This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
105-6-125
MIS41A
Scudder
Massachusetts
Limited Term
Tax Free Fund
Annual Report
October 31, 1995
* For investors seeking double-tax-free income, exempt from both
Massachusetts and regular federal income taxes consistent with a high
degree of principal stability.
* A pure no-load(TM) fund with no commissions to buy, sell, or exchange
shares.
<PAGE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
- --------------------------------------------------------------------------------
CONTENTS
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
12 Financial Statements
15 Financial Highlights
16 Notes to Financial Statements
19 Report of Independent Accountants
20 Tax Information
21 Officers and Trustees
22 Investment Products
and Services
23 How to Contact
Scudder
IN BRIEF
* Scudder Massachusetts Limited Term Tax Free Fund provided shareholders with
a 30-day net annualized SEC yield of 4.17% on October 31, 1995, equivalent
to a 7.85% taxable yield for shareholders subject to the 46.85% combined
federal and state income tax rate.
BAR CHART: 30-Day Yields as of October 31, 1995
CHART DATA:
Scudder
Massachusetts Taxable IBC/Donoghue's
Limited Term Tax Equivalent Taxable Money
Free Fund Yield Fund Average
- --------- ---------- --------------
4.17% 7.85% 5.22%
* The Fund returned 8.08% for the 12-month period ended October 31, 1995,
well above the 7.43% average return of the 36 short-term state municipal
debt funds tracked by Lipper Analytical Services.
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
- --------------------------------------------------------------------------------
Dear Shareholders,
In our semiannual report dated April 30 we wondered whether we had seen the
highs in interest rates after their persistent rise in 1994. The answer turned
out to be "yes," for the most part. As the U.S. economy slowed and inflation
remained quiescent during the first quarter of 1995 and beyond, the Federal
Reserve permitted short-term interest rates to ease downward, cutting the
federal funds rate by 0.25% in July.
Throughout 1995, investors have been anticipating an economic slowdown, but
for most of the year, corporate profits have remained healthy, and consumers
have responded to lower short-term rates by borrowing and spending more. But we
believe consumers' increasingly high debt burdens will eventually force them to
tighten their belts. The current expansion cycle is extremely mature, and we
expect a slowdown sometime in the second half of 1996.
What does this mean for tax-exempt fund investors? A slower economy is
generally good for bonds. Of course, it's possible that we could see some
increases in interest rates over the short term if the economy doesn't slow down
sufficiently. But since the economy is extremely interest-rate sensitive it
should respond quickly to any rate changes, allowing rates to move back to
current levels. Importantly, the relationship between supply and demand for
municipal bonds remains in the tax-exempt investor's favor as the supply of
bonds continues to shrink, placing upward pressure on prices.
As always, your portfolio managers will continue to focus their efforts on
fundamental economic research and security selection as a means of generating
high current income and attractive total returns. Please call a Scudder Investor
Relations representative if you have questions about your Fund. Page 23 provides
more information on how to contact Scudder. Thank you for choosing Scudder
Massachusetts Limited Term Tax Free Fund to help meet your investment needs.
Sincerely,
/s/David S. Lee
David S. Lee
President,
Scudder Massachusetts Limited Term Tax Free Fund
3
<PAGE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
PERFORMANCE UPDATE as of October 31, 1995
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
Scudder Massachusetts Limited Term Tax Free Fund
- ------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
10/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,808 8.08% 8.08%
Life of
Fund* $10,808 8.08% 4.66%
LB Municipal Bond Index (3 year)
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
10/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,801 8.01% 8.01%
Life of
Fund* $10,801 8.62% 5.09%
*The Fund commenced operations on February 15, 1994.
Index comparisons begin February 28, 1994.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Scudder Massachusetts Limited Term Tax Free Fund
Year Amount
- ----------------------
2/94* $10,000
4/94 $ 9,912
7/94 $10,071
10/94 $10,030
1/95 $10,150
4/95 $10,414
7/95 $10,677
10/95 $10,840
Lehman Brothers Municipal Bond Index (3 year)
Year Amount
- ----------------------
2/94* $10,000
4/94 $ 9,938
7/94 $10,070
10/94 $10,056
1/95 $10,165
4/95 $10,399
7/95 $10,695
10/95 $10,862
The 3-year Lehman Brothers Municipal Bond Index is an unmanaged,
market-value-weighted measure of the short-term municipal bond
market and includes bonds with maturities of two to three years.
