Scudder
Massachusetts Tax Free Fund
Annual Report
March 31, 1997
Pure No-Load(TM) Funds
For investors seeking double tax-free income exempt from both Massachusetts and
regular federal income taxes.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Investment Portfolio
15 Financial Statements
18 Financial Highlights
19 Notes to Financial Statements
22 Report of Independent Accountants
23 Tax Information
24 Officers and Trustees
25 Investment Products and Services
26 Scudder Solutions
In Brief
o Scudder Massachusetts Tax Free Fund received a five-star rating from
Morningstar, reflecting the highest possible rating for risk-adjusted
performance through March 31, 1997.*
o As of March 31, 1997, Scudder Massachusetts Tax Free Fund's 30-day net
annualized SEC yield was 4.75%, equivalent to an 8.94% taxable yield for
Massachusetts investors subject to the 46.85% combined federal and state income
tax rate.
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE.
BAR CHART TITLE: 30-Day Yield on March 31, 1997
CHART DATA:
Scudder Massachusetts Tax Free Fund 4.75%
Taxable yield needed to equal the Fund's yield 8.94%
o For the one-year period ended March 31, 1997, Scudder Massachusetts Tax Free
Fund posted a total return of 5.39%, compared with the 5.12% average return of
51 similar funds tracked by Lipper Analytical Services over the same time frame.
The Fund ranked number one among its peers for the five-year period ended March
31. See page 6 for additional information on the Fund's rankings.
* For your information, these ratings are subject to change every month and are
calculated from the Fund's five-year average annual return in excess of 90-day
Treasury bill returns with appropriate fee adjustments, and a risk factor that
reflects fund performance below T-bill returns. The Fund received five stars
for three- and five-year performance, and was rated among 1,237 and 601
municipal funds for the respective periods. Of the funds rated, 10% received
five stars, and 22.5% received four stars. Past performance is no guarantee of
future returns.
2 -- Scudder Massachusetts Tax Free Fund
<PAGE>
Letter From the Fund's President
Dear Shareholders,
We are pleased to report to you on Scudder Massachusetts Tax Free Fund's
performance over its most recent fiscal year ended March 31, 1997. In addition
to the Fund's five-star Morningstar rating (see "In Brief" on page 2), the Fund
placed in the top quartile of similar Massachusetts tax-free funds tracked by
Lipper over the past year, and was number one in total return performance over
five years. The Fund posted a 4.75% 30-day net annualized SEC yield as of March
31, which is equivalent to a taxable yield of 8.94% in the top Massachusetts tax
bracket. As outlined in the discussion that follows, throughout the fiscal year
the Fund's portfolio management team has focused on longer-intermediate-term
noncallable bonds and kept overall portfolio quality high in pursuit of high
yield and favorable returns. Please read the discussion beginning on page 6 for
more information.
As part of Scudder's ongoing efforts to meet the needs of investors, last
fall we launched an innovative new product called Scudder Pathway Series. A
"fund of funds," Pathway Series is a collection of four distinct portfolios --
Conservative, Balanced, Growth, and International -- that offers flexibility,
diversification, and simplicity. Each portfolio invests in a diverse mix of
Scudder funds, and each is geared toward people with different investment goals
and risk tolerances. Moreover, a team of Scudder's investment professionals
rebalances the mix within the portfolios as market conditions warrant.
Before closing, we'd like to take this opportunity to tell you that the
Scudder Family of Funds was recently recognized by Morningstar* for stability in
management and conformity to investment style. The mutual fund rating service
ranked Scudder fourth among 20 leading mutual fund companies for overall
management consistency. We are pleased with this superior track record and will
strive to maintain our reputation for consistency going forward. Please see
pages 25 through 27 for more information on Scudder products and services. As
always, please call a Scudder Investor Information representative at
1-800-225-2470 if you have questions about your Fund. Thank you for choosing
Scudder Massachusetts Tax Free Fund to help meet your investment needs.
Sincerely,
/s/David S. Lee
David S. Lee
President,
Scudder Massachusetts Tax Free Fund
* Morningstar Investor, February 1997
3 -- Scudder Massachusetts Tax Free Fund
<PAGE>
PERFORMANCE UPDATE as of March 31, 1997
- ----------------------------------------------------------------
Fund Index Comparisons
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
3/31/97 $10,000 Cumulative Annual
- --------------------------------------------
Scudder Massachusetts Tax Free Fund
- --------------------------------------------
1 Year $ 10,539 5.39% 5.39%
5 year $ 14,513 45.13% 7.73%
Life of Fund* $ 22,157 121.57% 8.41%
- --------------------------------------------
Lehman Brothers Municipal Bond Index
- --------------------------------------------
1 Year $ 10,545 5.45% 5.45%
5 Year $ 14,137 41.37% 7.16%
Life of Fund* $ 21,834 118.34% 8.26%
- --------------------------------------------
*The Fund commenced operations on May 28, 1987. Index
comparisons begin May 31, 1987.
