
needed banking reform and climb out of recession, and Brazil's continuing
currency crisis. The Federal Reserve lowered interest rates by one quarter of a
percentage point on September 29 in an attempt to restore order to worldwide
financial markets. Initial reaction from market participants was that the Fed's
action was insufficient, driving even more investors to Treasury bonds. On the
domestic front, the U.S. stock market continually advanced to new highs until
late July, when it succumbed to pressure from overseas, as well as a series of
domestic earnings disappointments. The Dow Jones average declined 16% from its
July 17 all-time high to 7,842 as of September 30. The near collapse of the Long
Term Capital Management hedge fund also contributed to a sharp rise in Treasury
bond prices near the close of the period.
6 - Scudder Pennsylvania Tax Free Fund
<PAGE>
As is typically true during a strong Treasury bond rally, prices of municipal
bonds did not keep up. During the six-month period, 10-year Treasury bond yields
declined one percentage point and their prices rose 9%. Over the same time
frame, 10-year AAA-rated municipal bond yields declined less than one half of a
percentage point, and their prices rose 3.3%. Two factors were most responsible
for the disparity in performance between the Treasury and municipal markets:
first, the "flight to quality" from stocks, emerging market bonds, and corporate
bonds into Treasuries; second, the heavy supply of new tax-exempt issues from
January through September 1998. Municipal supply is expected to reach
approximately $285 billion in 1998, which would be second only to 1993's total
of $292 billion over the past ten years.
A Focus on 10- to 15-Year Bonds
As a means of locking in a substantial income stream for Scudder Pennsylvania
Tax Free Fund over time, we have been emphasizing high-quality bonds with
maturities of 10 to 15 years over the Fund's most recent semiannual period. As
of September 30, 51% of the Fund's portfolio had maturities in this range. Our
continuing goal is to have an average effective maturity similar to that of the
Lehman Brothers Municipal Bond Index, but with a superior, call-protected
structure. The Fund's average effective maturity was 9.2 years as of September
30.
Over the past several years, the Fund's primary strategy has been to purchase
noncallable bonds to provide a relatively stable income stream along with
long-term price appreciation potential. While we plan to retain and take full
advantage of the Fund's large existing position in noncallable bonds, we have
recently felt that most noncallable bonds available for purchase did not
represent attractive value. Therefore, over the course of the most recent
semiannual period, the Fund changed its emphasis by purchasing premium bonds --
bonds with high coupons that compensate investors for the fact that they can be
redeemed by their issuer before maturity.
Another shift in strategy has been to de-emphasize lower quality bonds, because
differences in yield between higher and lower quality municipal bonds have
shrunk to the point that investors in lower quality bonds are not rewarded for
taking on additional credit risk. Overall portfolio quality remains at a high
level, with over 85% of portfolio securities rated A or better at the close of
the period. We continue to invest in a broad selection of Pennsylvania
tax-exempt bonds, including hospital/health, water/sewer revenue, and general
obligation bonds.
Outlook
There are several factors that -- taken together or separately -- could boost
bond prices over the next several months: First, the Fed may choose to continue
its recent series of interest rate reductions, which could cause short-term as
well as intermediate-term municipal bond yields to decline further. Second, we
view the selling off of leveraged holdings by the large hedge funds that began
in late September as a "wild card" that could continue to drive investors to
7 - Scudder Pennsylvania Tax Free Fund
<PAGE>
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE:
Yields of 10-year AAA-Municipal Bonds Compared With 10-year Treasury Bonds
January 1, 1988 - September 30, 1998
10-year 10-year
AAA-Municipal Bonds Treasury Bonds
------------------- --------------
1/88 6.60% 8.80%
6.70 8.80
6.70 9.21
6.50 8.12
1/90 6.40 7.89
6.60 8.44
6.40 8.09
6.30 8.30
1/92 5.60 6.84
5.55 7.13
5.30 6.68
4.75 5.85
1/94 4.40 5.78
5.50 7.32
5.80 7.81
5.05 6.26
1/96 4.65 5.62
5.15 6.82
4.85 6.34
4.80 6.48
1/98 4.40 5.74
4.40 5.46
9/98 4.00 4.42
(Chart indicates a 0.42% spread between the 10-year Treasury Bonds at 4.42%
(9/98) and the 10-year AAA-Municipal Bonds at 4.00% (9/98).)
CHART CAPTION:
The "spread" between yields of 10-year municipal bonds and 10-year Treasuries is
at its narrowest point in 10 years.