Index returns assume reinvested dividends and, unlike Fund
returns, do not reflect any fees or expenses.
- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
YEARLY PERIODS ENDED OCTOBER 31
1994* 1995
-----------------
Net Asset Value... $11.64 $12.02
Income Dividends.. $ .36 $ .54
Fund Total
Return (%)........ .00 8.08
Index Total
Return (%)........ .56 8.01
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 maintained the Fund's expenses, the total return
for the one year and life of Fund periods would have been lower.
4
<PAGE>
PORTFOLIO SUMMARY as of October 31, 1995
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Hospital/Health 32%
General Obligation 30%
Electric Utility 12% The Fund continues to hold
Housing Finance several types of Massachusetts
Authority 6% general obligation bonds,
Higher Education 5% which offer attractive value,
Pollution Control 5% high overall quality, and
Resource Recovery 5% relative stability.
Water/Sewer 2%
Miscellaneous Municipal 3%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
QUALITY
- --------------------------------------------------------------------------
AAA 76% Overall credit quality remains
AA 9% high, with 93% of the bonds
A 8% in the Fund's portfolio rated A
BBB 7% or better.
----
100%
====
Weighted average quality: AA
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------
Less than 1 year 20% We have emphasized bonds with
1 - 5 years 27% five- to 10-year maturities
5 - 10 years 53% because they offer attractive
---- after-tax yields and total
100% return potential.
====
Weighted average effective maturity: 5 years
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
For more complete details about the Fund's Investment Portfolio,
see page 9.
5
<PAGE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Dear Shareholders,
Over the past 12 months, as yields of short- to intermediate-term municipal
bonds fell anywhere from 0.65 to 0.95 percentage points, Scudder Massachusetts
Limited Term Tax Free Fund turned in strong overall performance, more than
making up for 1994's difficult fixed-income environment. The Fund's twin
objectives are to seek higher tax-free income than is typically available from
tax-free money market investments, and less price fluctuation than
higher-yielding, longer-term tax-free bonds.
For shareholders subject to the 46.85% maximum combined federal and
Massachusetts income tax rate, the Fund's 30-day net annualized SEC yield of
4.17% as of October 31, 1995, translated into a 7.85% yield on a taxable
equivalent basis, higher than current yields provided by comparable taxable
investments. The Fund's tax-equivalent yield compares favorably with the 5.46%
average yield of 2 1/2-year Massachusetts bank certificates of deposit as of
October 31, 1995. Of course, unlike fixed-rate CDs, which are FDIC-insured up to
certain limits, the Fund's yield and share price fluctuate, and principal
investments in the Fund are not insured.
As the graph below shows, the Fund continues to exhibit a relatively low
degree of share price volatility, although the decline in interest rates during
the Fund's fiscal year resulted in modest price appreciation.
LINE CHART:
Scudder Massachusetts Limited Term Tax Free Fund vs.
Lehman Brothers Municipal Bond Index
(monthly percentage price change
12 months through October 31, 1995)
CHART DATA:
Scudder Massachusetts Lehman Brothers
Limited Term Tax Free Municipal Bond
Fund Index
- --------------------- ---------------
- -0.0068 -0.0227
- -0.0112 -0.0231
0.0052 0.0168
0.0026 0.0235
0.0103 0.0241
0.006 0.0066
0.0008 -0.0036
0.01 0.03
- -0.002 -0.01
0.003 0.005
0.003 0.008
- -0.003 0.002
0.005 0.01
6
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
For the 12 months ended October 31, the Fund's net asset value increased
$0.38 to $12.02 per share and the Fund provided $0.54 per share in income
distributions, contributing to a total return of 8.08%. Scudder Massachusetts
Limited Term Tax Free Fund's total return compares favorably with the 7.43%
average return of the 36 mutual funds with similar investment objectives tracked
by Lipper Analytical Services, Inc.
