Scudder
Pennsylvania
Tax Free Fund
Annual Report
March 31, 1999
No-Load Funds
For investors seeking double-tax-free income exempt from both Pennsylvania and
regular federal income taxes.
A no-load fund with no commissions to buy, sell, or exchange shares.
SCUDDER
<PAGE>
Scudder Pennsylvania Tax Free Fund
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Date of Inception: 5/28/87 Total Net Assets as of Ticker Symbol: SCPAX
3/31/99: $85.4 million
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o For its most recent annual period ended March 31, 1999, Scudder Pennsylvania
Tax Free Fund posted a total return of 4.78%, compared with the 4.66% average
return of 62 similar funds tracked by Lipper Analytical Services.
o As of March 31, 1999, Scudder Pennsylvania Tax Free Fund's 30-day net
annualized SEC yield was 3.93%, equivalent to a 6.69% taxable yield for
Pennsylvania investors subject to the 41.29% combined federal and state income
tax rate.
o Scudder Pennsylvania Tax Free Fund received an overall Morningstar Ratingt of
four stars out of 1578 tax free funds as of March 31, 1999.*
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30-Day Yield on March 31, 1999
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
LINE CHART DATA:
Scudder Taxable Yield
Pennsylvania Needed to Equal
Tax Free Fund the Fund's Yield
- -----------------------------------------
3.93% 6.69%
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Table of Contents
3 Letter from the Fund's President 17 Notes to Financial Statements
4 Performance Update 20 Report of Independent Accountants
5 Portfolio Summary 21 Tax Information
6 Portfolio Management Discussion 22 Shareholder Meeting Results
9 Glossary of Investment Terms 24 Officers and Trustees
10 Investment Portfolio 25 Investment Products and Services
13 Financial Statements 26 Scudder Solutions
16 Financial Highlights
* Morningstar proprietary ratings reflect risk-adjusted performance as of March
31, 1999. The ratings are subject to change every month. Past performance is
no guarantee of future results. Morningstar ratings are calculated from the
Fund's three-, five-, and ten-year average annual returns 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 the three- and five-year periods, and three stars for the ten-year period.
The top 10% of funds in a broad asset class receive 5 stars, the next 22.5%
receive 4 stars, and the next 35% receive 3 stars. The Fund was rated among
1578, 1131, and 368 municipal funds for the three-, five-, and ten-year
periods, respectively.
2 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
We are pleased to report the results of Scudder Pennsylvania Tax Free Fund's
most recent fiscal year. The Fund's total return for the 12-month period ended
March 31, 1999, was 4.78%. The Fund has displayed solid long-term performance,
and recently received a four-star rating from Morningstar (please see page 2 for
additional information concerning this rating).
The Fund's Board of Trustees has voted to merge Scudder Pennsylvania Tax Free
Fund's assets into Scudder Managed Municipal Bonds in a tax-free reorganization.
The Board believes this action is in the best long-term interest of Fund
shareholders. You will have the opportunity to vote on this decision via proxy
material that will be distributed to you. This material describes the proposed
transaction and its benefits. Please be sure to vote your proxy and return it
before the shareholder meeting which is scheduled for September 2, 1999.
For those of you interested in new Scudder products, we are pleased to
introduce Scudder Select 500 Fund and Scudder Select 1000 Growth Fund. Both
funds are managed with the goal of pursuing long-term outperformance compared to
their benchmark indices, the S&P 500 Index and the Russell 1000 Growth Index,
respectively. For more information on either Select fund, please call us at the
number below.
Please call a Scudder Investor Information representative at 1-800-225-2470
if you have questions about your Fund. Or visit our Web site at www.scudder.com.
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 March 31, 1999
-----------------------------------------
Fund Index Comparison
-----------------------------------------
Total Return
-----------------------------------------
Period Growth
Ended of Average
3/31/1999 $10,000 Cumulative Annual
-----------------------------------------
Scudder Pennsylvania Tax Free Fund
-----------------------------------------
1 Year $10,478 4.78% 4.78%
5 Year $13,976 39.76% 6.92%
10 Year $21,040 110.40% 7.72%
-----------------------------------------
-----------------------------------------
Lehman Brothers Municipal Bond Index
-----------------------------------------
1 Year $10,620 6.20% 6.20%
5 Year $14,440 44.40% 7.62%
10 Year $22,083 120.83% 8.24%
-----------------------------------------
-----------------------------------------
Growth of a $10,000 Investment
-----------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Yearly periods ended March 31
Lehman Brothers Scudder Pennsylvania
Municipal Bond Index Tax Free Fund
-------------------- -------------
89 10000 10000
90 11056 10875
91 12075 11700
92 13283 12952
93 14947 14660
94 15293 15055
95 16430 16123
96 17807 17325
97 18779 18244
98 20793 20082
99 22083 21041
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.