Source: Scudder Kemper Investments, Inc.
------
"safe haven" fixed income securities. Third, we expect inflation -- at 1.8% as
of September 30 -- to remain low and U.S. economic growth to slow significantly
in 1999.
In addition to these positive signs for bonds overall, municipal bonds are
currently attractively valued, as indicated by the fact that the ratio of
municipal yields to Treasury yields on bonds of similar maturity is by far the
highest it has been in 10 years. If, as we expect, Treasury yields remain low,
the tendency would be for municipals yields to decline and prices to rise,
restoring a more typical relationship between municipals and Treasuries.
Over the long term, we will seek to boost yield and achieve returns for our
investors by concentrating on high-quality, 10- to 15-year municipal bonds. At
the same time, we will attempt to limit volatility by maintaining a neutral
average maturity and high overall 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/Philip G. Condon /s/Rebecca L. Wilson
Philip G. Condon Rebecca L. Wilson
8 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Glossary of Investment Terms
BOND An interest-bearing security issued by the federal,
state, or local government or a corporation that
obligates the issuer to pay the bondholder a
specified amount of interest for a stated period --
usually a number of years -- and to repay the face
amount of the bond at its maturity date.
GENERAL OBLIGATION BOND A municipal bond backed by the "full faith and
credit" (including the taxing and further
borrowing power) of the city, state, or agency that
issues the bond. A general obligation bond is repaid
with the issuer's general revenue and borrowings.
INFLATION An overall increase in the prices of goods and
services, as happens when business and consumer
spending increase relative to the supply of goods
available in the marketplace-- in other words, when
too much money is chasing too few goods. High
inflation has a negative impact on the prices of
fixed-income securities.
MUNICIPAL BOND An interest-bearing debt security issued by a
state or local government entity.
NET ASSET VALUE (NAV) The price per share of a mutual fund based on
the sum of the market value of all the securities
owned by the fund divided by the number of
outstanding shares.
TAXABLE EQUIVALENT YIELD The level of yield a fully taxable instrument
would have to provide to equal that of a
tax-free municipal bond on an after-tax basis.
30-DAY SEC YIELD The standard yield reference for bond funds, based
on a formula prescribed by the SEC. This annualized
yield calculation reflects the 30-day average of the
income earnings of every holding in a given fund's
portfolio, net of expenses, assuming each is held to
maturity.
TOTAL RETURN The most common yardstick to measure the
performance of a fund. Total return -- annualized or
compound -- is based on a combination of share price
changes plus income and capital gain distributions,
if any, expressed as a percentage gain or loss in
value.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
9 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Investment Portfolio as of September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Short-Term Municipal Investments 2.5%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pennsylvania
Delaware County, PA, Pollution Control Revenue, British Petroleum Oil Inc. -----------
Project, Daily Demand Note, 4.2%, 12/1/2009* (Cost $2,100,000) ................ 2,100,000 A1+ 2,100,000
-----------
Long-Term Municipal Investments 97.5%
- ------------------------------------------------------------------------------------------------------------------------------
Pennsylvania
Allegheny County, PA, Airport Revenue, Pittsburgh International Airport,
Series 1997A, 5.75%, 1/1/2013 (c) ............................................. 1,500,000 AAA 1,687,140
Allegheny County, PA, Higher Education Building Authority, Community College,
Series 1993A, 5.8%, 6/1/2013 (c) .............................................. 2,000,000 AAA 2,174,520
Allegheny County, PA, Sanitary Authority, Sewer Revenues, Series 1986B,
Prerefunded 6/1/1999, 7.5%, 12/1/2016 (c)*** .................................. 500,000 AAA 513,735
Armstrong County, PA, Hospital Authority, St. Frances Medical Center,
Series A, 6.25%, 6/1/2013 (c) ................................................. 1,000,000 AAA 1,088,650
Berks County, PA, Municipal Authority Hospital Revenue, Reading Hospital and
Medical Center Project:
5.5%,10/1/2008 (c) ........................................................... 1,000,000 AAA 1,106,150
5.7%, 10/1/2014 (c) .......................................................... 1,000,000 AAA 1,124,850