A Gradual Rate Decline
In our April 1995 semiannual report we observed that the Federal Reserve's
series of inflation-fighting short-term interest rate increases from February
1994 to February 1995 seemed to be working effectively. Many municipal market
participants became convinced of this back in November of 1994, and yields of
tax-exempt bonds began a gradual decline that has continued through the end of
October 1995. We also noted in our last report that we were emphasizing both
ends of the Fund's limited maturity range: the shortest maturities for safety
and the longest maturities (maximum of 10 years) for higher yields and possible
capital appreciation. We are continuing this strategy because bonds with five-
to 10-year maturities currently offer the most attractive after-tax yield and
total return potential of any maturities in which the Fund is permitted to
invest.
The Fund continues to hold several types of Massachusetts general
obligation (G.O.) bonds. These bonds offer attractive value, high overall
quality, and relative stability. In addition, we hold a large percentage of
pre-refunded (also known as escrow and collateral) bonds in the Fund's
portfolio. Bonds are pre-refunded when issuers sell new debt at lower prevailing
rates and use the proceeds to establish an escrow account designated to retire
the original bonds on their future call dates. These bonds offer the highest
quality available in the municipal marketplace, yet they are typically priced
lower than similar bonds of slightly lower quality. The Fund's overall credit
quality remains high, with 93% of the bonds in its portfolio rated A or better.
Massachusetts Economic Outlook Still Favorable
Massachusetts is enjoying yet another year of its economic expansion
following the recession of 1990-1992. Even so, Governor Weld's budget for the
state's 1996 fiscal year is conservative, with a projected revenue increase of
only 3.6% over 1995 levels and a meager 2.6% rise in expenditures. The state's
recent economic success has been based in part on continued diversification
7
<PAGE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
- --------------------------------------------------------------------------------
among its traditional manufacturing, high technology, and service industries.
The decade-long decline in the state's manufacturing sector appears to have
turned around; Massachusetts manufacturers posted employment gains in 1994.
Consumer spending remains an important component of growth. Massachusetts' per
capita income levels are 18% higher than the national average, with an overall
ranking of fourth in the United States. State debt, though high, is manageable
given the state's wealth. Overall, Massachusetts' economic climate is generally
favorable for bond issuers and investors.
Some Closing Thoughts
This year's lower interest rates helped pave the way for continued economic
expansion and low inflation. However, we believe a slowdown is likely, led by
consumers who will eventually curtail their spending under pressure from
increasing debt burdens. Consequently, our longer-term outlook for bonds is
positive, and we believe Scudder Massachusetts Limited Term Tax Free Fund's
portfolio is well positioned to continue to capture attractive federal and state
tax-free yields while maintaining relative price stability.
In the short term, as investors recognize the currently high relative
after-tax value of municipals versus similar investments, we expect tax-free
bonds to make some gains. Going forward, we intend to maintain a conservative
strategy which includes a prudent average maturity, broad diversification, and
high credit quality. We will continue to search for value by balancing the
maturity characteristics, credit quality, and income potential of tax-exempt
bond investments for Scudder Massachusetts Limited Term Tax Free Fund.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Kathleen A. Meany
Philip G. Condon Kathleen A. Meany
Scudder Massachusetts Limited Term Tax Free Fund:
A Team Approach to Investing
Scudder Massachusetts Limited Term Tax Free Fund is run by a team of
Scudder investment professionals who each play an important role in the Fund's
management process. Team members work together to develop investment strategies
and select securities for the Fund. They are supported by Scudder's large staff
of economists, research analysts, traders, and other investment specialists who
work in Scudder's offices across the United States and abroad. We believe our
team approach benefits Fund investors by bringing together many disciplines and
leveraging Scudder's extensive resources.