- -----------------------------------------
Returns and Per Share Information
- -----------------------------------------
Yearly Periods Ended March 31
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
<TABLE>
<CAPTION>
CHART DATA:
Yearly periods ended March 31
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value $ 12.27 $ 12.35 $ 12.80 $ 13.46 $ 13.01 $ 13.13 $ 13.31 $ 13.27 $ 13.85 $ 13.66
- -----------------------------------------------------------------------------------------------------------------------------
Income Dividends $ .84 $ .82 $ .77 $ .76 $ .75 $ .73 $ .71 $ .71 $ .70 $ .65
- -----------------------------------------------------------------------------------------------------------------------------
Capital Gains Distributions $ .01 $ - $ .07 $ .21 $ .09 $ .03 $ .07 $ .02 $ .03 $ .19
- -----------------------------------------------------------------------------------------------------------------------------
Fund Total Return (%) 8.75 7.58 10.70 13.19 2.70 7.09 7.45 5.30 10.08 4.78
- -----------------------------------------------------------------------------------------------------------------------------
Index Total Return (%) 10.56 9.22 10.02 12.52 2.32 7.43 8.38 5.45 10.73 6.20
- -----------------------------------------------------------------------------------------------------------------------------
</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 maintained the
Fund's expenses, total returns for the Fund would have been lower.
4 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Portfolio Summary as of March 31, 1999
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Diversification
- --------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Hospital/Health 21%
Water/Sewer Revenue 11%
Sales/Special Tax 9%
State General Obligation/Lease 8%
Higher Education 8%
Cities General Obligation/Lease 8%
County General Obligation/Lease 7%
Port/Airport Revenue 7%
School Districts 5%
Miscellaneous Municipal 16%
-----------------------------------------
100%
-----------------------------------------
During its most recent fiscal year, the Fund was invested in a broad selection
of Pennsylvania municipal bonds.
- --------------------------
Quality
- --------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
AAA* 82%
AA 7%
A 3%
BBB 3%
SKI 5%
---------------------------
100%
---------------------------
Weighted average quality: AAA
* Category includes cash equivalents
Overall portfolio quality remains high, with over 90% of portfolio securities
rated A or better as of March 31.
- --------------------------
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 3%
1-5 years 25%
5-10 years 22%
10-15 years 41%
15 years or greater 9%
-----------------------------
100%
-----------------------------
Weighted average effective maturity: 9.21 years
Our continuing goal has been to maintain an average effective maturity similar
to that of the Lehman Brothers Municipal Bond Index, the Fund's benchmark, but
with a superior, call-protected structure.
For more complete details about the Fund's investment portfolio, see page. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Following a series of overseas and domestic financial crises that prompted
uncertainty, volatility, and a "flight to quality," bond yields plummeted, then
returned to July 1998 levels at the close of Scudder Pennsylvania Tax Free
Fund's most recent fiscal year. During the 12-month period ended March 31, 1999,
the Fund returned 4.78%, outpacing the 4.66% average return of Pennsylvania
tax-exempt funds as tracked by Lipper Analytical Services, Inc. As of March 31,
1999, Scudder Pennsylvania Tax Free Fund's 30-day net annualized SEC yield was
3.93%, equivalent to a 6.69% taxable yield for Pennsylvania investors subject to
the 41.29% combined federal and state income tax rate.
Pennsylvania Update
Economic growth in the Commonwealth of Pennsylvania continues to foster record
employment and expanding financial reserves, despite the fact that the
Commonwealth's growth rate is below the national average. Pennsylvania is
expecting to finish its 1999 fiscal year with a seventh consecutive General Fund
operating surplus. The Governor is undecided on how this surplus will be spent,
although he has indicated his desire to transfer a large portion of the surplus
to the Commonwealth's Rainy Day Fund.
Job growth in the service and trade sectors led the Commonwealth to a 1%
increase in employment in 1998. Pennsylvania's average unemployment rate in 1998
was 4.6%, compared with the national average of 4.5%. Pennsylvania has a low
debt burden. For its 2000 through 2003 fiscal years, the Commonwealth is
projecting to increase annual debt issuance from $600 million to $900 million.