Bethlehem, PA, Water Revenue, Series 1992, Prerefunded 11/15/2001, 6.25%,
11/15/2001 (c)*** ............................................................. 1,000,000 AAA 1,076,230
Blair County, PA, Hospital Authority, Altoona Hospital, Series 1998 PJ-A,
5.5%, 7/1/2011 (c) ............................................................ 1,500,000 AAA 1,629,450
Bucks County, PA, Water and Sewer Authority Revenue, ETM, 6.375%,
12/1/2008** ................................................................... 425,000 SKI 476,238
Clearfield, PA, Hospital Authority Revenue, Clearfield Hospital, 6.875%,
6/1/2016 ...................................................................... 1,450,000 BBB 1,590,925
Commonwealth of Philadelphia, PA, Water & Wastewater Refunding Revenue,
5.625%, 6/15/2009 (c) ......................................................... 2,000,000 AAA 2,223,540
Delaware County, PA, Health Facilities Revenue, Mercy Health Corporation
of Southeastern Pennsylvania, Series B, 6%, 11/15/2007 ........................ 1,500,000 BBB 1,683,330
Delaware County, PA, Hospital Revenue, Memorial Hospital, 5.5%, 8/15/2013 ....... 1,750,000 AAA 1,885,083
Delaware County, PA, Industrial Development Authority, Resource Recovery
Facility, Series 1997A, 6.5%, 1/1/2008 ........................................ 1,000,000 A 1,134,520
Delaware County, PA, White Horse Village, NC Series 1996A, 6.6%, 7/1/2006 ....... 1,000,000 SKI 1,059,830
Erie County, PA, Pollution Control, Revenue Industrial Development Authority,
International Paper, Series 1997, 5.3%, 4/1/2012 .............................. 1,000,000 A 1,056,810
Erie County, PA, Prison Authority, Commonwealth Lease Revenue, Prerefunded
11/1/2001, 6.25%, 11/1/2011 (c)*** ............................................ 1,000,000 AAA 1,075,410
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Pennsylvania Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gettysburgh, PA, Gettysburgh College, Revenue Bond, 5.375%, 8/15/2013 (c) ....... 1,020,000 AAA 1,122,265
Harrisburg, PA, Series 1997F, Zero Coupon, 3/15/2012 (c) ........................ 1,770,000 AAA 950,950
Harrisburg, PA, General Obligation, Refunding, Series 1997D, Zero Coupon,
9/15/2011 (c) ................................................................. 1,000,000 AAA 553,290
Indiana County, PA, Industrial Development Authority, Pennsylvania Electric
Company, Pollution Control Revenue, 5.35%, 11/1/2010 (c) ...................... 1,000,000 AAA 1,099,120
Latrobe, PA, Industrial Development Authority, St. Vincent College Project,
5.375%, 5/1/2013 .............................................................. 1,000,000 BBB 1,043,370
Lebanon County, PA, Good Samaritan Hospital Authority Revenue, Series 1989B,
Prerefunded 11/1/99, 8.25%,11/1/2018*** ....................................... 600,000 AAA 642,084
Lehigh County, PA, General Purpose, Hospital Authority Revenue, Lehigh Valley
Health Network, Series 1998C, 5%, 7/1/2013 (c) ................................ 1,315,000 AAA 1,343,062
Luzerne County, PA, Flood Protection Authority, Series 1998A, 5.25%,
1/15/2013 (c) ................................................................. 1,400,000 AAA 1,480,038
Montgomery County, PA, Holy Redeemer Hospital, 6.75%, 2/1/2009 (c) .............. 500,000 AAA 505,785
Montgomery County, PA, Redevelopment Authority, Multi-Family Housing Revenue
Refunding, KBF Associates, LP Project 6.375%, 7/1/2012 ........................ 1,500,000 BBB 1,577,355
Pennsylvania Convention Center Authority, Funding Revenue, 6%, 9/1/2019 (c) ..... 2,200,000 AAA 2,545,818
Pennsylvania General Obligation:
6.25%, 7/1/2010 ............................................................... 1,000,000 AA 1,179,370
10%, 4/15/2002 (c) ............................................................ 2,500,000 AAA 3,006,275
Prerefunded 12/15/98, Zero Coupon, 12/15/2002*** .............................. 2,040,000 AAA 1,481,285
Pennsylvania Higher Education Facilities Authority, Health Services,
Series 1996A, 5.6%, 11/15/2010 (c) ............................................ 2,480,000 AAA 2,520,002
Pennsylvania Housing Finance Agency, Single Family Mortgage Revenue:
Series 1992-33, 6.85%, 10/1/2009 .............................................. 840,000 AA 903,218
Series 1991-32, 7.15%, 4/1/2015 ............................................... 865,000 AA 920,940
Pennsylvania Intergovernmental Cooperation Authority, Special Tax Revenue,
City of Philadelphia, Prerefunded 6/15/2002, 6.8%, 6/15/2012*** ............... 1,000,000 AAA 1,105,330
Pennsylvania State Higher Education Facilities Authority, Temple University,
