This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder
Massachusetts
Limited Term
Tax Free Fund
Semiannual Report
April 30, 1996
- - 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
10 Investment Portfolio
13 Financial Statements
16 Financial Highlights
17 Notes to Financial Statements
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 3.91% on April 30, 1996, equivalent to
a 7.36% taxable yield for shareholders subject to the 46.85% combined
federal and state income tax rate.
BAR CHART TITLE
30-Day Yields as of April 30, 1996
CHART DATA:
Scudder Massachusetts IBC/Donoghue's
Limited Term Taxable Equivalent Taxable Money Fund
Tax Free Fund Yield Average
------------- ----- -------
3.91% 7.36% 4.75%
- - The Fund returned 1.45% for the six-month period ended April 30, 1996. By
comparison, the 35 short/intermediate state municipal debt funds tracked by
Lipper Analytical Services returned 1.02% on average. The Fund also outpaced
the Lipper average of similar funds over one- and two-year periods ended
April 30.
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
For bonds, investment results over the past six months have been mixed.
During the latter part of 1995, municipal bonds were attractively valued versus
U.S. Treasuries, which helped renew investor interest and resulted in their
outperformance. This year, indicators have raised concerns that the economy may
be stronger than originally believed, which has unsettled investors. Still,
evidence in some sectors of slower economic growth and the absence of mounting
inflationary pressures suggests that the economic expansion could wind down in
1996. While the timing and extent of any slowdown is difficult to predict,
history shows that slow growth has been beneficial to bonds. Until economic
trends become more clear, however, the Fund's challenge is to provide as much
price stability as possible should the market weaken further, while continuing
to supply competitive levels of tax-free income.
In closing, we would like to take this opportunity to announce that a
new member joined the Scudder Family of Funds as of May 8--Scudder Emerging
Markets Growth Fund. The new Fund focuses on the stock markets of developing
nations around the globe. For more information about Scudder products and
services, please see page 22. For questions about Scudder Massachusetts Limited
Term Tax Free Fund, please call a Scudder Investor Relations representative at
1-800-225-2470.
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 April 30, 1996
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
4/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,560 5.60% 5.60%
Life of
Fund* $10,964 9.64% 4.26%
LB MUNICIPAL BOND INDEX (3 YEAR)
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
4/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,626 6.26% 6.26%
Life of
Fund* $11,051 10.51% 4.72%
*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
1/96 $11,096
4/96 $10,997
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
1/96 $11,062
4/96 $11,051
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 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 APRIL 30
1994* 1995 1996
--------------------------
NET ASSET VALUE.............. $11.76 $11.81 $11.94
INCOME DIVIDENDS............. $ .10 $ .53 $ .52
FUND TOTAL RETURN (%)........ -1.18 5.07 5.60
INDEX TOTAL RETURN (%)....... -.62 4.64 6.26
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 April 30, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Hospital/Health 28%
General Obligation 25%
Electric Utility Revenue 10% Scudder Massachusetts Limited
Higher Education 9% Term Tax Free Fund is broadly
State Agency/Lease 8% diversified, and holds a large
Pollution Control/ percentage of pre-refunded bonds
Industrial Development 5% which offer the highest quality
Resource Recovery 4% available in the municipal
Water/Sewer Revenue 4% marketplace.
Housing Finance Authority 4%
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 79%
AA 8% The Fund's overall credit quality
A 7% remains high, with 94% or its
BBB 6% portfolio rated A 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 19% We continued to emphasize both
1 - 5 years 43% ends of the fund's limited
5 - 10 years 38% maturity range -- shorter
---- maturities for safety and the
100% longest maturities for higher
==== yields and capital appreciation
potential.
Weighted average effective maturity: 5 years
- -----------------------------------------------------------------------
For more complete details about the Fund's Investment Portfolio,
see page 10.
5
<PAGE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Amid a U.S. economy that seems to keep "chugging along," and ongoing
uncertainty over the near-term direction of interest rates, Scudder
Massachusetts Limited Term Tax Free Fund continued to provide investors with
lower share-price volatility than would be available from a longer-maturity
tax-exempt fund, as well as an attractive double-tax-free yield.