The $300 million increase in annual debt issuance represents increased spending
for redevelopment assistance and should have a minor impact on the
Commonwealth's $5 billion in outstanding debt. Overall, the Commonwealth is
benefiting from a favorable economy that has led to improved finances.
A Market Roller Coaster
Market turmoil hit a peak in the wake of the Russian currency devaluation on
August 17, followed by the near collapse of the Long Term Capital Management
hedge fund. Volatility in the U.S. stock market increased greatly while a
massive reallocation to U.S. Treasury bonds led to substantially lower yields.
Though presidential impeachment proceedings distracted the financial markets
through the fall and beyond, the Federal Reserve's three consecutive interest
rate cuts in September, October, and November helped to gradually restore market
stability. During this period, the U.S. economy continued to grow beyond all
expectations, recording a dramatic 6% annualized increase in GDP for the fourth
quarter of 1998. This show of strength, in turn, worried bond investors, who
responded by sending 30-year Treasury bond yields back up to July 1998 levels.
Over the Fund's most recent fiscal year, yields of 30-year Treasury bonds ended
slightly lower, beginning the period at 5.84% and ending it at 5.67%. Over the
same time frame, yields of 30-year AAA insured municipal bonds declined from
5.10% to 5.05%.
6 - Scudder Pennsylvania Tax Free Fund
<PAGE>
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
CHART TITLE:
- -------------------------------------------------------
Municipals Provided Greater Stability
Monthly prices of 30-year AAA-rated municipal bonds
compared with prices of 30-year U.S. Treasury Bonds,
3/31/98-3/31/99
- -------------------------------------------------------
CHART DATA:
30-year U.S. Treasury Bonds 30-year AAA-rated municipal bonds
--------------------------- ---------------------------------
3/31/98 100.00 100.00
98.47 98.49
5/31/98 100.14 100.77
103.47 100.00
7/31/98 101.57 100.00
107.12 102.33
9/30/98 114.87 105.57
111.47 102.33
11/30/98 109.83 102.33
111.47 102.33
1/31/99 111.14 103.13
103.32 101.55
3/31/99 102.11 100.77
Source: Scudder Kemper Investments, Inc.
In addition to high tax-free yields, municipal bonds have historically offered
greater price stability over time than Treasury bonds of comparable maturity.
The accompanying chart demonstrates the record over the past 12 months, when
most financial markets were at a peak of volatility.
Emphasizing High
Coupon Bonds
Over the past 12 months, Scudder Pennsylvania Tax Free Fund pursued a two-part
strategy: First, the Fund emphasized premium "cushion" bonds -- bonds with high
coupons that compensate investors for the fact that they can be redeemed by
their issuer in a relatively short period of time. Second, the Fund continues to
hold a substantial position in noncallable bonds (52% of assets) to provide a
relatively stable income stream along with long-term price appreciation
potential. In terms of maturity, we focused on 13- to 15- year bonds, because we
believe they offer the best total return potential, based on our outlook for
interest rates and the yield differentials among bonds across the maturity
spectrum. Lastly, our continuing goal is to have an average duration similar to
that of the Lehman Brothers Municipal Bond Index, but with a superior,
call-protected structure. As of March 31, the Fund's average duration was 7.24
years. (Duration gives relative weight to both principal and interest payments
through the life of a bond and has replaced average maturity as the standard
measure of interest rate sensitivity among professional investors. Generally,
the shorter the duration, the less sensitive a portfolio will be to changes in
interest rates.)
Overall portfolio quality remains high, with over 90% 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 issues, including hospital/health,
water/sewer revenue, and sales/special tax bonds. During the period, the Fund
reduced its allocation in hospital/health bonds because of financial problems
and credit downgrades experienced by several major Pennsylvania hospitals.
Outlook
Because the powerful market forces that have brought the United States close to
price stability -- including technology, deregulation, globalization, and
vigilant central banks -- are still in full effect, we believe that inflation
will remain restrained over
7 - Scudder Pennsylvania Tax Free Fund
<PAGE>
the next several years. At the same time, we believe that higher oil prices
could prompt a "gentle slowdown" in U.S. economic activity. This would relieve
some of the financial imbalances (vigorous individual and corporate spending
contrasting with shrinking savings and profit levels, for example) that we are
currently observing in the economy.
