-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JVnZur8gJFCNfnY5oCsBNoqvbSiY5pp56klDGan1WsCK7jtTDu55m4oO2a2ZPee1 p0qgijwCOs89176C+7I7EA== 0000088053-99-000246.txt : 19990223 0000088053-99-000246.hdr.sgml : 19990223 ACCESSION NUMBER: 0000088053-99-000246 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCUDDER MUNICIPAL TRUST CENTRAL INDEX KEY: 0000203142 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046396607 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02671 FILM NUMBER: 99546506 BUSINESS ADDRESS: STREET 1: 175 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6173305592 FORMER COMPANY: FORMER CONFORMED NAME: SCUDDER MANAGED MUNICIPAL BONDS DATE OF NAME CHANGE: 19880302 N-30D 1 ANNUAL REPORT - SCUDDER HIGH YIELD TAX FREE FUND Scudder High Yield Tax Free Fund Annual Report December 31, 1998 Pure No-Load(TM) Funds A fund that seeks to provide a high level of income, exempt from regular federal income tax, from an actively managed portfolio consisting primarily of investment-grade municipal securities. A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares. SCUDDER (logo) Scudder High Yield Tax Free Fund - -------------------------------------------------------------------------------- Date of Inception: 1/22/87 Total Net Assets as of Ticker Symbol: SHYTX 12/31/98: $432 million - -------------------------------------------------------------------------------- o Scudder High Yield Tax Free Fund posted a 6.38% total return over its most recent year ended December 31, 1998. For the one-, three-, and ten-year periods ended December 31, the Fund's total returns placed it in the top 20% of similar municipal bond funds as tracked by Lipper Analytical Services. Please see page 6 for additional Lipper performance information. o The Fund received five stars from Morningstar, reflecting the highest possible rating for risk-adjusted performance through December 31, 1998.^1 o The Fund's 30-day net annualized SEC yield was 4.20% as of December 31, 1998. For investors in the two highest federal tax brackets of 36% and 39.6%, the Fund's yield was equivalent to a fully taxable 6.56% and 6.95%, respectively. Table of Contents 3 Letter from the Fund's President 23 Notes to Financial Statements 4 Performance Update 26 Report of Independent Accountants 5 Portfolio Summary 27 Tax Information 6 Portfolio Management Discussion 27 Officers and Trustees 9 Glossary of Investment Terms 28 Shareholder Meeting Results 10 Investment Portfolio 29 Investment Products and Services 19 Financial Statements 30 Scudder Solutions 22 Financial Highlights ^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 five stars for three- and five-year performance and four stars for ten-year performance, and was rated among 1577, 1040, and 370 municipal funds for the respective periods. Of the funds rated, 10% received five stars, and 22.5% received four stars. Past performance is no guarantee of future returns. 2 - Scudder High Yield Tax Free Fund Letter from the Fund's President Dear Shareholders, Despite the fact that mainstream media -- and most investors -- tend to focus on stocks when discussing financial markets, the importance of including bonds in a well-diversified portfolio cannot be overstated. Many financial professionals rank municipal bonds second only to Treasuries as secure fixed income investments. Municipals can be counted on to deliver reliable income along with substantially less price volatility when compared with most other financial instruments. Moreover, in a global financial environment where market movements are increasingly correlated, the municipal bond market is among the most independent. In 1998, municipals recorded modest gains amid a turbulent global financial environment: Prices of the average 10-year AAA municipal bond rose 2% during the year, on yield declines of one quarter of a percentage point. During its most recent year ended December 31, 1998, Scudder High Yield Tax Free Fund posted a 6.38% total return based on net asset value appreciation of $0.15 per share and income distributions of $0.65 per share. Please read the Portfolio Management Discussion beginning on page 6 for additional information concerning your Fund's investment environment, strategy, and outlook. For those of you who are interested in new Scudder products, we recently introduced the Scudder Tax Managed Growth Fund, investing in medium- to large-sized U.S. companies, and Scudder Tax Managed Small Company Fund, which invests in small U.S. companies. Using a combination of quantitative and fundamental research, the funds will focus on companies with strong earnings growth, reasonable valuations, and favorable risk profiles. Both funds strive to maximize after-tax returns by systematically taking into account the tax implications of portfolio transactions and seeking to offset capital gains by realizing losses when appropriate. Please see pages 29 through 31 for more information on Scudder products and services. If you have any questions regarding Scudder High Yield Tax Free Fund or any other Scudder fund, please call Investor Relations at 1-800-225-2470. Or visit Scudder's Web site at www.scudder.com. Sincerely, /s/Daniel Pierce Daniel Pierce President, Scudder High Yield Tax Free Fund 3 - Scudder High Yield Tax Free Fund Performance Update as of December 31, 1998 Fund Index Comparisons ------------------------------------------- Total Return -------------------------------------------- Period Ended Growth of Average 12/31/98 $10,000 Cumulative Annual -------------------------------------------- Scudder High Yield Tax Free Fund -------------------------------------------- 1 Year $ 10,638 6.38% 6.38% 5 Year $ 13,603 36.03% 6.35% 10 Year $ 22,788 127.88% 8.58% -------------------------------------------- Lehman Brothers Municipal Bond Index -------------------------------------------- 1 Year $ 10,648 6.48% 6.48% 5 Year $ 13,527 35.27% 6.22% 10 Year $ 22,034 120.34% 8.22% Growth of a $10,000 Investment - ------------------------------ THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE CHART DATA: Yearly periods ended December 31 Scudder High Yield Tax Free Fund Year Amount - -------------------------------- '88 10000 '89 11032 '90 11696 '91 13271 '92 14714 '93 16752 '94 15348 '95 18307 '96 19119 '97 21421 '98 22788 Lehman Brothers Municipal Bond Index Year Amount - -------------------------------- '88 10000 '89 11080 '90 11887 '91 13331 '92 14508 '93 16289 '94 15447 '95 18144 '96 18947 '97 20693 '98 21902 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 - --------------------------------- THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE FUND TOTAL RETURN (%) AND INDEX TOTAL RETURN (%) CHART DATA:
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------------------------------------------------------- Net Asset Value $ 11.35 $ 11.19 $ 11.67 $ 11.90 $ 12.55 $ 10.86 $ 12.19 $ 12.04 $ 12.78 $ 12.93 - ----------------------------------------------------------------------------------------------------------------------------- Income Dividends $ .76 $ .77 $ .76 $ .72 $ .67 $ .66 $ .72 $ .66 $ .67 $ .65 - ----------------------------------------------------------------------------------------------------------------------------- Capital Gains Distributions $ .06 $ .05 $ .21 $ .27 $ .28 $ -- $ -- $ -- $ -- $ -- - ----------------------------------------------------------------------------------------------------------------------------- Fund Total Return (%) 10.32 6.02 13.46 10.88 13.85 -8.38 19.28 4.43 12.04 6.38 - ----------------------------------------------------------------------------------------------------------------------------- Index Total Return (%) 10.79 7.29 12.14 8.82 12.28 -5.17 17.46 4.43 9.21 6.48 - -----------------------------------------------------------------------------------------------------------------------------