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
3.91% as of April 30, 1996, was equivalent to a 7.36% yield on a taxable bond,
higher than current yields provided by comparable taxable investments. The
Fund's tax-equivalent yield compares favorably with the 5.21% average yield of
two-year Massachusetts bank certificates of deposit as of April 30, 1996. Of
course, unlike fixed-rate CDs, which are FDIC-insured up to certain limits, the
Fund's yield and share price fluctuate. Also, principal investments in the Fund
are not insured.
As the graph below shows, over the past 12 months, the Fund's
tax-equivalent yield has been consistently higher than the yields of the average
two-year CD tracked nationally.
LINE CHART TITLE:
Scudder Massachusetts Limited Term Tax Free Fund's
Tax-Equivalent Yield* vs. National Two-Year CD Rates
CHART PERIOD: May 1995-April 1996
CHART DATA:
Scudder Massachusetts
National Average of Limited Term Tax-
Two-Year CD Yields Equivalent Yield
------------------ ----------------
5.62% 8.58%
6/30/95 5.23% 8.05%
5.02% 8.05%
5.10% 7.81%
9/30/95 5.08% 7.66%
5.06% 7.85%
5.01% 7.75%
12/30/95 4.82% 7.60%
4.68% 7.22%
4.48% 7.07%
3/31/96 4.73% 7.04%
4.83% 7.36%
Source of CD data: BanxQuote.
* Tax equivalent yield is for the 46.85% maximum combined federal and state
income tax.
6
<PAGE>
For the six months ended April 30, 1996, the Fund's net asset value
declined $0.08 to $11.94 per share, and the Fund provided $0.25 per share in
income distributions, contributing to a total return of 1.45%. This return
compares favorably with the average return of the 35 similar state municipal
bond funds tracked by Lipper Analytical Services, Inc. As shown in the chart
below, the Fund's total return also surpassed its respective Lipper average for
one- and two-year periods:
Strong Relative Performance
Returns for periods ended April 30, 1996
Fund's Lipper
Average Average Number of
Annual Annual Funds
Period Return Return Rank Tracked
------ ------ ------ ---- -------
Six months 1.45% 1.02% 2 35
1 year 5.60 5.03 6 34
2 years 5.33 4.81 3 19
Past performance does not guarantee future results.
Major Market Influences
From October through December 1995 bonds rallied as the Republican
majority in Congress staged a series of partial government shutdowns in their
efforts to achieve a balanced budget agreement on their terms. Many bond market
participants viewed these events as indications that significant U.S. budget
deficit reduction would now be possible. In the first four months of 1996,
however, bonds were once again set back as Congressional balanced budget efforts
failed and the Japanese and U.S. economies showed some signs of heating up.
The municipal market, which typically follows the Treasury market but
at a more moderate pace, was temporarily affected by ongoing Congressional
discussions of "flat tax" legislation in 1995. For some investors, the flat tax
cloud overhanging the market did not completely lift until the Presidential
primaries were underway in early 1996, when additional scrutiny from the press
and public deflated the proposal.
7
<PAGE>
Municipal bonds generally underperformed Treasuries duing 1995 as
Treasury yields declined dramatically. During the first four months of 1996, the
more richly priced taxable bonds, including Treasuries, gave up more ground than
municipals as the market reacted to stronger-than-expected economic indicators.
A Consistent Strategy
Over the past six-month period we emphasized 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 continue to pursue this strategy because we believe bonds with
five- to 10-year maturities currently offer the most attractive after-tax yields
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 (30% as
of April 30) of pre-refunded 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 are typically priced lower than similar bonds of
slightly lower quality. The Fund's overall credit quality remains high, with 79%
of the bonds in its portfolio rated AAA.
A Diverse State Economy Fuels Growth
The Massachusetts economy continues to grow for a fourth year,
following the 1990-1992 recession. Governor Weld has proposed a conservative
fiscal-year 1997 budget, with a projected revenue increase of 4.4% over 1996
levels and only a 2.8% rise in expenditures. The state continues to benefit from
diversification among its traditional manufacturing, high technology, and
service industries. Unemployment was a moderate 5.2% as of January 1996, below
the national average of 5.8%. And overall, Massachusetts' economic climate is
still generally favorable for bond issuers and investors. The major uncertainty
facing the state's economy is a political one: Who becomes the new governor and
sets the fiscal tone for the state if Governor Weld is elected to the U.S.