Low inflation and any slowing of the economy, in turn, would benefit municipal
bonds, which continue to be attractively priced versus Treasuries. At the same
time, we are mindful that the U.S. economy is nearing "full employment," and
that an economic rebound in Asia could cause the U.S. economy to overheat. We
will therefore pursue a cautious strategy over the coming months, keeping the
Fund's duration at a moderate level in an attempt to limit share price
volatility. In addition to a cautious average duration, we will maintain high
overall credit quality as we seek double-tax-free income and competitive returns
for our shareholders. Thank you for investing with Scudder.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Rebecca L. Wilson
Philip G. Condon Rebecca L. Wilson
Scudder Pennsylvania
Tax Free Fund:
A Team Approach to Investing
Scudder Pennsylvania Tax Free Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") 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
the Adviser'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 our extensive resources.
Philip G. Condon, Lead Portfolio Manager of the Fund, joined the
Adviser in 1983 and has 21 years of experience in municipal investing
and portfolio management. Mr. Condon has had responsibility for the
Fund since 1989. Rebecca L. Wilson, Portfolio Manager, became a
member of the team in 1999. Ms. Wilson, who joined the Adviser in
1986, has 13 years of experience in municipal investing.
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 March 31, 1999
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
Long-Term Municipal Investments 100.0%
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pennsylvania
Allegheny County, PA, Airport Revenue, Pittsburgh International Airport,
Series 1997 A, AMT, 5.75%, 1/1/2013 (c) ........................................ 1,500,000 AAA 1,634,204
Allegheny County, PA, Higher Education, Building Authority Revenue, Series 1993 A,
5.8%, 6/1/2013 (c) ............................................................. 2,000,000 AAA 2,154,500
Allegheny County, PA, Sanitation Authority, Sewer Revenues, Series 1986 B,
Prerefunded 6/1/1999, 7.5%, 12/1/2016 (c)*** ................................... 500,000 AAA 503,610
Armstrong County, PA, St. Frances Medical Center, Series 1997 A, 6.25%,
6/1/2013 (c) ................................................................... 1,000,000 AAA 1,079,210
Berks County, PA, Municipal Authority Hospital Revenue, Reading Hospital and
Medical Center Project:
Series 1993, 5.5%, 10/1/2008 (c) ............................................... 1,000,000 AAA 1,087,090
Series 1993, 5.7%, 10/1/2014 (c) ............................................... 1,000,000 AAA 1,090,040
Bethlehem, PA, Water Revenue, Series 1992, Prerefunded 11/15/2001, 6.25%,
11/15/2011 (c)*** .............................................................. 1,000,000 AAA 1,066,340
Blair County, PA, Hospital Authority, Series 1998 A, 5.5%, 7/1/2011 (c) .......... 1,500,000 AAA 1,594,185
Bucks County, PA, Water and Sewer Authority Revenue, ETM, Series 1977, 6.375%,
12/1/2008** .................................................................... 425,000 SKI 470,097
Clearfield, PA, Hospital Authority Revenue, Series 1994, 6.875%, 6/1/2016 ........ 1,450,000 BBB 1,563,782
Delaware County, PA, General Obligation, Series 1999, 5.125%, 10/1/2014 .......... 2,500,000 AA 2,560,400
Delaware County, PA, White Horse Village, Series 1996 A, 6.6%, 7/1/2006 .......... 1,000,000 SKI 1,039,500
Delaware County, PA, Mercy Health Corporation of Southeastern Pennsylvania,
Series 1993, Prerefunded 11/15/2005, 6%, 11/15/2007*** ......................... 1,500,000 AAA 1,650,360
Delaware County, PA, Hospital Authority Revenue, Delaware County Memorial
Hospital, Series 1995, 5.5%, 8/15/2013 (c) ..................................... 1,750,000 AAA 1,837,220
Erie County, PA, Industrial Development Authority, Pollution Control Revenue,
Series 1997, 5.3%, 4/1/2012 .................................................... 1,000,000 A 1,033,840
Erie County, PA, Prison Authority, Series 1991, Prerefunded 11/1/2001, 6.25%,
11/1/2011 (c)*** ............................................................... 1,000,000 AAA 1,065,460
Gettysburgh, PA, Gettysburgh College, Series 1998, 5.375%, 8/15/2013 (c) ......... 1,020,000 AAA 1,089,095
Harrisburg, PA:
Series 1997 F, Zero Coupon, 3/15/2012 (c) ...................................... 1,770,000 AAA 940,596