Philip G. Condon, Lead Portfolio Manager, joined Scudder in 1983 and has 15
years of experience as a portfolio manager and in municipal research. Phil has
managed Scudder Massachusetts Limited Term Tax Free Fund since its inception and
Scudder Massachusetts Tax Free Fund since 1989. Kathleen A. Meany, Portfolio
Manager, joined Scudder in 1988 and has 18 years of municipal sales and
portfolio management experience. Kathleen has managed Scudder Massachusetts
Limited Term Tax Free Fund since its inception and Scudder Massachusetts Tax
Free Fund since 1988.
8
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO as of October 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------
18.3% SHORT-TERM MUNICIPAL INVESTMENTS
-------------------------------------------------------------------------------------------
MASSACHUSETTS Massachusetts Bay Transportation Authority,
Series B, 4.75%, 9/6/96 . . . . . . . . 5,000,000 SP1 5,034,750
Massachusetts General Obligation, Dedicated
Income Tax, Series B, Daily Demand Note,
3.7%, 12/1/97* . . . . . . . . . . . 2,200,000 AA 2,200,000
Massachusetts Health and Educational Facilities
Authority, Brigham & Women's Hospital,
Series A, Weekly Demand Note, 3.75%, 7/1/17* . 900,000 AA 900,000
Massachusetts Health and Educational Facilities
Authority, Series C, Daily Demand Note, 3.65%,
7/1/05* (c) . . . . . . . . . . . . 100,000 A1+ 100,000
Massachusetts Industrial Finance Agency, Resource
Recovery, Ogden Haverhill Project, Weekly
Demand Note, 3.7%, 12/1/06* . . . . . . . 1,600,000 MIG1 1,600,000
-----------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $9,830,617) . . . . . . . . . . 9,834,750
-----------
-------------------------------------------------------------------------------------------
81.7% INTERMEDIATE-TERM MUNICIPAL INVESTMENTS
-------------------------------------------------------------------------------------------
MASSACHUSETTS Lowell, MA, General Obligation, 8.3%, 2/15/05,
Prerefunded 2/15/01** . . . . . . . . . 1,635,000 AAA 1,966,136
Massachusetts Educational Loan Authority, Issue E,
Series A, 6.7%, 1/1/02 (c) . . . . . . . 470,000 AAA 511,130
Massachusetts General Obligation:
Series A, 5.25%, 2/1/01 (c) . . . . . . . 3,000,000 AAA 3,096,870
Series A, 5.2%, 6/1/04 . . . . . . . . . 1,000,000 AA 1,025,700
Series C, 7.5%, 12/1/07, Prerefunded 12/1/00** . 750,000 AAA 867,600
Series C, 7%, 12/1/10, Prerefunded 12/1/00** . 275,000 AAA 307,502
Massachusetts Health & Educational Facilities
Authority:
Berkshire Health System, Series D, 5.3%,
10/1/03 (c) . . . . . . . . . . . . 1,350,000 AAA 1,397,560
Central Massachusetts Medical Center, Series B,
6%, 7/1/02 (c) . . . . . . . . . . . 500,000 AAA 536,795
Daughters of Charity, Series D, 4.9%, 7/1/00 . 850,000 AA 853,459
Daughters of Charity, Carney Hospital, 7.5%,
7/1/05, Prerefunded 7/1/00** . . . . . . 1,000,000 AAA 1,146,650
Medical Academic and Scientific, Series A:
5.9%, 1/1/00 . . . . . . . . . . . 500,000 A 513,860
6%, 1/1/01 . . . . . . . . . . . . 1,000,000 A 1,033,010
6.1%, 1/1/02 . . . . . . . . . . . 500,000 A 518,610
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
- ---------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
St. Joseph's Hospital, Series C, 9.5%, 10/1/20,
Prerefunded 10/1/99** ........................ 3,375,000 AAA 3,904,099
Valley Regional Health System, Series C, HIBI
Insured, 5.3%, 7/1/00 ........................ 1,500,000 AAA 1,546,725