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
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 TAX FREE FUND
Year Amount
- ----------------------
5/87* $10,000
88 $10,773
89 $11,796
90 $12,726
91 $13,821
92 $15,267
93 $17,496
94 $18,086
95 $19,418
96 $21,025
97 $22,157
LEHMAN BROTHERS MUNICIPAL BOND INDEX
Year Amount
- ----------------------
5/87* $10,000
88 $10,847
89 $11,627
90 $12,855
91 $14,040
92 $15,445
93 $17,380
94 $17,782
95 $19,104
96 $20,705
97 $21,834
Yearly periods ended March 31
The unmanaged Lehman Brothers Municipal Bond Index is a market-weighted
measure of municipal bonds issued across the United States. Index issues have a
credit rating of at least Baa and a maturity of at least two years. Index
returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
- -----------------------------------------------------------------
Returns and Per Share Information
- -----------------------------------------------------------------
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 March 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988* 1989 1990 1991 1992 1993 1994 1995 1996 1997
------------------------------------------------------------------------------------------------
NET ASSET VALUE... $ 12.28 $ 12.23 $ 12.25 $ 12.44 $ 12.81 $ 13.61 $ 13.16 $ 13.33 $ 13.70 $ 13.72
INCOME DIVIDENDS.. $ .62 $ .88 $ .82 $ .83 $ .81 $ .84 $ .81 $ .74 $ .72 $ .70
CAPITAL GAINS
AND OTHER
DISTRIBUTIONS..... $ - $ .20 $ .11 $ - $ .09 $ .16 $ .12 $ .01 $ - $ -
FUND TOTAL
RETURN (%)........ 7.73 9.50 7.89 8.60 10.46 14.59 3.37 7.37 8.28 5.39
INDEX TOTAL
RETURN (%)........ 8.48 7.21 10.56 9.22 10.02 12.52 2.32 7.43 8.38 5.45
</TABLE>
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 Advisor had not temporarily
capped expenses, the average annual total return for the Fund for the five year,
and life of Fund periods would have been lower.
4 -- Scudder Massachusetts Tax Free Fund
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1997
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------
General Obligation 24%
Hospital/Health 20%
Water/Sewer Revenue 12%
Electric Utility Revenue 10%
Higher Education 9%
Housing Finance Authority 5%
Public Housing Authority 5%
Pollution Control Industrial
Development 4%
Miscellaneous Municipal 11%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
We continue to invest in a broad
selection of Massachusetts
municipal bonds, including
general obligation,
hospital/healthcare, and water
and sewer revenue bonds.
- --------------------------------------------------------------------------
Quality
- --------------------------------------------------------------------------
AAA 38%
AA 1%
A 48%
BBB 10%
Not Rated 3%
- --------------------------------------
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.
The Fund's overall quality
remains high, with over 85% of
portfolio securities rated A or
better.
- --------------------------------------------------------------------------
Effective Maturity
- --------------------------------------------------------------------------
Less than 1 year 1%
1-5 years 9%
5-10 years 45%
10-15 years 33%
15 years or greater 12%
- --------------------------------------
100%
- --------------------------------------
Weighted average effective maturity: 9.9 years
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
During the period, we took
advantage of opportunities to
lock in a substantial income
stream for the Fund over time by
purchasing 10- to 15-year
noncallable bonds.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 10.
5 -- Scudder Massachusetts Tax Free Fund
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Scudder Massachusetts Tax Free Fund performed well over a fiscal year that
witnessed mixed but generally positive performance for municipal bonds, and
ended with an interest rate hike by the Federal Reserve. On March 31, 1997, the
Fund's 30-day net annualized SEC yield was 4.75%, equivalent to a taxable yield
of 8.94% for shareholders subject to the 46.85% maximum combined state and
federal income tax rate. The Fund's "tax-equivalent" yield is significantly
higher than current yields available from taxable investments of similar
maturity and credit quality. During the period ended March 31, the Fund's
shareholders received $0.70 per share of income exempt from federal and
Massachusetts state income taxes.
Despite a 12-month period that saw a modest increase in yield for the
longer-intermediate- maturity municipal bonds the Fund primarily invests in, the
Fund's share price increased $0.02 to $13.72 per share. The combination of the
slight increase in the Fund's share price and $0.70 in interest income enabled
the Fund to post a positive total return of 5.39% over the fiscal year ended
March 31, 1997. The Fund's return compares favorably with the 5.12% average
total return of similar funds tracked by Lipper Analytical Services over the
same period. The Fund not only placed in the top quartile of total return
performance over its most recent fiscal year, but also maintained its number one
total return ranking among its peers for the five-year period ended March 31,
1997.
- ---------------------------------------------------------
Scudder Massachusetts Tax Free Fund:
Solid Performance Long Term
(Average annual returns for periods ended March 31, 1997)
- ---------------------------------------------------------
Scudder
Massachusetts
Tax Free Fund Lipper Number
Period return average Rank of Funds
- ---------------------------------------------------------
1 Year 5.39% 5.12% 12 of 51
---------------------------------------------------------
3 Years 7.00 6.12 4 of 37
- ---------------------------------------------------------
5 Years 7.73 6.73 1 of 22
- ---------------------------------------------------------
Past performance does not guarantee future results.
Massachusetts Update
The Massachusetts economy is maximizing the benefits of the steady growth the
national economy is experiencing. Economic indicators are positive, revenues
continue to exceed projections, and unemployment is at its lowest level since
1989. The Commonwealth will end its 1997 fiscal year with an operating surplus
in its General Fund. Its largest sources of revenue--sales tax and personal
income tax--are achieving large annual growth rates.
At the root of the Commonwealth's strong finances is a robust job market.
Massachusetts created over 70,000 jobs in 1996, bringing its unemployment rate
for the year to 4.3% versus 5.1% in 1995. The service sector has supplied the
bulk of new jobs and now comprises 35% of Massachusetts' non-agricultural
employment base, 24% above the national average. Although the defense industry
continues to feel the pain of federal cutbacks, the high-technology
manufacturing sector has
6 -- Scudder Massachusetts Tax Free Fund
<PAGE>
stabilized its trend of losses dating back to the 1980s.
Although future issuance is expected to be heavy, the Commonwealth's debt burden
should remain manageable given its high wealth levels and scheduled debt
retirement. Future issuance is expected to cover financing for
transportation-related projects, particularly the Central Artery Depression, or
"Big Dig."