All performance is historical, assumes reinvestment of all dividends and capital gains, and is not indicative of future results. Investment return and principal value will fluctuate, so an investor's shares, when redeemed, may be worth more or less than when purchased. If the Adviser had not temporarily capped expenses, the average annual total return for the Fund for the five year and ten year periods would have been lower. 4 - Scudder High Yield Tax Free Fund Portfolio Summary as of December 31, 1998 Diversification - --------------- A graph in the form of a pie chart appears here, illustrating the exact data points in the table below. Hospital/Health 20% Toll Revenue/Transportation 14% Electric Utility Revenue 11% Port/Airport Revenue 9% Pollution Control/ Industrial Development 7% State General Obligation 7% Core Cities/Lease 6% Project Revenue/Special Assessment 6% Housing Finance Authority 5% Miscellaneous Municipal 15% ----------------------------------------- 100% ========================================= The Fund is broadly diversified, with securities issued in 32 states plus the District of Columbia and the Virgin Islands. Quality - ------- A graph in the form of a pie chart appears here, illustrating the exact data points in the table below. AAA 35% AA 11% A 10% BBB 22% Not Rated or Below BBB 22% ---------------------------------- 100% ================================== Weighted Average Quality: AA- We are de-emphasizing lower quality bonds at present, because differences in yield between higher and lower quality bonds have shrunk to the point that investors in lower-quality bonds are not rewarded for taking on additional risk. 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 3% 1 - 5 15% 5 - 8 19% 8 - 15 51% Greater than 15 12% ---------------------------------- 100% ----------------------------------- Weighted Average Effective Maturity: 10.13 years During the period, we focused on 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. 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 High Yield Tax Free Fund Portfolio Management Discussion Dear Shareholders, Yields of municipal bonds declined slightly and their prices rose modestly during Scudder High Yield Tax Free Fund's most recent year ended December 31, 1998. The Fund provided a 6.38% total return over the 12-month period, surpassing the 5.25% average return of similar funds as reported by Lipper Analytical Services, Inc. The Fund posted a 4.20% 30-day net annualized SEC yield as of December 31, equivalent to fully taxable yields of 6.56% and 6.95%, respectively, for investors in the 36% and 39.6% federal tax brackets. Comprising the Fund's total return over the period were a $0.15 increase in its net asset value to $12.93 as of December 31, plus income distributions totaling $0.65 per share. Scudder High Yield Tax Free Fund's long-term returns remain highly competitive: As shown in the accompanying table, the Fund's average annual total returns placed it in the top 20% of its peers over one-, three-, and ten-year periods. Please turn to the Performance Update on page for more information on the Fund's long-term progress, including comparisons with the unmanaged Lehman Brothers Municipal Bond Index. Municipals Gain Amid Turbulence In 1998, most municipal bonds posted modest gains in the face of dramatic financial crises that rocked the global markets. In the international capital markets, the most troublesome developments were Russia's short-term debt default and ruble devaluation, Japan's continuing banking crisis and recession, the run on Brazil's currency reserves (despite an IMF stabilization package), and the near collapse of the Long Term Capital Management hedge fund. The Federal Reserve lowered short-term interest rates by one quarter of a percentage point three times between September and November -- taking the unexpected step of adjusting interest rates between Federal Open Market Committee meetings -- in an attempt to restore order to worldwide financial markets. Though the Fed had reportedly changed to a "neutral" stance on interest rate adjustments by late in 1998, the more than 60 interest rate reductions by central banks around the world during this period seemed to ease fears of rampant deflation and gave encouragement to U.S. equity investors. THE PRINTED DOCUMENT CONTAINS A TABLE HERE ============================================================== Competitive Long-Term Results (Average annual returns for periods ended December 31, 1998) - -------------------------------------------------------------- Scudder Lipper Number Yield Tax average of Free Fund annual Funds Percentile Period return return Rank tracked Ranking - -------------------------------------------------------------- 1 year 6.38% 5.25% 7 of 52 Top 13% 3 years 7.57% 6.46% 7 of 38 Top 18% 5 years 6.35% 5.98% 11 of 28 Top 39% 10 years 8.58% 7.58% 2 of 16 Top 13% Past performance does not guarantee future results. Municipal bonds registered modest gains compared with Treasuries during the period, as municipal yield declines lagged those of their Treasury counterparts. Over the 12 months ended December 31, 1998, yields of 10-year Treasury bonds 6 - Scudder High Yield Tax Free Fund declined more than one percentage point and their prices rose 8.6%, while yields of 10-year AAA-rated municipal bonds declined one quarter of a percentage point, and their prices rose 2%. We attribute much of this disparity in performance to a heavy $284 billion supply of municipal bonds in 1998, the second highest volume over the past 10 years. A Shift in Focus 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 12-month period, the Fund shifted its emphasis toward the purchase of 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. In terms of maturity, we focused on 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. We are de-emphasizing lower quality bonds at present, 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. As of December 31, AAA bonds represented fully 35% of Fund assets while lower-rated BBB bonds comprised only 22% of the Fund's portfolio. The Fund also continues its cautious stance on the municipal market, maintaining a neutral average duration similar to that of the Lehman Brothers Municipal Bond Index. As of December 31, the Fund's average duration was 7.6 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.) As always, diversification remains an important strategy for the Fund, allowing us to spread risk over a large number of sectors, maturities, and geographic areas. As of December 31, 1998, the Fund held securities issued in 32 states plus the District of Columbia and the Virgin Islands. Economic Slowdown in 1999? Shrinking corporate profit margins, a widening trade deficit, pressure on the dollar, and troubles in the emerging markets could dampen U.S. economic growth during the coming months. We do not doubt, however, the power of consumer and investor confidence to overcome adversity, as has been shown throughout the current economic expansion. With the outlook for the U.S. economy uncertain, the outlook for municipal bonds is nonetheless very positive, as