Wheaton College, Series B, 7.2%, 7/1/09,
Prerefunded 7/1/99** ......................... 590,000 AAA 658,800
Massachusetts Housing Finance Agency Multi-Family
Housing Project, 1988 Series A, 8.7%, 4/1/14,
Prerefunded 4/1/98** ......................... 1,495,000 AAA 1,690,411
Massachusetts Housing Finance Agency Revenue,
Housing Project:
Series A, 5.2%, 10/1/00 ...................... 575,000 A 589,139
Series B, 4.05%, 12/1/95 (c) ................. 1,000,000 AAA 999,090
Massachusetts Industrial Finance Agency:
Cape Cod Health Systems, Series 1990, 8.5%,
11/15/20, Prerefunded 11/15/00** ............. 2,150,000 AAA 2,578,431
Leominister Hospital, Series 1989A, 8.625%,
8/1/09, Prerefunded 8/1/99** ................. 2,000,000 AAA 2,325,900
Milton Academy, Revenue Refunding, Series A,
7.25%, 9/1/19, Prerefunded 9/1/99** (c) ...... 700,000 AAA 785,687
Resource Recovery, North Andover Solid Waste,
Series A:
6.15%, 7/1/02 .............................. 750,000 BBB 768,428
6.3%, 7/1/05 ............................... 2,750,000 BBB 2,856,563
Massachusetts Municipal Wholesale Electric
Company, Power Supply System Revenue:
Series A, 5%, 7/1/05 (c) ..................... 5,000,000 AAA 5,014,850
Series B, 6.3%, 7/1/00 ....................... 345,000 A 368,460
Series B, 6.375%, 7/1/01 ..................... 1,000,000 A 1,079,310
Massachusetts Water Resource Authority, Series A,
6.75%, 7/15/12, Prerefunded 7/15/02** .......... 1,000,000 AAA 1,140,620
Nantucket, MA, General Obligation, 6.25%, 12/1/02. 250,000 A 273,105
Southeastern Massachusetts University Building,
Series A, 5.5%, 5/1/04 (c) ..................... 1,010,000 AAA 1,060,308
PUERTO RICO Puerto Rico Public Building Authority, 6.75%,
7/1/04 (c) ..................................... 2,250,000 AAA 2,588,895
-----------
TOTAL INTERMEDIATE-TERM MUNICIPAL INVESTMENTS
(Cost $42,859,447) ............................. 44,003,703
-----------
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $52,690,064) (a) ......................... 53,838,453
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) The cost for federal income tax purposes was $52,701,671. At October 31, 1995, net unrealized
appreciation for all securities was $1,136,782. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax cost of $1,137,503 and aggregate
gross unrealized depreciation for all investment securities in which there was an excess of tax cost over
market value of $721.
(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 are either Standard & Poor's Ratings Group, Moody's
Investors Service, Inc. or Fitch Investors Service, Inc.
(c) Bond is insured by one of these companies: AMBAC or MBIA.
* Floating rate and monthly, weekly, or daily demand notes are securities whose yields vary with a
designated market index or market rate, such as the coupon-equivalent of the Treasury bill rate. Variable
rate demand notes are securities whose yields are periodically reset at levels that are generally
comparable to tax-exempt commercial paper. These securities are payable on demand within seven
calendar days and normally incorporate an irrevocable letter of credit or line of credit from a major bank.
These notes are carried, for purposes of calculating average weighted maturity, at the longer of the period
remaining until the next rate change or to the extent of the demand period.
** 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 issue and to retire the bonds in full
at the earliest refunding date.