Municipals Outperform
Treasuries
Scudder Massachusetts Tax Free Fund's most recent fiscal year witnessed a
healthy U.S. economy spurred on by increased consumer spending with continued
low inflation. The economy experienced real (inflation-adjusted) Gross Domestic
Product (GDP) growth of 2.4% during 1996, and at the close of the first quarter
was on track for GDP growth of 2.5% or higher in 1997. The stock market scaled
unprecedented heights until mid-March, and the bond market struggled
unsuccessfully to keep up. In the midst of this healthy environment for
corporate profits and the stock market, bond market participants continued to
closely monitor indicators for signs of economic overheating and accelerating
inflation. Their worry was reflected in the performance of the Treasury market
over the Fund's most recent fiscal year, as yields of 10-year Treasury bonds
rose almost one half of a percentage point over the period, and prices declined
3.64%. Concern over the Federal Reserve Open Market Committee's decision to
raise the Fed Funds rate by one quarter of a percentage point on March 25 was
balanced by the feeling in some quarters that this and any further increases had
already been priced into the market.
Municipals outperformed Treasuries during the 12-month period, as yields of
10-year municipals rose only one tenth of a percentage point, and prices
declined 0.66%. Municipal bond prices were supported by shrinking overall supply
as large numbers of bonds were called away in June and July, a moderate level of
new issuance, and steady demand from both individuals and institutions such as
insurance companies.
Focus on Longer-Intermediate
Noncallable Bonds
Our portfolio strategy over the Fund's most recent fiscal year has been to take
advantage of opportunities to lock in a substantial income stream for the Fund
over time by purchasing 10- to 15-year noncallable bonds. As of March 31, 33% of
the Fund's securities had maturities in this range. We also looked for
opportunities to add high yielding BBB-rated and non-rated bonds to the
portfolio, though we were only able to find a few such bonds that met our
requirements. These bonds, while carrying some additional credit risk, generally
exhibit less interest rate sensitivity than municipal bonds rated A or above.
The Fund held 13% of bonds in these two categories as of the end of March. (For
a summary of the Fund's quality, diversification, and maturity structure, see
page 5.) Our continuing goal is to have an average effective maturity similar to
that of the Lehman Brothers Municipal Bond Index, the Fund's benchmark, but with
a superior, call-protected structure. As of
7 -- Scudder Massachusetts Tax Free Fund
<PAGE>
March 31, the Fund's average effective maturity was approximately 10 years.
The Fund's overall quality remains high, with roughly 85% of portfolio
securities rated A or better at the end of the period. We continue to invest in
a broad selection of Massachusetts municipal bonds, including general obligation
(offering the highest quality available in the Commonwealth), hospital/health,
and water/sewer revenue bonds.
In terms of specific holdings, we were pleased by the performance of two
high-yielding Life Care Center bonds in the Fund's portfolio. In July 1994 we
purchased Boston Industrial Development Authority for Springhouse bonds issued
to finance the construction of an assisted living elder care facility in Jamaica
Plain -- the facility has since been built and is operating successfully; in
November 1995, we bought Massachusetts Industrial Finance Agency bonds to fund a
similar endeavor in North Andover. Both issues have significantly outperformed
bonds of similar maturity since their initial purchase.
Three-Tiered
Long-Term Strategy
The Fund seeks to provide investors with a competitive level of federal and
state tax-exempt income with total return as an additional objective. We
continue to pursue these objectives by concentrating on three broad categories
of Massachusetts municipal bonds:
o Noncallable bonds, which an issuer cannot redeem before the maturity date.
When interest rates fall, bond issuers tend to reduce their borrowing expenses
by redeeming "callable" existing bonds and issuing new securities that pay lower
interest rates. Noncallable bonds provide a relatively stable stream of income
and solid price appreciation potential over time. During the period, we sold
bonds with weak call protection in favor of those with better call protection.
As of March 31, 45% of bonds the Fund held were noncallable.
o Steeply discounted callable bonds, which are unlikely to be subject to early
redemption at par value by their issuers.
o "Cushion" bonds. We balance the Fund's long-maturity bonds by purchasing
so-called cushion bonds -- bonds with high coupons that compensate investors for
the fact that they can be redeemed by their issuer in a relatively short time.
Our Outlook
Though it is possible that the economy's favorable momentum will carry over for
the remainder of 1997, we believe that a slight slowdown could occur later this
year. U.S. consumers, the major drivers of the country's economic growth,
continue to be overextended: Credit card defaults recently matched levels last
seen just after the 1989-90 recession. Deregulation of key industries worldwide,
the globalization of economic activity, and technological advances continue to
dampen any resurgence of inflation, and any signs that the economy is slowing
even slightly could soothe the bond market and diminish upward pressure on rates
coming from the Federal Reserve or market participants.
8 -- Scudder Massachusetts Tax Free Fund
<PAGE>
In the near term, we plan to focus on 10-12 year noncallable bonds, which
currently offer the most attractive value in the longer-intermediate sector. We
expect to maintain a neutral average maturity for the Fund and, as always, pay
close attention to credit quality as we pursue double-tax-free income and
competitive total return for Scudder Massachusetts Tax Free Fund shareholders.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Kathleen A. Meany
Philip G. Condon Kathleen A. Meany
Scudder Massachusetts
Tax Free Fund:
A Team Approach to Investing
Scudder Massachusetts Tax Free Fund is managed 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 our 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.
Lead Portfolio Manager Philip G. Condon joined Scudder in 1983 and has had
responsibility for Scudder Massachusetts Tax Free Fund's day-to-day operations
since 1989. Mr. Condon, who has 17 years of experience in municipal investing
and portfolio management, also is Lead Portfolio Manager of Scudder
Massachusetts Limited Term Tax Free Fund. Kathleen A. Meany, Portfolio Manager,
has 20 years of investment experience and has worked on the Fund since 1988. Ms.