yields of municipals compared with Treasuries are near historic highs. This ratio should eventually assume a more typical 7 - Scudder High Yield Tax Free Fund level, which could mean significant yield reductions and price gains for municipal bonds. In terms of the day-to-day management of the Fund, we plan to continue our current conservative credit risk profile until yields of lower-quality bonds become more attractive. The Fund will also continue to purchase select 15-year premium cushion bonds over the coming months. As always, we will refrain from making investment decisions based on short-term market movements and search instead for the most attractively valued bonds as we seek a high level of tax-free income for our shareholders. Sincerely, Your Portfolio Management Team /s/Philip G. Condon /s/Rebecca L. Wilson Philip G. Condon Rebecca L. Wilson Scudder High Yield Tax Free Fund: A Team Approach to Investing Scudder High Yield Tax Free Fund is managed by a team of Scudder Kemper Investments, Inc. (the "Adviser") professionals, each of whom plays an important role in the Fund's management process. Team members work together to develop investment strategies and select securities for the Fund's portfolio. They are supported by the Adviser's large staff of economists, research analysts, traders, and other investment specialists who work in 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. Lead Portfolio Manager Philip G. Condon has had responsibility for the Fund's day-to-day operations since its inception in 1987, having joined the Adviser in 1983. Mr. Condon has over 16 years' experience in the investment industry. Rebecca L. Wilson joined the Adviser in 1986 and the Fund as a Portfolio Manager in 1998. Ms. Wilson contributes over 11 years of experience in municipal investing and research. 8 - Scudder High Yield Tax Free Fund 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 increases relative to the supply of goods available in the marketplace-- in other words, when too much money is chasing too few goods. High inflation has a negative impact on the prices of fixed-income securities. MUNICIPAL BOND An interest-bearing debt security issued by a state or local government entity. NET ASSET 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 High Yield Tax Free Fund Investment Portfolio as of December 31, 1998
Credit Principal Rating (c) Market Amount ($) (Unaudited) Value ($) - ------------------------------------------------------------------------------------------------------------------------------ Short-Term Municipal Investments 1.4% - ------------------------------------------------------------------------------------------------------------------------------ Alabama North Alabama, Environmental Improvement Authority, Pollution Control Revenue, Daily Demand Note, 4.85%, 12/1/2000* ......................................... 1,000,000 NR 1,000,000 District of Columbia District of Columbia, General Obligation, Revenue Refunding, Series A1, Daily Demand Note, 5.2%, 10/1/2007* ................................................ 1,000,000 A1+ 1,000,000 Illinois Chicago, IL, O'Hare International Airport Revenue Bonds, American Airlines Project: Series 1983 A, Daily Demand Note, 5%, 12/1/2017* ............................. 1,000,000 NR 1,000,000 Series 1983 C, Daily Demand Note, 5%, 12/1/2017* ............................. 1,100,000 A1+ 1,100,000 Louisiana Parish of East Baton Rouge, LA, Pollution Control Revenue, Exxon Project, Daily Demand Note, 5%, 3/1/2022* ................................................... 1,000,000 A1+ 1,000,000 Texas Harris County, TX, Health Facilities Authority, Saint Lukes Episcopal Hospital, Series A, Daily Demand Note, 4.85%, 2/15/2027* ............................... 1,000,000 A1+ 1,000,000 - ------------------------------------------------------------------------------------------------------------------------------ Total Short-Term Municipal Investments (Cost $6,100,000) 6,100,000 - ------------------------------------------------------------------------------------------------------------------------------ Long-Term Municipal Investments 98.6% - ------------------------------------------------------------------------------------------------------------------------------ Alaska North Slope Borough, AK, General Obligation, Capital Appreciation: Series A, Zero Coupon, 6/30/2009 (b) ......................................... 3,000,000 AAA 1,882,080 Series B, Zero Coupon, 6/30/2005 (b) ......................................... 7,600,000 AAA 5,800,700 Arizona Maricopa County, AZ, Industrial Development Revenue, Resource Recovery, Private Placement, 9.25%, 5/1/2015 ................................................... 3,820,000 SKI 3,835,280 McDowell Mountain Ranch, AZ, Communities Facilities District, 8.25%, 7/15/2019 . 3,000,000 SKI 3,279,990 California California Community Development Authority, Apartment Development Revenue Bond, 5.25%, 5/15/2025 ....................................................... 3,750,000 BBB 3,801,750 California Pollution Control Financing Authority, Solid Waste Disposal Revenue, Canadian Fibre of Riverside PJ, Series 1997 A, 9%, 7/1/2019 .................. 6,000,000 SKI 6,286,320 Foothill Eastern Transportation Corridor Agency, CA, Toll Road Revenue, Senior Lien: Series A, Step-up Coupon, 0% to 1/1/2005, 7.05% to 1/1/2010 .................. 7,000,000 BBB 5,825,610 Series A, Step-up Coupon, 0% to 1/1/2005, 7.1% to 1/1/2011 ................... 4,415,000 BBB 3,715,620
The accompanying notes are an integral part of the financial statements. 10 - Scudder High Yield Tax Free Fund
Credit Principal Rating (c) Market Amount ($) (Unaudited) Value ($) - ------------------------------------------------------------------------------------------------------------------------------ Series A, Step-up Coupon, 0% to 1/1/2005, 7.1% to 1/1/2012 ................... 6,000,000 BBB 5,024,160 Series A, Step-up Coupon, 0% to 1/1/2005, 7.15% to 1/1/2014 .................. 2,875,000 BBB 2,390,361 Long Beach California Harbor Revenue, AMT, Series 1998 A, 6%, 5/15/2009 (b) .... 2,770,000 AAA 3,159,047 Long Beach, CA, Aquarium of the Pacific Project, 6.1%, 7/1/2010 ................ 4,500,000 BBB 4,829,310 Los Angeles County, CA, Certificate of Participation, Marina Del Ray, Series A, 6.25%, 7/1/2003 .............................................................. 5,500,000 SKI 5,819,330 Millbrae California Residential Facilities, Revenue Magnolia of Millbrae Project, Series 1997 A, 7.375%, 9/1/2027 ..................................... 1,000,000 SKI 1,052,670 San Francisco, CA, City and County Redevelopment Agency Residential Facility, Coventry Park Project, Series 1996 A, 8.5%, 12/1/2026 ........................ 2,000,000 SKI 2,314,360 San Joaquin Hills, CA, Transportation Corridor Agency, Orange County, Toll Road Revenue, Senior Lien, Prerefunded 1/1/2008: Zero Coupon, 1/1/2011 (d) ................................................... 5,000,000 AAA 5,269,600 Zero Coupon, 1/1/2012 (d) ................................................... 15,000,000 AAA 15,843,600 Zero Coupon, 1/1/2013 (d) ................................................... 4,000,000 AAA 4,224,960 Colorado Denver, CO, Airport System Revenue: Series A, Zero Coupon, 11/15/2001 ............................................ 5,120,000 BBB 4,525,978 Series A, Zero Coupon, 11/15/2003 ............................................ 3,050,000 BBB 2,450,797 Series A, Zero Coupon, 11/15/2004 ............................................ 