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------------
<CAPTION>
OCTOBER 31, 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $52,690,064)
(Note A) ....................................... $ 53,838,453
Cash ................................................... 60,452
Receivables:
Investments sold ............................... 905,800
Interest ....................................... 829,622
Fund shares sold ............................... 23,636
Due from Adviser (Note C) ...................... 39,388
Deferred organization expenses (Note A) ................ 18,516
Total assets ................................... 55,715,867
------------
LIABILITIES
Payables:
Dividends ..................................... $ 66,822
Fund shares redeemed .......................... 29,124
Accrued management fee (Note C) ............... 25,208
Other accrued expenses (Note C) ............... 101,550
----------
Total liabilities ............................. 222,704
------------
Net assets, at market value ........................... $ 55,493,163
============
NET ASSETS
Net assets consist of:
Unrealized appreciation on investments ........ $ 1,148,389
Accumulated net realized loss ................. (36,881)
Shares of beneficial interest ................. 46,152
Additional paid-in capital .................... 54,335,503
------------
Net assets, at market value ........................... $ 55,493,163
============
NET ASSET VALUE, offering and redemption price per
share ($55,493,163 -:- 4,615,167 outstanding
shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) ........ $12.02
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . $ 2,387,385
Expenses:
Management fee (Note C) . . . . . . . . . . . $ 25,208
Custodian and accounting fees (Note C) . . . . . . 40,461
Services to shareholders (Note C) . . . . . . . 26,579
Trustees' fees (Note C) . . . . . . . . . . . 12,831
Auditing . . . . . . . . . . . . . . . . 20,896
Reports to shareholders . . . . . . . . . . . 11,588
State registration . . . . . . . . . . . . 7,753
Federal registration . . . . . . . . . . . . 4,171
Amortization of organization expense (Note A) . . . 5,364
Other . . . . . . . . . . . . . . . . . 5,416
----------
Total expenses before reimbursement from Adviser . . 160,267
Reimbursement of expenses from Adviser (Note C) . . . (39,388)
----------
Expenses, net . . . . . . . . . . . . . . 120,879
-----------
Net investment income . . . . . . . . . . . 2,266,506
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENT TRANSACTIONS
Net realized gain from investments . . . . . . . 52,320
Net unrealized appreciation on investments during
the period . . . . . . . . . . . . 1,598,035
-----------
Net gain on investments . . . . . . . . . . . 1,650,355
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . $ 3,916,861
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------------------
FOR THE PERIOD
FEBRUARY 15, 1994
YEAR ENDED (COMMENCEMENT
OCTOBER 31, OF OPERATIONS) TO
INCREASE (DECREASE) IN NET ASSETS 1995 OCTOBER 31, 1994
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income . . . . . . . . $ 2,266,506 $ 709,232
Net realized gain (loss) on investments . . 52,320 (89,201)
Net unrealized appreciation (depreciation)
on investments during the period . . . 1,598,035 (449,646)
---------- -----------
Net increase in net assets resulting
from operations . . . . . . . . . 3,916,861 170,385
---------- -----------
Distributions to shareholders from net
investment income ($.54 and $.36
per share, respectively) . . . . . . (2,266,506) (709,232)
---------- -----------
Fund share transactions:
Proceeds from shares sold . . . . . . . 51,219,003 45,335,631
Net asset value of shares issued to
shareholders in reinvestment of
distributions . . . . . . . . . . 1,558,937 540,042
Cost of shares redeemed . . . . . . . (34,483,113) (9,790,045)
----------- -----------
Net increase in net assets from Fund share
transactions . . . . . . . . . . 18,294,827 36,085,628
----------- -----------
INCREASE IN NET ASSETS . . . . . . . . 19,945,182 35,546,781
Net assets at beginning of period . . . . 35,547,981 1,200
----------- -----------
NET ASSETS AT END OF PERIOD . . . . . . $55,493,163 $35,547,981
=========== ===========
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . 3,052,899 100
----------- -----------
Shares sold . . . . . . . . . . . . 4,365,476 3,839,448
Shares issued to shareholders in
reinvestment of distributions . . . . 131,715 45,947
Shares redeemed . . . . . . . . . . (2,934,923) (832,596)
----------- -----------
Net increase in Fund shares . . . . . . 1,562,268 3,052,799
----------- -----------
Shares outstanding at end of period . . . . 4,615,167 3,052,899
=========== ===========
</TABLE>
The accompany notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE INFORMATION
DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
FOR THE PERIOD
FEBRUARY 15, 1994
YEAR ENDED (COMMENCEMENT
OCTOBER 31, OF OPERATIONS) TO
1995 OCTOBER 31, 1994
----------- -------------------
<S> <C> <C>
Net asset value, beginning of period ........................... $11.64 $12.00
------ ------
Income from investment operations:
Net investment income (a) ................................... .54 .36
------ ------
Net realized and unrealized gain (loss) on
investment transactions ................................... .38 (.36)
------ ------
Total from investment operations ............................ .92 .00
------ ------
Less distributions from net investment income ............... (.54) (.36)
------ ------
Net asset value, end of period ................................. $12.02 $11.64
====== ======
TOTAL RETURN (%) (b) ........................................... 8.08 0.00**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ......................... 55 36
Ratio of operating expenses, net to average
daily net assets (%) (a)...................................... .24 --
Ratio of net investment income to average daily net assets (%).. 4.56 4.45*
Portfolio turnover rate (%) .................................... 27.4 26.3*
(a) Reflects a per share amount of expenses, exclusive of
management fees, reimbursed by the Adviser of .......... $ .01 $ .04
Reflects a per share amount of management fee and other
fees not imposed by the Adviser of ..................... $ .07 $ .07
Operating expense ratio including expenses reimbursed,
management fee and other expenses not imposed (%) ...... .92 1.44*
(b) Total returns are higher due to maintenance of the Fund's expenses.