Meany joined Scudder in 1988 and also works with Mr. Condon as a Portfolio
Manager of Scudder Massachusetts Limited Term Tax Free Fund.
Your Portfolio Management Team: Philip G. Condon, Kathleen A. Meany
9 -- Scudder Massachusetts Tax Free Fund
<PAGE>
Investment Portfolio as of March 31, 1997
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Municipal Investments 1.2%
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts
Massachusetts, General Obligation, Dedicated Income Tax:
Series B, Daily Demand Note, 3.2%, 12/1/97* ................................. 2,500,000 MIG1 2,500,000
Series E, Daily Demand Note, 3.2%, 12/1/97* ................................. 600,000 MIG1 600,000
Massachusetts Industrial Finance Agency, Merritt Care,
Daily Demand Note, 3.45%, 4/1/09* ........................................... 700,000 MIG1 700,000
- --------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Municipal Investments (Cost $3,800,000) 3,800,000
- --------------------------------------------------------------------------------------------------------------------------------
Long-Term Municipal Investments 98.8%
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts
Boston, MA, General Obligation, Series A, 6.5%, 7/1/12 (c) .................... 2,320,000 AAA 2,478,943
Boston, MA, Industrial Development Authority, Springhouse Project,
9.25%, 7/1/25 ............................................................... 1,000,000 NR 1,068,770
Chicopee, MA, Electric System Revenue, ETM, 7.125%, 1/1/17*** ................. 1,210,000 AAA 1,395,191
Haverhill, MA, Unlimited Tax, General Obligation, Series A, 7%, 6/15/12 (c) ... 600,000 AAA 657,828
Holyoke, MA, General Obligation Series 1996A, 6%, 6/15/09 (c) ................. 1,560,000 AAA 1,620,481
Mashpee, MA General Obligation:
5.125%, 2/1/11 (c) .......................................................... 1,025,000 AAA 983,426
5.35%, 2/1/12 (c) ........................................................... 1,525,000 AAA 1,494,317
Massachusetts Bay Transportation Authority,
General Transportation System:
Series 1993 A, 5.5%, 3/1/09 ................................................ 1,000,000 A 1,008,650
Series A, 5.4%, 3/1/07 ..................................................... 13,325,000 A 13,539,133
Series A, 5.5%, 3/1/12 ..................................................... 3,000,000 A 2,969,760
Series B, 6.2%, 3/1/16 ..................................................... 2,100,000 A 2,205,504
Series C, 6.1%, 3/1/13 ..................................................... 1,250,000 A 1,315,200
Certificate of Participation 7.75%, 1/15/06 ................................. 1,000,000 A 1,158,810
Massachusetts General Obligation:
Series 1992A, 6.5%, 6/1/08 .................................................. 5,170,000 A 5,603,039
C03 Series 1993B, 4.875%, 10/1/09 (c) ....................................... 5,000,000 AAA 4,711,550
Consolidated Loan, Series A, 7.5%, 6/1/04 ................................... 12,400,000 A 14,194,528
Hynes Convention Center, Zero Coupon, 9/1/04 ................................ 2,000,000 A 1,366,720
Series 96A, 6%, 11/1/10 ..................................................... 10,000,000 A 10,493,000
Series A, 6.5%, 6/1/08 ...................................................... 330,000 A 353,889
Series B, 6.5%, 8/1/08 ...................................................... 5,400,000 A 5,985,198
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 -- Scudder Massachusetts Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series C, Zero Coupon, 12/1/04 .............................................. 8,415,000 A 5,677,096
Massachusetts Health & Educational Facilities Authority:
Anna Jaques Hospital Series B, 6.875%, 10/1/12 .............................. 2,000,000 BBB 2,064,900
Berkshire Health System, Series D, 5.6%, 10/1/08 (c) ........................ 1,760,000 AAA 1,800,674
Boston College, Series 1993 K, 5.25%, 6/1/09 ................................ 2,880,000 A 2,854,253
Charlton Memorial Hospital Series B, 7.25%, 7/1/07(d) ....................... 10,000,000 A 10,848,500
Community College Program Series A, 6.5%, 10/1/09 ........................... 1,000,000 AAA 1,068,140
Cooley Dickinson Hospital Inc.:
Prerefunded 5/15/03, 7.125%, 11/15/18** .................................... 2,075,000 AAA 2,339,480
Series B, 5.25%, 11/15/10 (c) .............................................. 2,005,000 AAA 1,946,033
Deaconess Hospital Series B, 6.625%, 4/1/12 (c) ............................. 2,000,000 AAA 2,138,580
Lowell General Hospital, Series 1996B, 5.2%, 6/1/10 (c) ..................... 1,180,000 AAA 1,143,939
Massachusetts General Hospital Series F, 6.25%, 7/1/12 (c) .................. 5,000,000 AAA 5,345,800
Medical Academic & Scientific, Series B, 6.5%, 1/1/09 ....................... 5,000,000 AAA 5,223,200
Medical Center of Central Massachusetts, Series A, 7%, 7/1/12 (c) ........... 3,600,000 AAA 3,916,152
Melrose-Wakefield C06 Series 1996C, 6%, 7/1/12 .............................. 1,000,000 NR 991,030
Newton-Wellesley Hospital:
Series D, 7%, 7/1/15 (c) ................................................... 1,500,000 AAA 1,652,325
Series E, 5.9%, 7/1/11 (c) ................................................. 3,015,000 AAA 3,086,878