Senate in November?
8
<PAGE>
Our Near-Term Outlook
As stated in David Lee's letter preceding this discussion, the
direction of the U.S. economy and interest rates is currently unclear, although
many market participants are preparing themselves for the possibility of some
economic acceleration and increases in rates. We will consider lowering the
average effective maturity of the Fund (five years as of April 30) somewhat if
we think further caution is warranted. However, because U.S. inflation remains
muted, we believe any increase in interest rates will be short-lived. Scudder
Massachusetts Limited Term Tax Free Fund can be a suitable investment for those
who want to earn double-tax-free yields but are seeking a higher degree of share
price stability in light of the uncertain economic environment.
We will continue to maintain a conservative investment strategy,
including holding premium bonds, diversifying broadly, and maintaining the
Fund's high credit quality. With the help of our team of investment analysts, we
will search for attractive value by weighing the maturity characteristics,
credit quality, and income potential of each bond we consider for purchase.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Kathleen A. Meany
Philip G. Condon Kathleen A. Meany
9
<PAGE>
<TABLE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
INVESTMENT PORTFOLIO as of April 30, 1996 (Unaudited)
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- --------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
18.9% SHORT-TERM MUNICIPAL INVESTMENTS
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MASSACHUSETTS Massachusetts Bay Transportation Authority,
Series B, 4.75%, 9/6/96 .......................... 5,000,000 SP1 5,017,200
Massachusetts Education Loan Authority Revenue,
Issue E, Series 1996A, Weekly Demand Note,
3.8%, 7/1/14* .................................... 1,200,000 A1+ 1,200,000
Massachusetts General Obligation, Dedicated
Income Tax:
Series B, Daily Demand Note, 3.9%, 12/1/97* .... 200,000 MIG1 200,000
Series E, Daily Demand Note, 3.9%, 12/1/97* .... 1,900,000 MIG1 1,900,000
Massachusetts Health and Educational Facilities
Authority:
Brigham and Women's Hospital, Series A,
Weekly Demand Note, 4%, 7/1/17* ........... 900,000 AA 900,000
Harvard University, Series I, Weekly Demand Note,
3.9%, 2/1/16* ............................. 900,000 A1+ 900,000
Massachusetts Industrial Finance Agency, Resource
Recovery, Ogden Haverhill Project, Weekly
Demand Note, 3.75%, 12/1/06* ..................... 1,600,000 MIG1 1,600,000
----------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $11,710,851) ............................... 11,717,200
----------
----------------------------------------------------------------------------------------
81.1% INTERMEDIATE-TERM MUNICIPAL INVESTMENTS
----------------------------------------------------------------------------------------
MASSACHUSETTS Lowell, MA, General Obligation, 8.3%, 2/15/05,
prerefunded 2/15/01** ............................ 1,635,000 AAA 1,927,108
Massachusetts Educational Loan Authority, Issue E,
Series A, 6.7%, 1/1/02 (c) ....................... 460,000 AAA 493,930
Massachusetts General Obligation:
Series A, 5.25%, 2/1/01 (c) ...................... 3,000,000 AAA 3,078,330
Series A, 5.2%, 6/1/04 ........................... 1,000,000 AA 1,013,790
Series C, 7.5%, 12/1/07, prerefunded 12/1/00** ... 750,000 AAA 851,813
Series C, 7% 12/1/10, prerefunded 12/1/00** ...... 775,000 AAA 852,082
Massachusetts Health & Educational Facilities
Authority:
Berkshire Health System, Series D,
5.3%, 10/1/03 (c) .............................. 1,350,000 AAA 1,380,672
Central Massachusetts Medical Center, Series B,
6%, 7/1/02 (c) ................................. 500,000 AAA 530,580