Series 1998, 5.25%, 4/1/2013 (c) .............................................. 1,525,000 AAA 1,623,607
Philadelphia, PA, Authority for Industrial Development, Commercial Development
Revenues, Doubletree, Series 1997A, 6.5%, 10/1/2027 ........................... 1,000,000 SKI 1,091,790
Philadelphia, PA, Authority for Industrial Development Health Care Facilities
Revenue, Baptist Home of Philadelphia, Series A, 5.5%, 11/15/2018 ............. 1,000,000 SKI 982,860
Philadelphia, PA, Gas Works Revenue, First Series 1998A, 5.375%, 7/1/2012 (c) ... 1,455,000 AAA 1,553,314
Philadelphia, PA, General Obligation:
Refunding Revenue, Series A, 11.5%, 8/1/1999 (c) .............................. 710,000 AAA 756,391
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Pennsylvania Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
School District, Series A, 6.25%, 9/1/2009 (c) ................................ 1,000,000 AAA 1,167,520
Philadelphia, PA, Hospital and Higher Education Facilities Authority:
Hospital Revenue:
Albert Einstein Medical Center, 7.5%, 4/1/1999 ............................... 275,000 AAA 280,726
Children's Seashore House, Series A, 7%, 8/15/2012 (c) ....................... 1,000,000 A 1,104,000
Temple University, Series 1997, 5.5%, 11/15/2027 (c) .......................... 1,000,000 A 1,018,590
Temple University Hospital, Series 1993A, 6.625%, 11/15/2023 .................. 1,100,000 BBB 1,189,661
Philadelphia, PA, Industrial Development Revenue, Airport Series 1998A,
5.25%, 7/1/2011 (c) ........................................................... 2,000,000 AAA 2,115,540
Philadelphia, PA, Port Authority Lease Revenue, Series 1993, 6.2%,
9/1/2013 (c) .................................................................. 2,000,000 AAA 2,190,120
Philadelphia, PA, Municipal Authority, Lease Revenue Refunding, Series A,
5.625%, 11/15/2014 (c) ........................................................ 1,000,000 AAA 1,072,560
Philadelphia, PA, Water and Waste Revenue
5.625%, 6/15/2008 (c) ......................................................... 2,000,000 AAA 2,215,080
6.25%, 8/1/2010 (c) ........................................................... 1,000,000 AAA 1,173,240
Pittsburgh, PA, General Obligation, Series 1993A, 5.5%, 9/1/2014 (c) ............ 1,500,000 AAA 1,656,510
Pittsburgh, PA, Water and Sewer System Revenue:
ETM, 7.25%, 9/1/2014 (c)** .................................................... 150,000 AAA 186,798
Series A, Prerefunded 9/1/2001, 6.5%, 9/1/2014 (c)*** ......................... 1,250,000 AAA 1,370,738
Series A, 4.75%, 9/1/2016 (c) ................................................. 2,000,000 AAA 1,988,000
Somerset County, PA, General Authority, Commonwealth Lease Revenue,
Prerefunded 10/15/2001, 6.25%, 10/15/2011 (c)*** .............................. 1,000,000 AAA 1,074,430
Union County, PA, Higher Education Facilities Authority, University Revenue,
Bucknell University, 6.2%, 4/1/2007 (c) ....................................... 1,000,000 AAA 1,081,310
University Area, PA, Sewer Revenue, 5.25%, 11/1/2014 (c) ........................ 1,750,000 AAA 1,886,518
Washington County, PA, Lease Revenue, Shadyside Hospital Project, Prerefunded
6/15/00, 7.375%, 12/15/2009 (c)*** ............................................ 1,000,000 AAA 1,089,960
Wilson, PA, Area School District, Series 1998, Zero Coupon, 5/15/2009 (c) ....... 2,000,000 AAA 1,256,880
Yough, PA, School District, Capital Appreciation, Series 1992, Zero Coupon,
10/1/2013 (c) ................................................................. 1,145,000 AAA 566,981
Puerto Rico
Puerto Rico Public Building Authority, Government Facilities Revenue, 6.25%,
7/1/2013 (c) .................................................................. 1,000,000 AAA 1,201,550
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Pennsylvania Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Virgin Islands
Virgin Islands Public Finance Authority, General Obligation, Matching Fund
Loan Notes, Series A, 7.25%, 10/1/2018 ........................................ 1,500,000 SKI 1,720,215
- ------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $75,164,611) 81,180,857
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $77,264,611) (a) 83,280,857
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $77,264,611. At
September 30, 1998, net unrealized appreciation for all securities
based on tax cost was $6,016,246. This consisted of aggregate gross
unrealized appreciation for all securities in which there was an
excess of market value over tax cost of $6,040,079 and aggregate
gross unrealized depreciation for all securities in which there was
an excess of tax cost over market value of $23,833.