Series 1997G, 6%, 7/1/12 (c) ............................................... 1,000,000 AAA 1,028,760
North Adams, C06 Series 1996C, 6.625%, 7/1/18 ............................... 1,560,000 BBB 1,548,893
Northeastern University:
Series E, 6.4%, 10/1/07 (c) ................................................ 1,000,000 AAA 1,073,840
Series E, 6.5%, 10/1/12 .................................................... 450,000 AAA 481,779
St. Luke's Hospital New Bedford, Series C, Yield Curve Notes, 7.42%,
8/15/10 (c)**** .......................................................... 3,400,000 AAA 3,378,750
South Shore Hospital, 6.5%, 7/1/10 (c) ...................................... 2,500,000 AAA 2,670,100
Stonehill College Series E, 6.55%, 7/1/12 (c) ............................... 5,000,000 AAA 5,353,900
Suffolk University, Series 1996 C, 5.65%, 7/1/11 ............................ 1,045,000 AAA 1,043,683
Tufts University Series C, 7.4%, 8/1/18 ..................................... 530,000 A 559,972
Massachusetts Housing Finance Project Refunding Revenue:
East Boston Neighborhood series 1996, 7.625%, 7/1/26 ........................ 2,750,000 A 2,705,258
Residential Development Series C, 6.875%, 11/15/11 .......................... 15,250,000 AAA 16,263,668
Series A, 6.3%, 10/1/13 ..................................................... 7,000,000 A 7,176,540
Series A, 6.375%, 4/1/21 .................................................... 3,905,000 A 3,994,503
Series B, 6.05%, 12/1/09 (c) ................................................ 3,000,000 AAA 3,012,360
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 -- Scudder Massachusetts Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Single-Family Mortgage Revenue, Series 44, 5.9%, 12/1/13 .................... 3,000,000 AA 3,004,260
Massachusetts Industrial Finance Agency:
College of the Holy Cross:
C06 Series 1996, 5.5%, 3/1/16 (c) .......................................... 5,000,000 AAA 4,828,800
C06 Series 1996, 5.25%, 3/1/09 (c) ......................................... 1,190,000 AAA 1,174,399
Issue II, 6.375%, 11/1/09 .................................................. 1,000,000 AAA 1,088,040
Edgewood Retirement Community, Series A, 9%, 11/15/25 ....................... 1,650,000 NR 1,772,463
First Mortgage, Evanswood Bethzatha, Series A, 7.875%, 1/15/20 .............. 1,000,000 NR 1,028,220
Massachusetts Biomedial Research Corp., Series A, Zero Coupon:
8/1/01 ..................................................................... 3,650,000 A 2,946,828
8/1/00 ..................................................................... 2,860,000 A 2,436,177
8/1/02 (d) ................................................................. 3,650,000 A 2,790,279
Nantucket C06 AMT:
Series 1996A, 5.75%, 7/1/08 (c) ............................................ 1,400,000 AAA 1,420,720
Series 1996A, 5.75%, 7/1/09 (c) ............................................ 1,400,000 AAA 1,409,086
Series 1996A, 5.875%, 7/1/17 (c) ........................................... 2,000,000 AAA 1,975,320
Pollution Control Revenue, Boston Edison Company Series A, 5.75%, 2/1/14 .... 2,000,000 BBB 1,938,020
Pollution Control Revenue, Eastern Edison Company Project, 5.875%, 8/1/08 ... 4,750,000 BBB 4,602,275
Provider Lease Program Series 1988A-1, 8.4%, 7/15/08 ........................ 1,870,000 NR 1,911,421
Resource Recovery, North Andover Solid Waste, Series A, 6.3%, 7/1/05 ........ 6,500,000 BBB 6,766,175
Revenue:
Babson College, Series 1997A, 5.375%, 10/1/17 .............................. 1,700,000 A 1,617,924
Dexter School Project, Series 1997, 5.4%, 5/1/13 (c) ....................... 1,000,000 AAA 968,220
Worcester Polytechnical Institute, Series 1997, 5%, 9/1/10 (c) ............. 1,645,000 AAA 1,560,118
Solid Waste Disposal, Peabody Monofil Project, 9%, 9/1/05 ................... 2,905,000 NR 2,994,910
Sturdy Memorial Hospital, 7.9%, 6/1/09 ...................................... 1,820,000 BBB 1,936,371
Massachusetts Municipal Wholesale Electric Company, Power Supply
System Revenue, Series A:
6.75%, 7/1/06 .............................................................. 2,855,000 BBB 3,107,610
5.1%, 7/1/08 (c) ........................................................... 840,000 AAA 820,268
5%, 7/1/12 (c) ............................................................. 1,000,000 AAA 928,260
5%, 7/1/17 (c) ............................................................. 3,110,000 AAA 2,781,460
Series B:
6.75%, 7/1/08 .............................................................. 9,000,000 BBB 9,796,320
4.95%, 7/1/09 (c) .......................................................... 1,575,000 AAA 1,482,059
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 -- Scudder Massachusetts Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series C:
6.625%, 7/1/10 ............................................................. 1,000,000 BBB 1,048,150
6.625%, 7/1/10 (c) ......................................................... 3,500,000 AAA 3,772,965
Massachusetts Port Authority Revenue, Tax Exempt Receipts, ETM,
Zero Coupon until 7/1/03 then 13%, 7/1/13*** ................................ 1,000,000 A 923,580
Massachusetts Special Obligation, Series 1996 A, 5.5%, 6/1/11 ................. 5,000,000 A 4,960,750
Massachusetts Water Pollution Abatement Trust, Pooled Loan Program, Series 2:
5.625%, 2/1/10 .............................................................. 2,820,000 AAA 2,846,254
5.7%, 2/1/15 ................................................................ 1,150,000 AAA 1,145,308
Massachusetts Water Resource Authority,
Series A:
6.5%, 7/15/09 .............................................................. 15,000,000 A 16,523,250
6.5%, 7/15/19 .............................................................. 3,000,000 A 3,260,490
Series B, 6%, 11/1/08 ....................................................... 5,785,000 A 6,001,995
General Revenue, Series C:
5.25%, 12/1/08 ............................................................. 2,705,000 A 2,688,500
5.25%, 12/1/15 ............................................................. 4,030,000 A 3,800,854
Massachusetts, Port Authority Revenue, USAir Private Jet,
Series 1996A, 5.75%, 9/1/16 (c) ............................................. 1,000,000 AAA 973,730
Nantucket, MA, General Obligation, 6.8%, 12/1/11 .............................. 1,000,000 A 1,085,090
New England Educational Loan Marketing Corporation, Massachusetts
Student Loan Revenue, 5.7%, 7/1/05 .......................................... 6,250,000 A 6,277,938
North Attleborough, MA, General Obligation, Series 1997, 5%, 3/1/11 (c) ....... 1,120,000 AAA 1,055,589
Somerville, MA, General Obligation, Series 1997, 5.25%, 2/15/12 (c) ........... 1,180,000 AAA 1,144,388
Springfield, MA, General Obligation Series 1966, 5.3%, 8/1/11 (c) ............. 1,250,000 AAA 1,218,075
University of Massachusetts, Building Authority Revenue, Series B:
6.625%, 5/1/09 .............................................................. 2,415,000 A 2,679,467
6.625%, 5/1/10 .............................................................. 2,575,000 A 2,848,903
6.75%, 5/1/11 ............................................................... 2,745,000 A 3,069,514
6.875%, 5/1/14 .............................................................. 1,300,000 A 1,493,154
Worcester, MA, General Obligation:
Prerefunded 5/15/02, 6.9%, 5/15/05 (c)** .................................... 1,850,000 AAA 2,054,351
Prerefunded 5/15/02, 6.9%, 5/15/06 (c)** .................................... 1,500,000 AAA 1,665,683
Puerto Rico
Puerto Rico Aqueduct and Sewer Authority, 6%, 7/1/09 .......................... 1,000,000 A 1,038,610
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 -- Scudder Massachusetts Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Puerto Rico Highway and Transportation Authority, Highway Revenue,
Series 1996 Y, 6.25%, 7/1/14 ................................................ 2,000,000 A 2,119,560
- --------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $308,032,716) 321,775,074
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $311,832,716) (a) 325,575,074
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $311,832,716. At March 31,
1997, net unrealized appreciation for all securities based on tax cost was
$13,742,358. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $14,677,001 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$934,643.
(b) All of the securities held have been determined to be of appropriate credit
quality as required by the Fund's investment objectives. Credit ratings
shown are assigned by either Standard & Poor's Ratings Group, Moody's
Investors Service, Inc. or Fitch Investors Service, Inc. Unrated securities
(NR) have been determined to be of comparable quality to rated eligible
securities.
(c) Bond is insured by one of these companies: AMBAC, Connie Lee, FGIC, FSA or
MBIA.
(d) At March 31, 1997 these securities, in part, have been pledged to cover
initial margin requirements for open futures contracts.
At March 31, 1997, open futures contracts purchased long were as follows:
<TABLE>
<CAPTION>
Aggregate
Futures Expiration Contracts Face Value ($) Market Value ($)
------- ---------- --------- -------------- ----------------
<S> <C> <C> <C> <C>
Muni Bond Future 97 June 19, 1997 30 3,396,773 3,348,750
--------- ---------
Total net unrealized depreciation on open futures contracts purchased long (48,023)
=========
</TABLE>
* Floating rate and monthly, weekly, or daily demand notes are securities
whose yields vary with a designated market index or market rate, such as
the coupon-equivalent of the Treasury bill rate. Variable rate demand notes
are securities whose yields are periodically reset at levels that are
generally comparable to tax exempt commercial paper. These securities are
payable on demand within seven calendar days and normally incorporate an
irrevocable letter of credit from a major bank. These notes are carried,
for purposes of calculating average weighted maturity, at the longer of the
period remaining until the next rate change or to the extent of the demand
period.
** 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 the tax-exempt issue and to retire the bonds in full at the
earliest refunding date.
*** ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by a
trustee and used to pay principal and interest on bonds so designated.
**** Inverse floating rate notes are instruments whose yields have an inverse
relationship to benchmark interest rates. These securities are shown at
their rate as of March 31, 1997.
The accompanying notes are an integral part of the financial statements.