<FN>
* Annualized
* * Not annualized
</FN>
</TABLE>
15
<PAGE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
Scudder Massachusetts Limited Term Tax Free Fund (the "Fund") is a
non-diversified series of Scudder State Tax Free Trust, a Massachusetts
business trust (the "Trust"), which 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 policies described below are
followed consistently by the Fund in the preparation of its financial
statements in conformity with generally accepted accounting principles.
SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the officers of the
Fund, which quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Short-term investments having a 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
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 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 October 31, 1995, the Fund had a net tax basis capital loss carryforward
of approximately $26,000, which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until October
31, 2002, whichever occurs first.
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
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 (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 specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
ORGANIZATION COST. Costs incurred by the Fund in connection with its
organization and initial registration of shares have been deferred and are
being amortized on a straight-line basis over a five-year period.
OTHER. Investment 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 call
or maturity.
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
For the year ended October 31, 1995, purchases and sales of investments
(excluding short-term) aggregated $33,928,600 and $9,975,136, respectively.
C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a fee
equal to an annual rate of 0.60% of the Fund's average daily net assets,
computed and accrued daily and payable monthly. As manager of the assets of the
Fund, 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 Agreement also
17
<PAGE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
- --------------------------------------------------------------------------------
provides that if the Fund's expenses, exclusive of taxes, interest, and
extraordinary expenses, exceed specified limits, such excess, up to the amount
of the management fee, will be paid by the Adviser. For the period November 1,
1994 to February 28, 1995 the Adviser agreed not to impose all of its
management fee and to maintain the annualized expenses of the Fund at not more
than 0.00% of average daily net assets. For the period March 1, 1995 to July
31, 1995 the Adviser agreed to maintain the annualized expenses at 0.25% of
average daily net assets. Effective August 1, 1995, the Adviser agreed to
maintain the annualized expenses at 0.50% of average daily net assets until
February 29, 1996. For the year ended October 31, 1995, the Adviser did not
impose a portion of its fee amounting to $272,502 and the fee imposed
aggregated $25,208. Further, due to the limitation of such Agreement, the
Adviser's reimbursement payable for the year ended October 31, 1995 amounted to
$39,388.
Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
For the year ended October 31, 1995, SSC did not impose a portion of its fee
amounting to $10,314 and the fee imposed aggregated $23,065.
Scudder Fund Accounting Corporation ("SFAC"), a wholly-owned 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 October 31, 1995, SFAC did not impose a portion of its fee amounting
to $12,000 and the fee imposed aggregated $24,000.
The Trust pays each Trustee not affiliated with the Adviser $12,000 annually,
divided equally among the series of the Trust, plus specified amounts for
attended board and committee meetings. For the year ended October 31, 1995,
Trustees' fees aggregated $12,831.