Series 1997 D, Zero Coupon, 9/15/2011 (c) ...................................... 1,000,000 AAA 549,850
Indiana County, PA, Industrial Development Authority, Pollution Control Revenue,
Series 1995, 5.35%, 11/1/2010 (c) .............................................. 1,000,000 AAA 1,075,100
Lancaster, PA, General Obligation, Series 1998 A, 5.25%, 5/1/2015 (c) ............ 1,780,000 AAA 1,833,311
</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>
Latrobe, PA, St. Vincent College, Series 1998, 5.375%, 5/1/2013 ................... 1,000,000 BBB 1,021,320
Lebanon County, PA, Hospital Authority Revenue, Series 1989 B,
Prerefunded 11/1/1999, 8.25%, 11/1/2018*** ...................................... 600,000 AAA 628,998
Lehigh County, PA, Health Facilities Finance Authority, Series 1998 C, 5%,
7/1/2013 (c) .................................................................... 1,315,000 AAA 1,319,392
Luzerne County, PA, Flood Protection Authority, Series 1998 A, 5.25%,
1/15/2013 (c).................................................................... 1,400,000 AAA 1,448,790
Montgomery County, PA, Multi-Family Housing Revenue, Series 1993 A, 6.375%,
7/1/2012 ........................................................................ 1,500,000 SKI 1,566,060
Pennsylvania Convention Center Authority, Series 1989 A, ETM, 6%, 9/1/2019
(c)**............................................................................ 2,200,000 AAA 2,486,352
Pennsylvania General Obligation:
Series 1993, 10%, 4/15/2002 ..................................................... 2,500,000 AAA 2,940,050
Series 1992, 6.25%, 7/1/2010 .................................................... 1,000,000 AA 1,152,120
Pennsylvania State Health and Educational Facilities Authority:
Series 1996 A, 5.6%, 11/15/2010 (c) ............................................. 2,480,000 AAA 2,504,527
Temple University, Series 1998, 5.25%, 4/1/2013 (c) ............................. 1,525,000 AAA 1,591,078
Pennsylvania Housing Finance Agency, Single Family Mortgage Revenue:
Series 1992, 6.85%, 10/1/2009 ................................................... 840,000 AA 894,617
Series 1991, 7.15%, 4/1/2015 .................................................... 865,000 AA 912,817
Pennsylvania Intergovernmental Cooperation Authority, Special Tax Revenue,
City of Philadelphia, Prerefunded 6/15/2002, 6.8%, 6/15/2012*** ................. 1,000,000 AAA 1,092,510
Pennsylvania State Turnpike Commission, Series 1998 A, 5.25%, 12/1/2012 (c) ....... 4,190,000 AAA 4,400,506
Philadelphia, PA, Airport Revenue, Series 1998 A, AMT, 5.25%, 7/1/2011 ............ 2,000,000 AAA 2,080,920
Philadelphia, PA, Gas Works Revenue, Series 1998 A, 5.375%, 7/1/2012 (c) .......... 1,455,000 AAA 1,518,991
Philadelphia, PA, General Obligation:
School District, Series 1995 A, 6.25%, 9/1/2009 (c) ............................. 1,000,000 AAA 1,146,010
School District, Series 1998 A, 5.25%, 4/1/2012 (c) ............................. 1,000,000 AAA 1,041,860
Series 1987 A, 11.5%, 8/1/1999 (c) .............................................. 710,000 AAA 729,120
Series 1998, 5.125%, 5/15/2012 (c) .............................................. 2,000,000 AAA 2,055,400
Series 1998, 5.25%, 3/15/2014 (c) ............................................... 1,000,000 AAA 1,033,190
Philadelphia, PA, Hospital and Higher Education Facilities Authority:
Children's Seashore House, Series 1992 A, 7%, 8/15/2012 ......................... 1,000,000 A 1,086,350
Albert Einstein Medical Center, Series 1989, 7.5%, 4/1/1999 ..................... 275,000 AAA 275,000
Philadelphia, PA, Industrial Development Authority:
Baptist Home of Philadelphia, Series 1998 A, 5.5%, 11/15/2018 ................... 1,000,000 SKI 950,670
Doubletree Suites, Series 1997, 6.5%, 10/1/2027 ................................. 1,000,000 SKI 1,064,140
Philadelphia, PA, Municipal Authority, Series 1993 A, 5.625%, 11/15/2014 (c) ...... 1,000,000 AAA 1,067,030
</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, Port Authority Lease Revenue, Series 1993, 6.2%,
9/1/2013 (c)................................................................. 2,000,000 AAA 2,170,960
Philadelphia, PA, Water and Wastewater Revenue:
Series 1993, 5.625%, 6/15/2008 (c) .......................................... 2,000,000 AAA 2,180,500
Series 1993, 5.625%, 6/15/2009 (c) .......................................... 2,000,000 AAA 2,185,780