Daughters of Charity, Carney Hospital, 7.5%,
7/1/05, prerefunded 7/1/00** ................... 1,000,000 AAA 1,126,160
Daughters of Charity, Series D, 4.9%, 7/1/00 .... 850,000 AA 852,168
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Medical Academic and Scientific, Series A:
5.9%, 1/1/00 ................................... 500,000 A 511,345
6%, 1/1/01 ..................................... 1,000,000 A 1,026,870
6.1%, 1/1/02 ................................... 500,000 A 515,870
St. Joseph's Hospital, Series C, 9.5%, 10/1/20,
prerefunded 10/1/99** .......................... 3,375,000 AAA 3,826,170
Valley Regional Health System, Series C,
5.3%, 7/1/00 (c) ............................... 1,500,000 AAA 1,523,970
Wheaton College, Series B, 7.2%, 7/1/09,
prerefunded 7/1/99** ........................... 590,000 AAA 647,572
Massachusetts Housing Finance Agency Multi-Family
Housing Project, 1988 Series A, Subject to AMT,
8.7%, 4/1/14, prerefunded 4/1/98** ............... 1,465,000 AAA 1,621,579
Massachusetts Housing Finance Agency Revenue,
Housing Project, Series A, 5.2%, 10/1/00 ......... 575,000 A 583,533
Massachusetts Industrial Finance Agency:
Boston Museum of Fine Arts, Series 1996,
5.125%, 1/1/04 (c) .............................. 1,000,000 AAA 1,015,450
Cape Cod Health Systems, Series 1990, 8.5%,
11/15/20, prerefunded 11/15/00** ................ 2,150,000 AAA 2,527,970
College of the Holy Cross, Series 1996,
5.5%, 3/1/06 (c) ................................ 1,000,000 AAA 1,027,450
Leominister Hospital, Series 1989A, 8.625%,
8/1/09, prerefunded 8/1/99** .................... 2,000,000 AAA 2,281,440
Milton Academy, Revenue Refunding, Series A,
7.25%, 9/1/19, prerefunded 9/1/99 (c)** ......... 700,000 AAA 771,946
Resource Recovery, North Andover Solid Waste,
Series A:
6.15%, 7/1/02 .................................. 750,000 BBB 761,168
6.3%, 7/1/05 ................................... 2,750,000 BBB 2,819,520
Massachusetts Municipal Wholesale Electric
Company, Power Supply System Revenue:
Series A, 5%, 7/1/05 (c) ........................ 5,000,000 AAA 4,952,550
Series B, 6.3%, 7/1/00 .......................... 345,000 A 363,916
Series B, 6.375%, 7/1/01 ........................ 1,000,000 A 1,062,810
Massachusetts Turnpike Authority, Bond Anticipation
Notes, Series 1996A, 5%, 6/1/99 .................. 2,000,000 AA 2,033,620
Massachusetts Water Resource Authority, Series A,
6.75%, 7/15/12, prerefunded 7/15/02** ............ 1,000,000 AAA 1,120,720
Nantucket, MA, General Obligation, 6.25%,
12/1/02 .......................................... 250,000 A 269,665
South Essex, MA, Sewer District, Series B, 6.75%,
6/1/13, prerefunded 6/1/04 (c)** ................. 1,000,000 AAA 1,131,450
Southeastern Massachusetts University Building,
Series A, 5.5%, 5/1/04 (c) ....................... 1,010,000 AAA 1,044,986
Worcester, MA, General Obligation, Revenue
Refunding, Series G, 6%, 7/1/01 (c) .............. 2,000,000 AAA 2,118,880
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PUERTO RICO Puerto Rico Public Building Authority,
6.75%, 7/1/04 (c) ............................... 2,250,000 AAA 2,536,965
----------
TOTAL INTERMEDIATE-TERM MUNICIPAL INVESTMENTS
(Cost $49,578,741) ............................... 50,204,048
----------
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $61,289,592) (a) ........................... 61,921,248
==========
<FN>
- ----------
(a) The cost for federal income tax purposes was $61,301,199. At April 30,
1996, net unrealized appreciation for all securities was $620,049.
This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost
of $730,399 and aggregate gross unrealized depreciation for all
investment securities in which there was an excess of tax cost over
market value of $110,350.