3,130,000 BBB 2,390,913 Series A, Zero Coupon, 11/15/2005 ............................................ 1,855,000 BBB 1,348,919 Series 1991 D, 7.75%, 11/15/2013 ............................................. 9,775,000 BBB 12,461,072 Denver, CO, Urban Renewal Authority, Tax Increment Revenue, 7.75%, 9/1/2016 .... 2,500,000 SKI 2,846,450 Connecticut Connecticut Development Authority, Mystic Marinelife Aquarium Project Revenue, 6.875%, 12/1/2017 ............................................................ 1,000,000 SKI 1,066,550 Connecticut State Health Finance Authority, Edgehill Project, Series 1997 A, 6.875%, 7/1/2017 ............................................................. 3,000,000 SKI 3,226,800 Mashantucket Western Pequot Tribe, CT, Special Revenue: 6.4%, 9/1/2011 ............................................................... 1,510,000 BAA2 1,666,874 Prerefunded 9/1/2007, 6.4%, 9/1/2011 (d) ..................................... 1,490,000 AAA 1,738,383 Subordinate 144A, Series 1997 B, 5.7%, 9/1/2012 .............................. 1,000,000 BAA3 1,043,790 District of Columbia District of Columbia, Certificate of Participation, 7.3%, 1/1/2013 ............. 4,650,000 BB 4,999,169 District of Columbia, Convention Center Authority, Dedicated Tax Revenue, Senior Lien, 5.25%, 10/1/2014 (b) ................................................... 3,000,000 AAA 3,104,100 District of Columbia, General Obligation, Series A, 5.875%, 6/1/2005 (b) ....... 4,300,000 AAA 4,696,718
The accompanying notes are an integral part of the financial statements. 11 - Scudder High Yield Tax Free Fund
Credit Principal Rating (c) Market Amount ($) (Unaudited) Value ($) - ------------------------------------------------------------------------------------------------------------------------------ District of Columbia, Hospital Refunding Revenue, Metlantic Washington Hospital Center, Series 1992 A, Prerefunded 8/15/2002, 7.125%, 8/15/2019 (d) .......... 3,000,000 AAA 3,378,600 District of Columbia, Water & Sewer Authority, Public Utilities Revenue, 6%, 10/1/2014 (b) ................................................................ 8,445,000 AAA 9,617,757 Florida Bayside, FL, Community Development District, Capital Improvement Revenue, 6.3%, 5/1/2018 ..................................................................... 980,000 SKI 992,564 Broward County, FL, Housing Finance Authority, Single Family Mortgage Revenue, Zero Coupon, 4/1/2014 ........................................................ 2,145,000 AA 468,447 Indian Trace, FL, Community Development Authority, Special Assessment District Bonds, 6.875%, 4/1/2010 ...................................................... 2,270,000 SKI 2,401,183 Indian Trace, FL, Special Tax Revenue, Water Management, 8.25%, 5/1/2005 ....... 1,910,000 SKI 2,104,190 Orlando, FL, Special Assessment Revenue, Conroy Road Interchange, Series A, 5.8%, 5/1/2026 ............................................................... 1,500,000 NR 1,495,785 Georgia Athens-Clarke County, GA, First Lien, Wesley Woods, Series 1997, 6.35%, 10/1/2017 .................................................................... 1,575,000 SKI 1,621,179 Coweta County, GA, Residential Care Facilities for the Elderly, First Lien, Wesley Woods, Series 1996 A, 8.25%, 10/1/2026 ................................ 1,000,000 SKI 1,160,490 Fulton County, GA, School District, 5.375%, 1/1/2017 ........................... 1,500,000 AA 1,603,170 Municipal Electric Authority of Georgia, Power Revenue, Series Z, 5.5%, 1/1/2012 ..................................................................... 1,375,000 A 1,485,275 Rockdale County, GA, Development Authority, Solid Waste Disposal Revenue, Visy Paper Inc. Project, Series 1993, 7.4%, 1/1/2016 .............................. 4,680,000 SKI 5,000,814 Illinois Chicago-O'Hare International Airport, IL, Special Facilities Revenue, American Airlines, Project A, Series 1990, 7.875%, 11/1/2025 .......................... 1,000,000 BBB 1,078,390 Hoffman Estates, IL, Tax Increment Revenue, Capital Appreciation, Junior Lien, Series 1991, Zero Coupon, 5/15/2006 .......................................... 4,000,000 A 2,906,280 Illinois Health Facilities Authority, Revenue Refunding: The Carle Foundation, Series A, 5%, 7/1/2011 (b) ............................. 1,410,000 AAA 1,449,142 Memorial Health System, Series 1997, 5.5%, 10/1/2008 (b) ..................... 1,325,000 AAA 1,435,624 Methodist Medical Center, 5.5%, 11/15/2013 (b) ............................... 3,165,000 AAA 3,362,085 Winnebago County, IL, School District #122, 6.45%, 6/1/2008 (b) ................ 1,500,000 AAA 1,750,035 Indiana Indiana Health Facilities Financing Authority, Franciscan Eldercare Community Services, 5.875%, 5/15/2029 .................................................. 2,300,000 NR 2,256,691
The accompanying notes are an integral part of the financial statements. 12 - Scudder High Yield Tax Free Fund
Credit Principal Rating (c) Market Amount ($) (Unaudited) Value ($) - ------------------------------------------------------------------------------------------------------------------------------ Indiana Municipal Power Agency, Power Supply System, Refunding Revenue, Series 1983 B, 5.875%, 1/1/2009 (b) .......................................... 2,300,000 AAA 2,593,917 Indianapolis, IN, Economic Development, Refunding and Improvement Revenue, Robin Run Village Project, Series 1992, 7.625%, 10/1/2022 .................... 1,500,000 BBB 1,654,350 Iowa Dubuque County, IA, Private College Facilities Revenue, Clarke College Project, Series 1998, 5.375%, 9/1/2018 ................................................ 1,000,000 BAA3 992,130 Maine Maine Finance Authority, Huntington Common, Series 1997 A, 7.5%, 9/1/2027 ...... 1,000,000 SKI 1,038,520 Massachusetts Boston, MA, Industrial Development Authority, Springhouse Project, Prerefunded 7/1/2005, 9.25%, 7/1/2025 (d) ................................................ 1,350,000 AAA 1,758,510 Lowell, MA, General Obligation, 8.3%, 2/15/2005 ................................ 365,000 BBB 407,829 Massachusetts General Obligation, Consolidated Loan, Series C, 5.25%, 8/1/2014.. 7,000,000 AA3 7,341,110 Massachusetts Health & Educational Facilities Authority, Cooley Dickson Hospital Inc., Prerefunded 5/15/2003, 7.125%, 11/15/2018 (d) .......................... 1,810,000 AAA 2,055,563 Massachusetts Industrial Finance Agency: Edgewood Retirement Community, Series A, 9%, 11/15/2025 ...................... 1,000,000 SKI 1,218,630 Solid Waste Disposal, Peabody Monofil Project, 9%, 9/1/2005 .................. 2,155,000 SKI 2,354,208 Massachusetts State Grant Anticipation Revenue Note, Series A, 5.25%, 12/15/2012 ................................................................... 2,550,000 AA3 2,746,554 Michigan Detroit, MI, City School District, Refunded, Series C, 5.25%, 5/1/2015 (b) ..... 1,000,000 AAA 1,057,120 Detroit, MI, Downtown Development Authority, Tax Increment: Series 1996, Zero Coupon, 7/1/2011 ........................................... 3,150,000 A 1,640,079 Series 1996, Zero Coupon, 7/1/2012 ........................................... 3,150,000 A 1,546,430 Michigan State Hospital Finance Authority Revenue, Sinai Hospital: Series 1995, 6.625%, 1/1/2016 ................................................ 2,990,000 BBB 3,325,717 Series 1995, Prerefunded 10/1/2015, 7.5%, 10/1/2027 (d) ...................... 2,000,000 AAA 2,405,740 Michigan State Strategic Funding Ltd., Hope Network, Series 1998 A, 5.75%, 11/15/2018 ............................................................ 1,500,000 SKI 1,496,370 Mississippi Mississippi Development Bank, Special Obligation, Diamond Lakes Utilities, Series 1997 A, 6.25%, 12/1/2017 .............................................. 2,000,000 SKI 2,048,360 Nebraska Scotts Bluff County Hospital Authority No. 1, West Medical Center, Series 1998, 5.125%, 11/15/2019 ........................................................... 1,375,000 A- 1,341,354