(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) and securities rated by
Scudder Kemper Investments (SKI) have been determined to be of
comparable quality to rated eligible securities.
(c) Bond is insured by one of these companies: AMBAC, FGIC, MBIA or FSA.
* 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.
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 September 30, 1998 (Unaudited)
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $77,264,611) ................ $ 83,280,857
Cash ................................................................ 232,809
Interest receivable ................................................. 1,314,966
Receivable for Fund shares sold ..................................... 306,857
Other assets ........................................................ 928
----------------
Total assets ........................................................ 85,136,417
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Dividends payable ................................................... 115,863
Payable for Fund shares redeemed .................................... 57,854
Accrued management fee .............................................. 7,887
Other payables and accrued expenses ................................. 47,020
----------------
Total liabilities ................................................... 228,624
---------------------------------------------------------------------------------------------
Net assets, at market value $ 84,907,793
---------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation on investments .......................... 6,016,246
Accumulated net realized gain ....................................... 1,015,306
Paid-in capital ..................................................... 77,876,241
---------------------------------------------------------------------------------------------
Net assets, at market value $ 84,907,793
---------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($84,907,793/6,028,553 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ....................................................... $14.08
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Statement of Operations
six months ended September 30, 1998 (Unaudited)
<TABLE>
<S> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Interest ............................................................ $ 2,171,058
----------------
Expenses:
Management fee ...................................................... 239,927
Services to shareholders ............................................ 42,277
Custodian and accounting fees ....................................... 23,850
Trustees' fees and expenses ......................................... 21,788
Auditing ............................................................ 14,014
Reports to shareholders ............................................. 11,948
Registration fees ................................................... 3,069
Legal ............................................................... 7,045
Other ............................................................... 4,655
----------------
Total expenses before reductions .................................... 368,573
Expense reductions .................................................. (128,646)
----------------
Expenses, net ....................................................... 239,927
---------------------------------------------------------------------------------------------
Net investment income ............................................... 1,931,131
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment transactions ............... 592,532
Net unrealized appreciation (depreciation) on investments during
the period ........................................................ 791,156
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 1,383,688
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 3,314,819
---------------------------------------------------------------------------------------------
</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>
Six Months
Ended September
30, 1998 Year Ended
Increase (Decrease) in Net Assets (Unaudited) March 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income gain (loss) ...................... $ 1,931,131 $ 3,852,004
Net realized gain (loss) from investment transactions .. 592,532 588,571
Net unrealized appreciation (depreciation) on
investments during the period ....................... 791,156 2,760,257
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations .......................................... 3,314,819 7,200,832
---------------- ----------------
Distributions to shareholders:
From net investment income ............................. (1,931,131) (3,852,004)
---------------- ----------------
From net realized gains from investment transactions ... -- (164,742)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .............................. 10,058,804 13,083,990
Net asset value of shares issued to shareholders in
reinvestment of distributions ....................... 1,212,994 2,523,349
Cost of shares redeemed ................................ (6,443,098) (14,274,017)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ........................................ 4,828,700 1,333,322
---------------- ----------------
Increase (decrease) in net assets ...................... 6,212,388 4,517,408
Net assets at beginning of period ...................... 78,695,405 74,177,997
---------------- ----------------
Net assets at end of period ............................ $84,907,793 $78,695,405
---------------- ----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .............. 5,680,795 5,591,548
---------------- ----------------
Shares sold ............................................ 725,444 956,693
Shares issued to shareholders in reinvestment of
distributions .......................................... 87,376 184,079
Shares redeemed ........................................ (465,062) (1,051,525)
---------------- ----------------
Net increase (decrease) in Fund shares ................. 347,758 89,247
---------------- ----------------
Shares outstanding at end of period .................... 6,028,553 5,680,795
---------------- ----------------
</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>
Six Months Ended
September 30, Years Ended March 31,
1998 (Unaudited) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
Net asset value, beginning of period ........... $13.85 $ 13.27 $ 13.31 $ 13.13 $ 13.01 $ 13.46
--------------------------------------------------------------------------