(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, Connie Lee, 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.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------------
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $61,289,592)
(Note A) ........................................... $61,921,248
Receivables:
Interest ........................................... 1,049,866
Fund shares sold ................................... 229,572
Deferred organization expenses (Note A) .............. 15,711
-----------
Total assets ....................................... 63,216,397
LIABILITIES
Payables:
Due to custodian bank .............................. $ 31,752
Dividends .......................................... 68,236
Fund shares redeemed ............................... 1,626,338
Accrued management fee (Note C) .................... 35,545
Other accrued expenses (Note C) .................... 30,952
----------
Total liabilities ................................ 1,792,823
-----------
Net assets, at market value .......................... $61,423,574
===========
NET ASSETS
Net assets consist of:
Unrealized appreciation on investments ............. $ 631,656
Accumulated net realized loss ...................... (39,523)
Shares of beneficial interest ...................... 51,462
Additional paid-in capital ......................... 60,779,979
-----------
Net assets, at market value .......................... $61,423,574
===========
NET ASSET VALUE, offering and redemption price per
share ($61,423,574 / 5,146,237 outstanding
shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) ............. $11.94
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
- --------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------------
SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest ............................................. $1,411,900
Expenses:
Management fee (Note C) ............................... $176,526
Custodian and accounting fees (Note C) ................ 25,074
Services to shareholders (Note C) ..................... 24,824
Trustees' fees and expenses (Note C) .................. 6,400
Auditing .............................................. 11,522
Reports to shareholders ............................... 5,391
State registration .................................... 4,023
Federal registration .................................. 3,620
Amortization of organization expense (Note A) ......... 2,805
Other ................................................. 6,392
--------
Total expenses before reductions ...................... 266,577
Expense reductions (Note C) ........................... (94,332)
--------
Expenses, net ......................................... 172,245
----------
Net investment income ................................. 1,239,655
----------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENT TRANSACTIONS
Net realized loss from investments .................... (2,642)
Net unrealized depreciation on investments during
the period .......................................... (516,733)
----------
Net loss on investments ............................... (519,375)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .. $ 720,280
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED
1996 OCTOBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ......................... $ 1,239,655 $ 2,266,506
Net realized gain (loss) on investments ....... (2,642) 52,320
Net unrealized appreciation (depreciation)
on investments during the period ............ (516,733) 1,598,035
------------ ------------
Net increase in net assets resulting
from operations ............................. 720,280 3,916,861
------------ ------------
Distributions to shareholders from net
investment income ($.25 and $.54
per share, respectively) .................... (1,239,655) (2,266,506)
------------ ------------
Fund share transactions:
Proceeds from shares sold ..................... 21,027,737 51,219,003
Net asset value of shares issued to
shareholders in reinvestment of
distributions ............................... 813,201 1,558,937
Cost of shares redeemed ....................... (15,391,152) (34,483,113)
------------ ------------
Net increase in net assets from Fund share
transactions ................................ 6,449,786 18,294,827
------------ ------------
INCREASE IN NET ASSETS ........................ 5,930,411 19,945,182
Net assets at beginning of period ............. 55,493,163 35,547,981
------------ ------------
NET ASSETS AT END OF PERIOD ................... $ 61,423,574 $ 55,493,163
============ ============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period ..... 4,615,167 3,052,899
------------ ------------
Shares sold ................................... 1,742,858 4,365,476
Shares issued to shareholders in
reinvestment of distributions ............... 67,395 131,715
Shares redeemed ............................... (1,279,183) (2,934,923)
------------ ------------
Net increase in Fund shares ................... 531,070 1,562,268
------------ ------------
Shares outstanding at end of period ........... 5,146,237 4,615,167
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<CAPTION>
SIX MONTHS FOR THE PERIOD
ENDED FEBRUARY 15, 1994
APRIL 30, YEAR ENDED (COMMENCEMENT
1996 OCTOBER 31 OF OPERATIONS) TO
(UNAUDITED) 1995 OCTOBER 31, 1994
----------- ---- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period ......... $12.02 $11.64 $12.00
------ ------ ------
Income from investment operations:
Net investment income (a) .................. .25 .54 .36
Net realized and unrealized gain (loss) on
investment transactions .................. (.08) .38 (.36)
------ ------ ------
Total from investment operations ........... .17 .92 .00
------ ------ ------
Less distributions from net
investment income ......................... (.25) (.54) (.36)
------ ------ ------
Net asset value, end of period ............... $11.94 $12.02 $11.64
====== ====== ======
TOTAL RETURN (%) (b) ......................... 1.45** 8.08 0.00**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ....... 61 55 36
Ratio of operating expenses, net to average
daily net assets (%) (a) ................... .59* .24 --
Ratio of net investment income to average
daily net assets (%) ..................... 4.24* 4.56 4.45*
Portfolio turnover rate (%) .................. 4.4* 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 ....................... $ .02 $ .07 $ .07
Operating expense ratio before
expense reductions (%) .................. .91* .92 1.44*
(b)Total returns are higher due to maintenance of
the Fund's expenses.