The accompanying notes are an integral part of the financial statements. 13 - Scudder High Yield Tax Free Fund
Credit Principal Rating (c) Market Amount ($) (Unaudited) Value ($) - ------------------------------------------------------------------------------------------------------------------------------ Nevada Nevada State Housing Division, Single Family Mortgage Revenue, Series R, 5.95%, 10/1/2011 .................................................................... 1,275,000 AA 1,340,612 New Hampshire New Hampshire Higher Education & Health Facilities Authority: Monadnok Community Hospital, Series 1990, Prerefunded 10/1/2000, 9.125%, 10/1/2020 (d) ....................................................... 1,395,000 SKI 1,552,844 New Hampshire Catholic Charity: Prerefunded 8/1/2001, 8.4%, 8/1/2011 (d) .................................... 600,000 AAA 684,990 Series 1997, 5.8%, 8/1/2022 ................................................. 2,760,000 BBB 2,816,746 Rivermead at Peterborough: 5.5%, 7/1/2013 .............................................................. 2,635,000 SKI 2,640,349 5.625%, 7/1/2018 ............................................................ 500,000 SKI 493,365 Riverwoods at Exeter: Series A, 6.375%, 3/1/2013 .................................................. 725,000 A 781,449 Series A, 6.5%, 3/1/2023 .................................................... 1,000,000 A 1,072,160 St. Joseph's Hospital: 7.5%, 1/1/2007 .............................................................. 1,490,000 A 1,618,930 7.5%, 1/1/2016 .............................................................. 2,600,000 A 2,788,448 New Jersey New Jersey Economic Development Authority, Methodist Homes, Prerefunded 7/1/2005, 7.5%, 7/1/2025 (d) ................................................. 1,000,000 SKI 1,205,100 New York Glen Cove Housing Authority, Senior Living Facility, The Mayfair at Glen Cove, AMT, Series 1996, 8.25%, 10/1/2026 ........................................... 1,500,000 SKI 1,709,775 Islip, NY, New York Community Development Agency, New York Institute of Technology, Series 1996, 7.5%, 3/1/2026 ...................................... 2,500,000 SKI 2,759,825 Long Island, NY, Power Authority Electrical Systems Revenue, Series A, 5.5%, 12/1/2013 (b) ................................................................ 4,000,000 AAA 4,376,680 Long Island Power Authority, Electric Systems Revenue, Series 1998A, 5%, 12/1/2018 (b) ............................................................ 2,000,000 AAA 1,995,160 Metropolitan Transportation Authority of New York, Transit Facilities Revenue: Prerefunded 7/1/2001, 7%, 7/1/2009 (d) ....................................... 1,000,000 AAA 1,098,380 Series 1998 C, 5.125%, 7/1/2013 (b) .......................................... 3,500,000 AAA 3,631,810 Series O, 5.75%, 7/1/2013 .................................................... 2,750,000 BBB 3,029,455
The accompanying notes are an integral part of the financial statements. 14 - Scudder High Yield Tax Free Fund
Credit Principal Rating (c) Market Amount ($) (Unaudited) Value ($) - ------------------------------------------------------------------------------------------------------------------------------ New York City, NY, General Obligation: Series 1996 A, 7%, 8/1/2007 .................................................. 5,000,000 A 5,933,400 Series B, 6.1%, 8/15/2005 .................................................... 3,500,000 A 3,900,890 New York State Dormitory Authority Revenue, Mental Health Services Facilities Improvement: Series 1996 B, 6.5%, 2/15/2010 .............................................. 1,500,000 A 1,748,565 6.5%, 2/15/2011 ............................................................. 1,000,000 A 1,170,810 6%, 8/15/2012 ............................................................... 2,500,000 A 2,819,775 6%, 8/15/2016 ............................................................... 6,000,000 A 6,768,060 New York Triborough Bridge and Tunnel Authority, Special Obligation, Refunded, Series A, 5.125%, 1/1/2014 (b) ............................................... 7,690,000 AAA 7,988,603 Onondaga County, NY, Industrial Development Agency, Solid Waste Disposal Facility, Solvay Paperboard LLC, Series 1998, 7%, 11/1/2030 .................. 3,500,000 NR 3,534,860 Ohio Hamilton County, OH, Health System Revenue, Franciscan Sisters of the Poor Health System, Providence Hospital, Series 1992, 6.8%, 7/1/2008 .............. 5,485,000 BBB 5,887,051 Lorain County, OH, Health Care Facilities Revenue Kendal at Oberlin, Series A, 5.375%, 2/1/2012 ............................................................. 2,075,000 BBB 2,103,116 Parma, OH, Hospital Improvement Revenue, Parma Community General Hospital Association, 5.25%, 11/1/2013 ................................................ 2,000,000 A- 2,037,480 Oregon Chemeketa, OR, Community College District: 5.5%, 6/1/2014 (b) ........................................................... 2,385,000 AAA 2,610,645 5.5%, 6/1/2015 (b) ........................................................... 2,600,000 AAA 2,831,660 Pennsylvania Blair County, PA, Altoona Hospital Project, Series A, 5.5%, 7/1/2012 (b) ....... 1,755,000 AAA 1,884,747 Delaware County, PA, Authority Revenue Refunding, White Horse Village Inc.: Series A, 7.5%, 7/1/2018 ..................................................... 2,000,000 SKI 2,192,020 Series A, 6.7%, 7/1/2007 ..................................................... 1,000,000 SKI 1,052,470 Delaware County, PA, Industrial Development Authority Revenue, Resource Recovery Facilities, Series A, 6%, 1/1/2009 ........................................... 2,000,000 A 2,134,800 Latrobe, PA, Industrial Development Authority, ST. Vincent College Project, 5.375%, 5/1/2013 ............................................................. 1,885,000 BBB+ 1,941,663 Montgomery County, PA, Redevelopment Authority, Multi-Family Housing Revenue, KBF Associates L.P. Project, 6.375%, 7/1/2012 ................................ 5,500,000 BBB 5,766,145
The accompanying notes are an integral part of the financial statements. 15 - Scudder High Yield Tax Free Fund