Series 1995, 6.25%, 8/1/2010 (c) ............................................ 1,000,000 AAA 1,146,290
Pittsburgh, PA, General Obligation, Series 1993 A, 5.5%, 9/1/2014 (c) ......... 1,500,000 AAA 1,620,210
Pittsburgh, PA, Water and Sewer Authority Revenue, Series 1986, ETM, 7.25%,
9/1/2014 (c)** .............................................................. 150,000 AAA 183,209
Somerset County, PA, General Authority, Series 1991, Prerefunded 10/15/2001,
6.25%, 10/15/2011 (c)*** .................................................... 1,000,000 AAA 1,064,430
Southeastern, PA, Transportation Authority, Pennsylvania Special Revenue,
Series 1999 B, 5.25%, 3/1/2017 (c) .......................................... 1,000,000 AAA 1,024,910
Union County, PA, Higher Education Facilities Finance Authority, Series 1992,
6.2%, 4/1/2007 (c) .......................................................... 1,000,000 AAA 1,072,840
University Area, PA, Sewer Revenue, 5.25%, 11/1/2014 .......................... 1,750,000 AAA 1,847,475
Wilson, PA, School District, General Obligation, Series 1993, Zero Coupon, ETM,
5/15/2009 (c)** ............................................................. 2,000,000 AAA 1,257,140
Yough, PA, School District, General Obligation, Series 1992, Zero Coupon, ETM,
10/1/2013 (c)** ............................................................. 1,145,000 AAA 572,328
Puerto Rico
Puerto Rico Public Building Authority, Series 1995 A, 6.25%, 7/1/2013 (c) ..... 1,000,000 AAA 1,167,550
Virgin Islands
Virgin Islands, Public Finance Authority, Matching Fund Loan Notes, Series A,
7.25%, 10/1/2018 ............................................................ 1,500,000 SKI 1,699,695
- -------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $80,164,790) 84,118,925
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $80,164,790) (a) 84,118,925
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $80,164,790. At March 31,
1999, net unrealized appreciation for all securities based on tax cost was
$3,954,135. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $4,164,080 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$209,945.
(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. Securities rated
by Scudder Kemper Investments (SKI) have been determined by the Adviser to
be of comparable quality to rated eligible securities.
(c) Bond is insured by one of these companies: AMBAC, Capital Guaranty, FGIC,
FSA or MBIA/BIG.
** 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.
AMT: Alternative Minimum Tax
The accompanying notes are an integral part of the financial statements.
12 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of March 31, 1999
Assets
- --------------------------------------------------------------------------------
Investments, at market (identified cost $80,164,790) . $84,118,925
Cash .................................................. 364,096
Interest receivable ................................... 1,437,882
Receivable for Fund shares sold ....................... 1,737
Other assets .......................................... 1,188
-----------
Total assets .......................................... 85,923,828
Liabilities
- --------------------------------------------------------------------------------
Dividends payable ..................................... 114,504
Payable for Fund shares redeemed ...................... 380,361
Accrued management fee ................................ 31,608
Other payables and accrued expenses ................... 37,983
-----------
Total liabilities ...................................... 564,456
-----------
-------------------------------------------------------------------
Net assets, at market value $85,359,372
-------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation on investments ............ 3,954,135
Accumulated net realized gain ......................... 440,623
Paid-in capital ....................................... 80,964,614
-------------------------------------------------------------------
Net assets, at market value $85,359,372
-------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Net Asset Value, offering and redemption price
per share ($85,359,372 / 6,249,841 outstanding
shares of beneficial interest, $.01 par value, ----------
unlimited number of shares authorized) $13.66
----------
The accompanying notes are an integral part of the financial statements.