14 -- Scudder Massachusetts Tax Free Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of March 31, 1997
<TABLE>
<S> <C> <C>
Assets
-------------------------------------------------------------------------------------------------
Investments, at market (identified cost $311,832,716) ........ $ 325,575,074
Cash ......................................................... 22,298
Interest receivable .......................................... 5,254,487
Receivable on Fund shares sold ............................... 327,438
Other assets ................................................. 7,360
--------------
Total assets ................................................. 331,186,657
Liabilities
-------------------------------------------------------------------------------------------------
Dividends payable ............................................ 598,265
Payable for Fund shares redeemed ............................. 487,357
Daily variation margin on open futures contracts ............. 7,500
Accrued management fee ....................................... 166,565
Other accrued expenses ....................................... 84,801
--------------
Total liabilities ............................................ 1,344,488
---------------------------------------------------------------------------------
Net assets, at market value $ 329,842,169
---------------------------------------------------------------------------------
Net Assets
-------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on:
Investments ............................................... 13,742,358
Futures ................................................... (48,023)
Accumulated net realized loss ................................ (3,511,682)
Paid-in capital .............................................. 319,659,516
---------------------------------------------------------------------------------
Net assets, at market value $ 329,842,169
---------------------------------------------------------------------------------
Net Asset Value
-------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($329,842,169/24,047,228 outstanding shares of
beneficial interest, $.01 par value, unlimited
--------------
number of shares authorized) .............................. $13.72
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 -- Scudder Massachusetts Tax Free Fund
<PAGE>
Statement of Operations
year ended March 31, 1997
<TABLE>
<S> <C> <C>
Investment Income
-------------------------------------------------------------------------------------------------
Income:
Interest .................................................... $ 18,944,009
--------------
Expenses:
Management fee .............................................. 1,933,810
Services to shareholders .................................... 272,117
Custodian and accounting fees ............................... 112,386
Trustees' fees and expenses ................................. 14,973
Reports to shareholders ..................................... 54,286
Auditing .................................................... 34,965
Registration fees ........................................... 17,803
Legal ....................................................... 17,274
--------------
2,457,614
---------------------------------------------------------------------------------
Net investment income 16,486,395
---------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
-------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ................................................. 165,788
Futures ..................................................... (99,181)
--------------
66,607
--------------
Net unrealized appreciation during the period on:
Investments ................................................. 210,212
Futures ..................................................... 2,990
--------------
213,202
---------------------------------------------------------------------------------
Net gain on investments transactions 279,809
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 16,766,204
---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 -- Scudder Massachusetts Tax Free Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended March 31,
Increase (Decrease) in Net Assets 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................. $ 16,486,395 $ 16,175,218
Net realized gain from investment transactions ......... 66,607 581,573
Net unrealized appreciation on investment transactions
during the period ................................... 213,202 7,364,281
------------- -------------
Net increase in net assets resulting from operations ... 16,766,204 24,121,612
------------- -------------
Distributions to shareholders from net investment income (16,486,395) (16,175,218)
------------- -------------
Fund share transactions:
Proceeds from shares sold .............................. 61,413,587 58,182,143
Net asset value of shares issued to shareholders in
reinvestment of distributions ....................... 9,637,952 9,475,939
Cost of shares redeemed ................................ (55,774,105) (57,794,885)
------------- -------------
Net increase in net assets from Fund share transactions 15,277,434 9,863,197
------------- -------------
Increase in net assets ................................. 15,557,243 17,809,591
Net assets at beginning of period ...................... 314,284,926 296,475,335
------------- -------------
Net assets at end of period ............................ $ 329,842,169 $ 314,284,926
------------- -------------
Other Information
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .............. 22,942,284 22,236,389
------------- -------------
Shares sold ............................................ 4,465,949 4,245,322
Shares issued to shareholders in reinvestment of
distributions ....................................... 700,390 690,492
Shares redeemed ........................................ (4,061,395) (4,229,919)
------------- -------------
Net increase in Fund shares ............................ 1,104,944 705,895
------------- -------------
Shares outstanding at end of period .................... 24,047,228 22,942,284
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 -- Scudder Massachusetts Tax Free Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
May 28, 1987
(commencement
of operations)
Years Ended March 31, to March 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
----------------------------------------------------------------------------------------------------
period ................... $ 13.70 $ 13.33 $ 13.16 $ 13.61 $ 12.81 $ 12.44 $ 12.25 $ 12.23 $ 12.28 $ 12.00
----------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income ....... .70 .72 .74 .81 .84 .81 .83 .82 .81 .69
Net realized and unrealized
gain (loss) on investment
transactions ............. .02 .37 .18 (.33) .96 .46 .19 .13 .22 .21
Total from investment
----------------------------------------------------------------------------------------------------
operations ............... .72 1.09 .92 .48 1.80 1.27 1.02 .95 1.03 .90
----------------------------------------------------------------------------------------------------
Less distributions:
From net investment income .. (.70) (.72) (.74) (.81) (.84) (.81) (.83) (.82) (.88) (.62)
From net realized gains on
investment transactions .. -- -- -- (.08) (.16) (.09) -- (.11)(a) (.20) --
In excess of net realized
gains .................... -- -- (.01) (.04) -- -- -- -- -- --
----------------------------------------------------------------------------------------------------
Total distributions ......... (.70) (.72) (.75) (.93) (1.00) (.90) (.83) (.93) (1.08) (.62)
----------------------------------------------------------------------------------------------------
Net asset value, end of
----------------------------------------------------------------------------------------------------
period ................... $ 13.72 $ 13.70 $ 13.33 $ 13.16 $ 13.61 $ 12.81 $ 12.44 $ 12.25 $ 12.23 $ 12.28
----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) ........ 5.39 8.28 7.37 3.37 14.59 10.46 8.60 7.89 9.50 7.73**
Ratios and Supplemental Data
Net assets, end of period
($ millions) ............. 330 314 296 332 267 120 67 46 31 16
Ratio of operating
expenses, net to average
daily net assets (%) ..... .76 .75 .47 .07 -- .48 .60 .60 .51 .50*
Ratio of operating
expenses before expense
reductions, to average
daily net assets (%) ..... .76 .76 .77 .77 .83 .93 1.05 1.16 1.20 2.25*
Ratio of net investment
income to average daily
net assets (%) ........... 5.12 5.23 5.73 5.80 6.36 6.38 6.72 6.60 7.23 7.55*
Portfolio turnover rate (%) . 11.51 20.9 10.2 17.0 29.6 23.2 27.1 45.5 110.5 95.9*
</TABLE>
(a) Includes $.01 per share distributions in excess of realized gains pursuant
to Internal Revenue Code Section 4982.
(b) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
18 -- Scudder Massachusetts Tax Free Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Massachusetts Tax Free Fund (the "Fund") is a non-diversified series of
Scudder State Tax Free Trust (the "Trust"). The Trust is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. There are
currently six series in the Trust.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the Officers of the
Fund, which quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. All other debt securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Trustees.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the year ended
March 31, 1997, the Fund purchased interest rate futures to manage the duration
of the portfolio.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge, the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
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.