Credit Principal Rating (c) Market Amount ($) (Unaudited) Value ($) - ------------------------------------------------------------------------------------------------------------------------------ Pennsylvania Higher Education Authority, Medical College of Pennsylvania, Series B, Prerefunded 3/1/2001, 7.25%, 3/1/2005 (d) .......................... 1,000,000 AAA 1,094,110 Philadelphia, PA, Authority for Industrial Development, Commercial Development Revenues, 6.5%, 10/1/2027 .................................................... 1,500,000 SKI 1,613,625 South Carolina Piedmont, SC, Municipal Power Agency, Revenue Refunding, Series 1998 A, 5.5%, 1/1/2013 (b) ................................................................. 2,900,000 AAA 3,167,235 South Carolina Jobs-Economic Development Authority, Hospital Facilities Revenue, South Carolina Baptist Hospital, 5.3%, 8/1/2009 (b)* ......................... 8,000,000 AAA 8,603,200 South Dakota South Dakota Health & Educational Facilities Authority Revenue, Prairie Lakes: 7.125%, 4/1/2010 ............................................................. 320,000 BBB 349,869 7.25%, 4/1/2022 .............................................................. 320,000 BBB 358,330 Prerefunded 4/1/2003, 7.125%, 4/1/2010 (d) ................................... 680,000 AAA 776,179 Prerefunded 4/1/2003, 7.25%, 4/1/2022 (d) .................................... 680,000 AAA 779,328 South Dakota Housing Development Authority, Home Ownership Mortgage, Series A, 6.4%, 5/1/2012 ............................................................... 3,500,000 AAA 3,696,735 Texas Amarillo, TX, Health Facilities Corporation, Baptist St. Anthony's Hospital Corp., 5.5%, 1/1/2013 (b) .................................................... 2,645,000 AAA 2,857,440 Austin, TX, Independent School District, General Obligation, 5%, 8/1/2012 (b) .. 2,000,000 AAA 2,061,000 Austin, TX, Revenue Bond, Refunded, Sub Lien, 5.25%, 5/15/2017 (b) ............. 5,000,000 AAA 5,251,100 Bexar County, TX, Housing Finance Corporation, Series A, Subject to AMT, GNMA Collateralized Mortgage Agency, 8.2%, 4/1/2022 ............................... 798,000 AAA 826,313 Dallas-Fort Worth, TX: Airport Revenue, American Airlines, AMT, 7.5%, 11/1/2025 ..................... 1,910,000 BBB 2,047,253 International Airport, American Airlines, 7.25%, 11/1/2030 ................... 5,000,000 BBB 5,497,950 Hidalgo County, TX, Health Services, Mission Hospital, Series 1996, 6.75%, 8/15/2016 .................................................................... 2,500,000 BBB 2,740,675 Lubbock, TX, Health Facilities Development Corp., St. Joseph Health Systems, 5.25%, 7/1/2012 .............................................................. 1,000,000 AA 1,039,420 Midland County, TX, Hospital District, Midland Memorial Hospital, Prerefunded 6/1/2002, 7.5%, 6/1/2016 (d) ................................................. 1,500,000 AAA 1,687,995 San Antonio, TX, Electric and Gas Revenue: Refunded, Series A, 5.25%, 2/1/2013 .......................................... 1,000,000 AA 1,050,490 Refunded, Series A, 5.25%, 2/1/2014 .......................................... 2,000,000 AA 2,088,640
The accompanying notes are an integral part of the financial statements. 16 - Scudder High Yield Tax Free Fund
Credit Principal Rating (c) Market Amount ($) (Unaudited) Value ($) - ------------------------------------------------------------------------------------------------------------------------------ Utah Intermountain Power Agency, UT, Power Supply Revenue Bond, Refunded, Series A, 5.25%, 7/1/2015 (b) .......................................................... 5,575,000 AAA 5,759,142 Salt Lake City, UT, Hospital Revenue, Intermountain Healthcare Systems, 6.65%, 2/15/2012 .................................................................... 2,000,000 AA 2,276,800 Vermont Vermont Housing Finance Agency, Multi-Family Housing Revenue, Northgate Housing Project, 8.25%, 6/15/2020 ............................................ 1,020,000 SKI 1,122,765 Virgin Islands Virgin Islands, Public Finance Authority Revenue, Matching Fund Loan Notes: Series A, Prerefunded 10/1/2002, 7.25%, 10/1/2018 (d) ........................ 6,500,000 SKI 7,416,305 Senior Lien, Series C, 5.5%, 10/1/2008 ....................................... 1,500,000 BBB- 1,591,320 Virginia Pittsylvania County, VA, Industrial Development Authority, Multitrade of Pittsylvania County, L.P. Project: 7.45%, 1/1/2009 ............................................................. 1,500,000 SKI 1,648,980 7.5%, 1/1/2014 .............................................................. 3,500,000 SKI 3,850,770 Virginia College Building Authority, Educational Facilities Revenue, Marymount University Project, Prerefunded 7/1/2002, 7%, 7/1/2022 (d) ................... 1,200,000 BBB- 1,345,356 Washington King County, WA, School District No. 403, Refunded, 5.25%, 12/1/2014 ........... 3,945,000 AA- 4,078,380 Washington Public Power Supply System: Nuclear Project #2, Inverse Floater, 5.4%, 7/1/2012** ........................ 3,250,000 AA 3,448,608 Nuclear Project #2, Series 1996 A, 6%, 7/1/2008 (b) .......................... 3,000,000 AAA 3,371,910 Revenue Refunding, Nuclear Project #2, Inverse Floater, 6.32%, 7/1/2012** .... 3,000,000 AA 3,318,750 Revenue Refunding, Nuclear Project #2, Series A, 6.3%, 7/1/2012 .............. 10,000,000 AA 11,569,700 Revenue Refunding, Nuclear Project #3, Series B, 7.125%, 7/1/2016 ............ 2,500,000 AA 3,146,575 Wisconsin Wisconsin State Health and Educational Facilities Authority, National Regency of New Berlin Project, Series 1995, 8%, 8/15/2025 ............................ 1,485,000 SKI 1,679,060 - ------------------------------------------------------------------------------------------------------------------------------ Total Long-Term Municipal Investments (Cost $381,050,927) 419,625,599 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Total Investment Portfolio -- 100.0% (Cost $387,150,927) (a) 425,725,599 - ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 17 - Scudder High Yield Tax Free Fund (a) The cost for federal income tax purposes was $387,150,927. At December 31, 1998, net unrealized appreciation for all securities based on tax cost was $38,574,672. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over tax cost of $38,750,361 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over market value of $175,689. (b) Bond is insured by one of these companies: AMBAC, Capital Guaranty, FGIC, FSA or MBIA/BIG. (c) All of the securities held have been determined by the Adviser to be of the 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) and unrated securities (NR) have been determined by the Adviser to be of comparable quality to rated securities. (d) Prerefunded: Bonds which are prerefunded are collateralized by U.S. Treasury securities which are held in escrow and are used to pay principal and interest on tax-exempt issues and to retire the bonds in full at the earliest refunding date. * Auction rate securities carry a short-term coupon that is reset on a periodic basis, usually every 35 days. The reset occurs through a marketplace auction process where all bidders receive the highest yield necessary to sell all the securities. For maturity purposes the securities are said to have the same maturity as the time remaining to the next auction. ** Inverse floating rate notes are instruments whose yields may change based on the change in the relationship between long-term and short-term interest rates and which exhibit added interest rate sensitivity compared to other bonds with a similar maturity. These securities are shown at their rate as of December 31, 1998. The accompanying notes are an integral part of the financial statements. 18 - Scudder High Yield Tax Free Fund Financial Statements Statement of Assets and Liabilities as of December 31, 1998 Assets - ---------------------------------------------------------------------------------------------------------------------------- Investments, at market (identified cost $387,150,927) ............... $ 425,725,599 Cash ................................................................ 29,129 Receivable for investments sold ..................................... 70,000 Receivable for Fund shares sold ..................................... 