- ----------
<FN>
* Annualized
** Not annualized
</FN>
</TABLE>
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
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 Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the officers of the
Fund, which quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. All other debt securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Trustees. Short-term
investments having a maturity of sixty days or less are valued at amortized
cost.
AMORTIZATION AND ACCRETION. All premiums and original issue discounts are
amortized/accreted for both tax and financial reporting purposes.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable and tax-exempt income to its shareholders.
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
17
<PAGE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
- --------------------------------------------------------------------------------
any particular year, net realized gains from investment transactions, in excess
of available capital loss carryforwards, would be taxable to the Fund if not
distributed and, therefore, will be distributed to shareholders. An additional
distribution may be made to the extent necessary to avoid the payment of a four
percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (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 the call
or maturity date.
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
For the six months ended April 30, 1996, purchases and sales of investments
(excluding short-term) aggregated $7,969,300 and $1,040,000, 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
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
management services, the Adviser provides certain administrative services in
accordance with the Agreement. The Agreement also 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 August 1, 1995 to February 29, 1996, the
Adviser agreed to maintain the annualized expenses at 0.50% of average daily net
assets. Effective March 1, 1996, the Adviser agreed to maintain the annualized
expenses at 0.75% of average daily net assets until July 31, 1996. For the six
months ended April 30, 1996, the Adviser imposed fees amounting to $82,194 and
the portion not imposed amounted to $94,332 at April 30, 1996.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended April 30, 1996, the amount charged to the Fund by SSC
aggregated $17,365 of which $3,079 is unpaid at April 30, 1996.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended April 30, 1996, the amount charged to the Fund by SFAC aggregated $18,000,
of which $3,000 was unpaid at April 30, 1996.
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 six months ended April 30, 1996,
Trustees' fees and expenses charged to the Fund aggregated $6,400.
19
<PAGE>
(This page intentionally left blank.)
20
<PAGE>
OFFICERS AND TRUSTEES
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
Philip G. Condon*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Jeremy L. Ragus*
Vice President
Rebecca Wilson
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
21
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
<TABLE>
<CAPTION>
The Scudder Family of Funds
-----------------------------------------------------------------------------------------------------------------
<C> <C>
Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder Global Bond Fund
Tax Free Money Market+ Scudder GNMA Fund
Scudder Tax Free Money Fund Scudder Income Fund
Scudder California Tax Free Money Fund* Scudder International Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Bond 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 Emerging Markets Growth Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Fund
Scudder Massachusetts Tax Free Fund* Scudder Global Discovery Fund
Scudder Medium Term Tax Free Fund Scudder Gold Fund
Scudder New York Tax Free Fund* Scudder Greater Europe Growth Fund
Scudder Ohio Tax Free Fund* Scudder International Fund
Scudder Pennsylvania Tax Free Fund* Scudder Latin America Fund
Growth and Income Scudder Pacific Opportunities Fund
Scudder Balanced Fund Scudder Quality Growth Fund
Scudder Growth and Income Fund Scudder Small Company Value 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.
<FN>
* 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.
</FN>
</TABLE>
23
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the investment
industry. In 1928, we introduced the nation's first no-load mutual fund. Today
we offer 38 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.