Income from investment operations:
Net investment income .......................... .33 .70 .71 .71 .73 .75
Net realized and unrealized gain (loss) on
investment transactions ...................... .24 .61 (.02) .25 .15 (.36)
--------------------------------------------------------------------------
Total from investment operations ............... .57 1.31 .69 .96 .88 .39
--------------------------------------------------------------------------
Less distributions:
From net investment income ..................... (.34) (.70) (.71) (.71) (.73) (.75)
From net realized gains on investment
transactions ................................. -- (.03) (.02) (.07) (.03) (.09)
--------------------------------------------------------------------------
Total distributions ............................ (.34) (.73) (.73) (.78) (.76) (.84)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net asset value, end of period ................. $14.08 $ 13.85 $ 13.27 $ 13.31 $ 13.13 $ 13.01
--------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) ........................... 4.14** 10.08 5.30 7.45 7.09 2.70
Ratios and Supplemental Data
Net assets, end of period ($ millions) ......... 85 79 74 76 72 74
Ratio of operating expenses, net to average
daily net assets (%) ......................... .60* .52 .50 .50 .50 .50
Ratio of operating expenses before expense
reductions, to average daily net assets (%) .. .92* .91 .92 .91 .94 .95
Ratio of net investment income to average daily
net assets (%) ............................... 4.83* 5.12 5.32 5.30 5.74 5.42
Portfolio turnover rate (%) .................... 19.5* 20.4 11.6 11.1 26.2 17.4
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
17 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Notes to Financial Statements (Unaudited)
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 of 1986, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable and tax-exempt income
to its shareholders. Accordingly, the Fund paid no federal income taxes and no
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
For the six months ended September 30, 1998, purchases and sales of long-term
municipal securities aggregated $11,751,634 and $7,613,011, respectively.
18 - Scudder Pennsylvania Tax Free Fund
<PAGE>
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, 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 had agreed not to impose all or a portion of its
management fee and to maintain the annualized expenses of the Fund at not more
than 0.50% of average daily net assets until January 31, 1998 and at not more
than 0.60% of average daily net assets for the period from February 1, 1998 to
January 31, 1999. For the six months ended September 30, 1998, the Adviser
imposed fees amounting to $239,927 of which $7,887 was unpaid at September 30,
1998 and the portion not imposed amounted to $128,646 for the six months ended
September 30, 1998.
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's investment management agreement with Scudder Kemper was
deemed to have been assigned and, therefore, terminated. The Board of Trustees
of the Fund has approved a new investment management agreement with Scudder
Kemper, which is substantially identical to the former investment management
agreement, except for the dates of execution and termination. The Board of
Trustees of the Fund will seek shareholder approval of the new investment
management agreement through a proxy solicitation that is currently scheduled to
conclude in mid-December.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend-paying and shareholder service agent for the Fund. For the
six months ended September 30, 1998, the amount charged to the Fund by SSC
aggregated $39,850, of which $4,823 was unpaid at September 30, 1998.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended September 30, 1998, the amount charged to the Fund by SFAC aggregated
$18,000, of which $3,000 was unpaid at September 30, 1998.
The Trust pays each Trustee not affiliated with the Adviser an annual retainer,
divided equally among the series of the Trust, plus specified amounts for
attended board and committee meetings. For the six months ended September 30,
1998, Trustees' fees and expenses charged to the Fund aggregated $21,788.
19 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics,
Bentley College
Peter B. Freeman
Trustee; Corporate Director and
Trustee
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business
Administration, Northeastern
University, College of Business
Administration
Kathryn L. Quirk*
Trustee; Vice President and
Assistant Secretary
Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners
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
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
20 - 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
Scudder Money Market Series--
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series--
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
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 Corporate Bond 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 Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment 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 Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth 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, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal 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. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange and,
in some cases, on various other stock exchanges.
21 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
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 -- www.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 QuickSell
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 previously designated.
Distributions Direct
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
- ------------------------------------------------------------------------------------------------------------------------------
22 - 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 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
800 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
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 Investor 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 Investor Centers. Check for an Investor 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
</TABLE>
23 - Scudder Pennsylvania Tax Free Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
United States.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
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