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF SCUDDER STATE TAX FREE TRUST AND TO THE SHAREHOLDERS OF
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
Massachusetts Limited Term Tax Free Fund, including the investment portfolio,
as of October 31, 1995, and the related statement of operations for the year
then ended, the statements of changes in net assets, and the financial
highlights for the year then ended and for the period February 15, 1994
(commencement of operations) to October 31, 1994. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of October 31, 1995, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Scudder Massachusetts Limited Term Tax Free Fund as of October 31, 1995, the
results of its operations for the year then ended, the changes in its net
assets and the financial highlights for the year then ended and for the period
February 15, 1994 (commencement of operations) to October 31, 1994 in
conformity with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 4, 1995
19
<PAGE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
TAX INFORMATION
- --------------------------------------------------------------------------------
Of the dividends paid by the Scudder Massachusetts Limited Term Tax Free Fund
from net investment income for the taxable year ended October 31, 1995, 100%
constituted exempt interest dividends for regular federal income tax and
Massachusetts state income tax purposes.
Please consult a tax adviser if you have any questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Investor
Relations Representative at 1-800-225-5163.
20
<PAGE>
David S. Lee*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director
Peter B. Freeman
Trustee; Corporate Director and Trustee
Dudley H. Ladd*
Trustee
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
Juris Padegs*
Trustee
Daniel Pierce*
Trustee
Jean C. Tempel
Trustee; General Partner, TL Ventures
Donald C. Carleton*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
21
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Scudder Family of Funds
-----------------------------------------------------------------------------------------------------------------
<S> <C>
Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder GNMA Fund
Tax Free Money Market+ Scudder Income Fund
Scudder Tax Free Money Fund Scudder International Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Global Income Fund
Tax Free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Small Company Fund
Scudder Massachusetts Tax Free Fund* Scudder Gold Fund
Scudder Medium Term Tax Free Fund Scudder Greater Europe Growth Fund
Scudder New York Tax Free Fund* Scudder International Fund
Scudder Ohio Tax Free Fund* Scudder Latin America Fund
Scudder Pennsylvania Tax Free Fund* Scudder Pacific Opportunities Fund
Growth and Income Scudder Quality Growth Fund
Scudder Balanced Fund Scudder Small Company Value Fund
Scudder Growth and Income Fund Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
-----------------------------------------------------------------------------------------------------------------
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-End Funds#
-----------------------------------------------------------------------------------------------------------------
The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
-----------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc. Scudder Treasurers Trust(TM)++
Scudder 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. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *Not available in all states. +++A no-load
variable annuity contract provided by Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc. are traded
on various stock exchanges. ++For information on Scudder Treasurers Trust,(TM) an institutional cash management
service that utilizes certain portfolios of Scudder Fund, Inc. ($100,000 minimum), call 1-800-541-7703.
</TABLE>
22
<PAGE>
HOW TO CONTACT SCUDDER
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Account Service and Information
-------------------------------------------------------------------------------------------------------------
<S> <C>
For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163
For personalized information about your Scudder accounts;
exchanges and redemptions; or information on any Scudder fund
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
-------------------------------------------------------------------------------------------------------------
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR RELATIONS
1-800-225-2470
For establishing 401(k) and 403(b) plans
SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105
Please address all correspondence to
-------------------------------------------------------------------------------------------------------------
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
-------------------------------------------------------------------------------------------------------------
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can
be found in the following cities:
Boca Raton New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
-------------------------------------------------------------------------------------------------------------
For information on Scudder For information on Scudder
Treasurers Trust,(TM) an institutional Institutional Funds,* funds
cash management service for designed to meet the broad
corporations, non-profit investment management and
organizations and trusts that uses service needs of banks and
certain portfolios of Scudder Fund, other institutions, call
Inc.* ($100,000 minimum), call 1-800-854-8525.
1-800-541-7703.
-------------------------------------------------------------------------------------------------------------
Scudder Investor Relations and Scudder Funds Centers are services provided through Scudder Investor
Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a prospectus with more complete
information, including management fees and expenses. Please read it carefully before you invest or send
money.
</TABLE>
23
<PAGE>
Celebrating Over 75 Years of Serving Investors
- --------------------------------------------------------------------------------
Establish ed in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment counsel
firm in the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long- term investment management have helped shape
the investment industry. In 1928, we introduced the nation's first no-load
mutual fund. Today we offer 37 pure no load(TM) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