13 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Statement of Operations
year ended March 31, 1999
Investment Income
- --------------------------------------------------------------------------------
Income:
Interest ....................................... $4,429,011
-----------
Expenses:
Management fee ................................. 497,129
Services to shareholders ....................... 93,253
Custodian and accounting fees .................. 67,064
Trustees' fees and expenses .................... 21,788
Auditing ....................................... 30,308
Reports to shareholders ........................ 30,659
Registration fees .............................. 4,729
Legal .......................................... 7,045
Other .......................................... 7,411
-----------
Total expenses before reductions ............... 759,386
Expense reductions ............................. (241,378)
-----------
Expenses, net .................................. 518,008
---------------------------------------------------------------
Net investment income 3,911,003
---------------------------------------------------------------
Realized and unrealized gain (loss) on investment
transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from investment
transactions ................................... 1,165,200
Net unrealized appreciation (depreciation) on
investments during the period .................. (1,270,955)
---------------------------------------------------------------
Net gain (loss) on investment transactions (105,755)
---------------------------------------------------------------
---------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $3,805,248
---------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
14 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended March 31,
Increase (Decrease) in Net Assets 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income gain (loss) .. $ 3,911,003 $ 3,852,004
Net realized gain (loss) from
investment transactions ............ 1,165,200 588,571
Net unrealized appreciation
(depreciation) on investments during
the period ....................... (1,270,955) 2,760,257
------------ ------------
Net increase (decrease) in net
assets resulting from operations ... 3,805,248 7,200,832
------------ ------------
Distributions to shareholders:
From net investment income ......... (3,911,003) (3,852,004)
------------ ------------
From net realized gains from
investment transactions ............ (1,139,582) (164,742)
------------ ------------
Fund share transactions:
Proceeds from shares sold .......... 22,939,319 13,083,990
Net asset value of shares issued to
shareholders in reinvestment
of distributions ................... 3,392,442 2,523,349
Cost of shares redeemed ............ (18,422,457) (14,274,017)
------------ ------------
Net increase (decrease) in net
assets from Fund share transactions 7,909,304 1,333,322
------------ ------------
Increase (decrease) in net assets .. 6,663,967 4,517,408
Net assets at beginning of period .. 78,695,405 74,177,997
------------ ------------
Net assets at end of period ........ $85,359,372 $78,695,405
------------ ------------
Other Information
- -----------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of
period ............................. 5,680,795 5,591,548
------------ ------------
Shares sold ........................ 1,654,329 956,693
Shares issued to shareholders in
reinvestment of distributions ...... 245,453 184,079
Shares redeemed .................... (1,330,736) (1,051,525)
------------ ------------
Net increase (decrease) in Fund
shares ............................. 569,046 89,247
------------ ------------
Shares outstanding at end of period 6,249,841 5,680,795
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - 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.
Years Ended March 31,
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------
----------------------------------------
Net asset value, beginning of
period ....................... $13.85 $13.27 $13.31 $13.13 $13.01
----------------------------------------
Income from investment operations:
Net investment income ......... .65 .70 .71 .71 .73
Net realized and unrealized gain
(loss) on investment
transactions ................. (.00) .61 (.02) .25 .15
----------------------------------------
Total from investment operations .65 1.31 .69 .96 .88
----------------------------------------
Less distributions:
From net investment income .... (.65) (.70) (.71) (.71) (.73)
From net realized gains on
investment transactions ...... (.19) (.03) (.02) (.07) (.03)
----------------------------------------
Total distributions ........... (.84) (.73) (.73) (.78) (.76)
----------------------------------------
----------------------------------------
Net asset value, end of period $13.66 $13.85 $13.27 $13.31 $13.13
----------------------------------------
- -------------------------------------------------------------------------
Total Return (%) (a) .......... 4.78 10.08 5.30 7.45 7.09
Ratios and Supplemental Data
Net assets, end of period
($ million .................. 85 79 74 76 72
Ratio of operating expenses, net
to average daily net assets (%) .63 .52 .50 .50 .50
Ratio of operating expenses
before expense reductions, to
average daily net assets (%) . .92 .91 .92 .91 .94
Ratio of net investment income
to average daily net assets (%) 4.72 5.12 5.32 5.30 5.74
Portfolio turnover rate (%) ... 21.4 20.4 11.6 11.1 26.2
(a) Total returns would have been lower had certain expenses not been reduced.
16 - 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"), which 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 purchased with remaining
maturities greater than sixty days are valued by pricing agents approved by the
officers of the Fund, whose quotations reflect broker/dealer-supplied valuations
and electronic data processing techniques. If the pricing agents are unable to
provide such quotations, the most recent bid quotation supplied by a bona fide
market maker shall be used. Money market investments purchased with an original
maturity of sixty days or less are valued at amortized cost. All other debt
securities are valued at their fair value as determined in good faith by the
Valuation Committee of the Board of Trustees.
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
federal income tax provision 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 annually 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 identified cost 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.
17 - Scudder Pennsylvania Tax Free Fund
<PAGE>
B. Purchases and Sales of Securities
For the year ended March 31, 1999, purchases and sales of long-term municipal
securities aggregated $25,873,229 and $17,408,721, respectively.