Accordingly, the Fund paid no federal income taxes and no provision for federal
income taxes was required.
19 -- Scudder Massachusetts Tax Free Fund
<PAGE>
At March 31, 1997, the Fund had a net tax basis capital loss carryforward of
approximately $1,420,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until March 31,
2003, ($1,310,000) and March 31, 2005 ($110,000), the respective expiration
dates, whichever occurs first.
In addition, from November 1, 1996 through March 31, 1997, the Fund incurred
approximately $18,000 of realized long-term capital losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat them as
arising in the year ending March 31, 1998.
Distribution of Income and Gains. All of the net investment income of the Fund
is declared as a dividend to shareholders of record as of the close of business
each day and is paid to shareholders monthly. During any particular year, net
realized gains from investment transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not distributed and, therefore,
will be distributed to shareholders. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in futures contracts. As a result,
net investment income and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
Other. Investment security transactions are accounted for on a trade date basis.
Distributions of net 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
During the year ended March 31, 1997, purchases and sales of municipal
securities (excluding short-term investments) aggregated $54,298,727 and
$35,980,178, respectively.
The aggregate face value of future contracts opened and closed during the year
ended March 31, 1997 was $3,396,773 and $7,930,388, respectively.
C. Related Parties
Under the Fund's Investment Advisory 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 approximately 0.60% of the Fund's average daily net
assets, computed and accrued daily and payable monthly. The Adviser determines
the securities, instruments, and other contracts relating to investments to be
purchased, sold or entered into by the Fund. In addition to portfolio management
services, the Adviser provides certain administrative services in accordance
with the Agreement. For the year ended March 31, 1997, the fee pursuant to the
Advisory Agreement amounted to $1,933,810 of which $166,565 is unpaid at March
31, 1997.
20 -- Scudder Massachusetts Tax Free Fund
<PAGE>
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend-paying and shareholder service agent for the Fund. For the
year ended March 31, 1997, the amount charged to the Fund by SSC aggregated
$188,646, of which $16,386 is unpaid at March 31, 1997.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
March 31, 1997, the amount charged to the Fund by SFAC aggregated $59,760, of
which $5,145 is unpaid at March 31, 1997.
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 March 31, 1997,
Trustees' fees and expenses charged to the Fund aggregated $14,973.
21 -- Scudder Massachusetts Tax Free Fund
<PAGE>
Report of Independent Accountants
To the Trustees of Scudder State Tax Free Trust and the Shareholders of Scudder
Massachusetts Tax Free Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
Massachusetts Tax Free Fund, including the investment portfolio, as of March 31,
1997, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the nine years in the period
then ended, and for the period May 28, 1987 (commencement of operations) to
March 31, 1988. 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 March
31, 1997, by correspondence with the custodian. 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 Tax Free Fund as of March 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the nine years in the period then ended, and for the period May 28, 1987
(commencement of operations) to March 31, 1988, in conformity with generally
accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
May 12, 1997
22 -- Scudder Massachusetts Tax Free Fund
<PAGE>
Tax Information
Of the dividends paid by the Fund from net investment income for the year ended
March 31, 1997, 100% constituted exempt interest dividends for regular federal
income tax and Massachusetts personal 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.
23 -- Scudder Massachusetts Tax Free Fund
<PAGE>
Officers and Trustees
David S. Lee*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
E. Michael Brown*
Trustee
Dawn-Marie Driscoll
Trustee; Executive Fellow; President, Driscoll Associates
Peter B. Freeman
Trustee; Corporate Director and Trustee
Dudley H. Ladd*
Trustee
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
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
*Scudder, Stevens & Clark, Inc.
24 -- Scudder Massachusetts Tax Free Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan *+++ +++
(a variable annuity)
Closed-End Funds#
- -----------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. +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.
25 -- Scudder Massachusetts Tax Free Fund
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Scudder Solutions
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Convenient ways to invest, quickly and reliably:
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Automatic Investment Plan AutoBuy
A convenient investment program in which you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is higher and electronically debited from that account.
fewer when it's lower, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
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Scudder Automated Information Line: SAIL(tm) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient, timely, and reliable
automated withdrawal programs:
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Automatic Withdrawal Plan AutoSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
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26 -- Scudder Massachusetts Tax Free Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
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Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(sm) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies-with no Personal Counsel from Scudder(sm)
transaction fees or commissions. Scudder Developed for investors who prefer the benefits of no-load
shareholders can take advantage of a Scudder Scudder funds but want ongoing professional assistance in
Brokerage account already reserved for them, with managing a portfolio. Personal Counsel(sm) is a highly
no minimum investment. For information about customized, fee-based asset management service for
Scudder Brokerage Services, call 1-800-700-0820. individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(sm) and Personal Counsel(sm) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
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Additional Information on How to Contact Scudder:
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For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Funds Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Funds Centers. Check for a Funds Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
New From Scudder: Pathway Series
In a complex financial world, Scudder Pathway Series is a refreshingly simple concept. With one
investment, Pathway gives you instant access to broad diversification in U.S. markets and
across the globe. Select from four Portfolios -- Conservative, Balanced, Growth, or
International -- each with a distinct investment objective that can match your goals. Each
Portfolio, rather than investing in individual securities, invests in carefully selected
Scudder mutual funds.
The share price of each Pathway Series portfolio will fluctuate and the risk associated with
each portfolio is determined by the securities held in each underlying Scudder fund. Contact
Scudder Investor Services, Inc., Distributor, for a prospectus which contains more complete
information, including management fees and other expenses. Please read it carefully before you
invest or send money.
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27 -- Scudder Massachusetts Tax Free Fund
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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 over 40 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.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