466,551 Interest receivable ................................................. 6,737,523 Other assets ........................................................ 2,669 ---------------- Total assets ........................................................ 433,031,471 Liabilities - ---------------------------------------------------------------------------------------------------------------------------- Dividends payable ................................................... 526,043 Payable for Fund shares redeemed .................................... 81,861 Accrued management fee .............................................. 227,432 Other payables and accrued expenses ................................. 73,173 ---------------- Total liabilities ................................................... 908,509 ------------------------------------------------------------------------------------------- Net assets, at market value $ 432,122,962 ------------------------------------------------------------------------------------------- Net Assets - ---------------------------------------------------------------------------------------------------------------------------- Net assets consist of: Net unrealized appreciation (depreciation) on investments ........... 38,574,672 Accumulated net realized loss ....................................... (6,154,499) Paid-in capital ..................................................... 399,702,789 ------------------------------------------------------------------------------------------- Net assets, at market value $ 432,122,962 ------------------------------------------------------------------------------------------- Net Asset Value - ---------------------------------------------------------------------------------------------------------------------------- Net Asset Value, offering and redemption price per share ($432,122,962 / 33,414,415 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares ---------------- authorized) ...................................................... $12.93 ----------------
The accompanying notes are an integral part of the financial statements. 19 - Scudder High Yield Tax Free Fund Statement of Operations year ended December 31, 1998 Investment Income - ---------------------------------------------------------------------------------------------------------------------------- Income: Interest ............................................................. $ 22,412,866 ---------------- Expenses: Management fee ....................................................... 2,440,931 Services to shareholders ............................................. 477,718 Custodian and accounting fees ........................................ 113,729 Trustees' fees and expenses .......................................... 37,270 Reports to shareholders .............................................. 42,998 Legal ................................................................ 6,606 Auditing ............................................................. 39,332 Registration fees .................................................... 47,628 Other ................................................................ 15,726 ---------------- 3,221,938 ------------------------------------------------------------------------------------------- Net investment income 19,190,928 ------------------------------------------------------------------------------------------- Realized and unrealized gain (loss) on investment transactions - ---------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) from investments ............................ 768,029 Net unrealized appreciation (depreciation) during the period on investments ....................................................... 3,727,480 ------------------------------------------------------------------------------------------- Net gain (loss) on investment transactions 4,495,509 ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 23,686,437 -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 20 - Scudder High Yield Tax Free Fund Statements of Changes in Net Assets
Years Ended December 31, Increase (Decrease) in Net Assets 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Operations: Net investment income ........................................... $ 19,190,928 $ 16,662,353 Net realized gain (loss) from investment transactions ........... 768,029 1,293,696 Net unrealized appreciation (depreciation) on investment transactions during the period .................... 3,727,480 17,278,728 ---------------- ---------------- Net increase (decrease) in net assets resulting from operations ................................................... 23,686,437 35,234,777 ---------------- ---------------- Distributions to shareholders from net investment income ....................................................... (19,191,807) (16,662,353) ---------------- ---------------- Fund share transactions: Proceeds from shares sold ....................................... 173,275,197 94,712,636 Net asset value of shares issued to shareholders in reinvestment of distributions ................................ 12,853,477 10,767,421 Cost of shares redeemed ......................................... (95,191,076) (80,462,768) ---------------- ---------------- Net increase (decrease) in net assets from Fund share transactions ................................................. 90,937,598 25,017,289 ---------------- ---------------- Increase (decrease) in net assets ............................... 95,432,228 43,589,713 Net assets at beginning of period ............................... 336,690,734 293,101,021 ---------------- ---------------- Net assets at end of period ..................................... $ 432,122,962 $ 336,690,734 ---------------- ---------------- Other Information - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in Fund shares Shares outstanding at beginning of period ....................... 26,338,299 24,338,716 ---------------- ---------------- Shares sold ..................................................... 13,488,602 7,700,257 Shares issued to shareholders in reinvestment of distributions ................................................ 1,000,254 874,481 Shares redeemed ................................................. (7,412,740) (6,575,155) ---------------- ---------------- Net increase (decrease) in Fund shares .......................... 7,076,116 1,999,583 ---------------- ---------------- Shares outstanding at end of period ............................. 33,414,415 26,338,299 ---------------- ----------------