C. Related Parties
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies
and restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of approximately .60% of
the Fund's average daily net assets, computed and accrued daily and payable
monthly. The Adviser has 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. Effective January 31, 1999, the Fund's expense limitation has been raised
from 0.60% to 0.75%, and will remain in effect until at least July 31, 1999. For
the year ended March 31, 1999, the Adviser did not impose a portion of its fee
amounting to $241,378, and the portion imposed amounted to $255,751, of which
$31,608 is unpaid at March 31, 1999.
Effective 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 Management Agreement with Scudder Kemper was deemed to
have been assigned and, therefore, terminated. In December 1998, the Board of
Trustees and the shareholders of the Fund approved a new investment management
agreement with Scudder Kemper, which is substantially identical to the former
Management Agreement, except for the dates of execution and termination.
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, 1999, the amount charged to the Fund by SSC aggregated
$69,003, of which $4,687 was unpaid at March 31, 1999.
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, 1999, the amount charged to the Fund by SFAC aggregated $36,000, of
which $3,000 was unpaid at March 31, 1999.
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 year ended March 31, 1999,
Trustees' fees and expenses charged to the Fund aggregated $21,788.
18 - Scudder Pennsylvania Tax Free Fund
<PAGE>
D. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $850 million
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated pro rata among each of the Participants. Interest is
calculated based on the market rates at the time of the borrowing. The Funds may
borrow up to a maximum of 33 percent of their net assets under the agreement.
E. Subsequent Event
On May 3, 1999, the Board of Trustees voted to reorganize Scudder Pennsylvania
Tax Free Fund's assets into Scudder Managed Municipal Bonds in a tax-free
reorganization. As a result of the reorganization, each shareholder of the Fund
will become a shareholder of Scudder Managed Municipal Bonds and will hold,
immediately after the closing of the reorganization, that number of full and
fractional shares of Scudder Managed Municipal Bonds having an aggregate net
asset value equal to the aggregate net asset value of such shareholder's shares
held in the Fund as of the close of business on the business day preceding the
reorganization. The Board believes this action is in the best long-term interest
of shareholders of Scudder Pennsylvania Tax Free Fund and has scheduled a
meeting of shareholders on September 2, 1999 to consider the reorganization. In
the interim, Scudder Pennsylvania Tax Free Fund remains open for new or
additional investments.
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:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Pennsylvania Tax Free Fund
(the "Fund") at March 31, 1999, the results of its operations for the year then
ended and 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 five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at March
31, 1999 by correspondence with the custodian provide a reasonable basis for the
opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
May 19, 1999
20 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Tax Information
The Fund paid distributions of $.175 per share from net long-term capital gains
during its year ended March 31, 1999, of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$1,200,000 as capital gain dividends for its year ended March 31, 1999, of which
100% represents 20% rate gains.
Of the dividends paid from net investment income for the year ended March 31,
1999, 100% are designated as exempt interest dividends for federal 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 account, please call 1-800-SCUDDER.
21 - Scudder Pennsylvania Tax Free Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Pennsylvania Tax
Free Fund (the "Fund") was held on December 15, 1998, at the office of Scudder
Kemper Investments, Inc., Two International Place, Boston, Massachusetts 02110.
At the Meeting the following matters were voted upon by the shareholders (the
resulting votes for each matter are presented below).
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
3,989,969 143,226 186,283 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
3,828,319 188,777 226,685 75,697
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
22 - Scudder Pennsylvania Tax Free Fund
<PAGE>
This Page
intentionally
left blank.
23 - 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,
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
Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
Trustee; Venture Partner,
Venture Capital Group
Philip G. Condon*
Vice President
Thomas W. Joseph*
Vice President
Ann M. McCreary*
Vice President
Jeremy L. Ragus*
Vice President
Rebecca Wilson*
Vice President
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, 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
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 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 Select 500 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 Select 1000 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
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
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.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the Fund. **Not available in all states. ***Only the Scudder Shares of
the Fund are part of the Scudder Family of Funds. ++Only the International
Shares of the Fund are part of the Scudder Family of Funds. +++ +++A no-load
variable annuity contract provided by Charter National Life Insurance Company
and its affiliate, offered by Scudder's insurance agencies, 1-800-225-2470. +++
+++ +++A no-load variable annuity contract issued by Glenbrook Life and Annuity
Company and underwritten by Allstate Financial Services, Inc., sold by Scudder's
insurance agencies, 1-800-225-2470. #These funds, advised by Scudder Kemper
Investments, Inc., are traded on the New York Stock Exchange and, in some cases,
on various other stock exchanges.
25 - 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
Personal Investment Organizer: 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
- ------------------------------------------------------------------------------------------------------------------------------
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 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 transaction fee. 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>
27 - 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 $280 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
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