The accompanying notes are an integral part of the financial statements. 21 - Scudder High Yield Tax Free Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Years Ended December 31, 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------ Net asset value, beginning of period ......................... $ 12.78 $ 12.04 $ 12.19 $ 10.86 $ 12.55 ------------------------------------------------------------ Income from investment operations: Net investment income ........................................ .65 .67 .66 .68 .70 Net realized and unrealized gain (loss) on investment transactions ............................................... .15 .74 (.15) 1.37 (1.73) ------------------------------------------------------------ Total from investment operations ............................. .80 1.41 .51 2.05 (1.03) ------------------------------------------------------------ Less distributions from net investment income ................ (.65) (.67) (.66) (.72) (.66) ------------------------------------------------------------ Net asset value, end of period ............................... $ 12.93 $ 12.78 $ 12.04 $ 12.19 $ 10.86 ------------------------------------------------------------ - ---------------------------------------------------------------------------------------------------------------------------- Total Return (%) ............................................. 6.38 12.04 4.43(a) 19.28(a) (8.38)(a) Ratios and Supplemental Data Net assets, end of period ($ millions) ....................... 432 337 293 304 260 Ratio of operating expenses, net to average daily net assets (%) ................................................. .84 .90 .91 .80 .80 Ratio of operating expenses before expense reductions, to average daily net assets (%) ............................... .84 .90 .95 .94 .97 Ratio of net investment income to average net assets (%) ..... 5.03 5.43 5.59 5.77 6.01 Portfolio turnover rate (%) .................................. 14.32 33.2 21.9 27.3 34.3
(a) Total return would have been lower had certain expenses not been reduced. 22 - Scudder High Yield Tax Free Fund Notes to Financial Statements A. Significant Accounting Policies Scudder High Yield Tax Free Fund (the "Fund") is organized as a diversified series of Scudder Municipal Trust, a Massachusetts business trust, is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 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, 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. All other debt securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board of Trustees. Money market instruments purchased with an original maturity of sixty days or less are valued at amortized cost. When-issued and Forward Delivery Securities. The Fund may purchase securities on a when-issued or forward delivery basis, for payment and delivery at a later date. The price of such securities, which may be expressed in yield terms, is fixed at the time the commitment to purchase is made, but delivery and payment take place at a later time. At the time the Fund makes the commitment to purchase a security on a when-issued or forward delivery basis, it will record the transaction and reflect the value of the security in determining its net asset value. During the period between purchase and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund. At the time of settlement, the market value of the security may be more or less than the purchase price. The Fund will establish a segregated account in which it will maintain cash and liquid debt securities equal in value to commitments for when-issued or forward delivery securities. 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, as amended, which are applicable to regulated investment companies and to distribute all of its taxable and tax-exempt income to its shareholders. The Fund accordingly paid no federal income taxes and no provision for federal income taxes was required. At December 31, 1998, the Fund had a net tax basis capital loss carryforward of approximately $4,340,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until December 31, 2004 the expiration date. 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. Distributions of net realized capital gains to shareholders are recorded on the ex-dividend date. 23 - Scudder High Yield Tax Free Fund The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from generally accepted accounting principles. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. 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 transactions are accounted for on a trade-date basis. Interest income is accrued pro rata to the earlier of call or maturity. B. Purchases and Sales of Securities During the year ended December 31, 1998, purchases and sales of municipal securities (excluding short-term investments) aggregated $133,526,326 and $51,446,036, 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 objective, 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 0.65% on the first $300,000,000 of the Fund's average daily net assets and 0.60% of such net assets in excess of $300,000,000, computed and accrued daily and payable monthly. For the year ended December 31, 1998, the fee pursuant to this agreement amounted to $2,440,931, which was equivalent to an annual effective rate of 0.64% of the Fund's average daily net assets. 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. Included in services to shareholders is $312,600 charged to the Fund by SSC during the year ended December 31, 1998, of which $27,983 is unpaid at December 31, 1998. 24 - Scudder High Yield Tax Free Fund 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 December 31, 1998, the amount charged to the Fund by SFAC aggregated $67,621, of which $5,984 is unpaid at December 31, 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 year ended December 31, 1998, Trustees' fees and expenses aggregated $37,270. 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 among each of the Participants. Interest is calculated based on the market rates at the time of the borrowing. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. 25 - Scudder High Yield Tax Free Fund Report of Independent Accountants To the Trustees of Scudder Municipal Trust and the Shareholders of Scudder High Yield 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 High Yield Tax Free Fund (the "Fund") at December 31, 1998, 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 December 31, 1998 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. Boston, Massachusetts PricewaterhouseCoopers LLP February 12, 1999 26 - Scudder High Yield Tax Free Fund Tax Information Of the dividends paid from net investment income for the taxable year ended December 31, 1998, 100% are designated as exempt in interest dividends for federal income tax purposes. 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 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; Managing Partner, Technology Equity Partners Philip G. Condon* Vice President Thomas W. Joseph* Vice President Ann M. McCreary* Vice President Thomas F. McDonough* Vice President and Secretary John R. Hebble* Treasurer Caroline Pearson* Assistant Secretary *Scudder Kemper Investments, Inc. 27 - Scudder High Yield Tax Free Fund Shareholder Meeting Results A Special Meeting of Shareholders (the "Meeting") of Scudder High Yield 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* --- ------- ------- ----------------- 19,838,733 748,807 736,560 0 2. To approve the revision of the Fund's fundamental lending policy. Number of Votes: ---------------- For Against Abstain Broker Non-Votes* --- ------- ------- ----------------- 17,419,594 1,152,377 1,037,129 1,715,000 - -------------------------------------------------------------------------------- * 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. 28 - Scudder High Yield Tax Free Fund 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. 29 - Scudder High Yield Tax Free Fund Scudder Solutions
Convenient ways to invest, quickly and reliably: - ------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------ 30 - Scudder High Yield Tax Free Fund 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 Investor.Relations@scudder.com Boston New York
31 - Scudder High Yield Tax Free Fund 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. 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 [LOGO] -----END PRIVACY-ENHANCED MESSAGE-----