Scudder
Massachusetts
Limited Term
Tax Free Fund
Semiannual Report
April 30, 1997
Pure No-Load(TM) Funds
A fund designed to seek 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.
SCUDDER (logo)
<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
13 Financial Statements
16 Financial Highlights
17 Notes to Financial Statements
20 Officers and Trustees
21 Investment Products and Services
22 Scudder Solutions
In Brief
o Scudder Massachusetts Limited Term Tax Free Fund received a five-star rating
from Morningstar, reflecting the highest possible rating for risk-adjusted
performance through April 30, 1997.*
o As of April 30, 1997, Scudder Massachusetts Limited Term Tax Free Fund's
30-day net annualized SEC yield was 4.33%, equivalent to an 8.15% taxable yield
for Massachusetts investors subject to the 46.85% combined federal and state
income tax rate.
o For the six months ended April 30, 1997, Scudder Massachusetts Limited Term
Tax Free Fund posted a total return of 1.36%. This return outpaced the 1.01%
average performance of the Fund's peers according to Lipper.
* For your information, these ratings are subject to change every month and are
calculated from the Fund's three-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-year performance, and was rated among 1,257 municipal
funds for the period. 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 Limited Term Tax Free Fund
<PAGE>
Letter From the Fund's President
Dear Shareholders,
We are pleased to report on Scudder Massachusetts Limited Term Tax Free
Fund's performance over its most recent semiannual period. In addition to the
Fund's five-star Morningstar rating (see "In Brief" on page two for more
information), the Fund posted a 8.15% tax equivalent yield for investors in the
highest state and federal tax brackets, significantly higher than current CD
rates. And the Fund earned a positive total return of 1.36%, despite a
significant rise in short-term interest rates during the period that brought
about price declines for many short-term municipal bonds. 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, Growth, Balanced, 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.
Please see pages 21 through 23 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 account or any Scudder fund.
Thank you for investing with Scudder.
Sincerely,
/s/David S. Lee
David S. Lee
President,
Scudder Massachusetts Limited Term Tax Free Fund
3 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
PERFORMANCE UPDATE as of April 30, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
4/30/97 $10,000 Cumulative Annual
- ------------------------------------------------
SCUDDER MASSACHUSETTS LIMITED TERM
TAX FREE FUND
- ------------------------------------------------
1 Year $ 10,389 3.89% 3.89%
Life of Fund* $ 11,391 13.91% 4.15%
- ------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX
(3 YEAR)
- ------------------------------------------------
1 Year $ 10,462 4.62% 4.62%
Life of Fund* $ 11,561 15.61% 4.68%
- ------------------------------------------------
*The Fund commenced operations on February 15, 1994.
Index comparisons begin February 28, 1994
- ----------------------------------------------------------------
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 LIMITED TERM TAX FREE FUND
Year Amount
- ----------------------
2/94* $10,000
4/94 $ 9,912
10/94 $10,030
4/95 $10,414
10/95 $10,840
4/96 $10,997
10/96 $11,271
4/97 $11,425
LEHMAN BROTHERS MUNICIPAL BOND INDEX
(3 year)
Year Amount
- ----------------------
2/94* $10,000
4/94 $ 9,938
10/94 $10,058
4/95 $10,401
10/95 $10,862
4/96 $11,051
10/96 $11,352
4/97 $11,561
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 1997
----------------------------------------------
NET ASSET VALUE......... $ 11.76 $ 11.81 $ 11.94 $ 11.89
INCOME DIVIDENDS........ $ .10 $ .53 $ .52 $ .51
FUND TOTAL RETURN (%)... -1.18 5.07 5.60 3.89
INDEX TOTAL RETURN (%).. -.62 4.64 6.26 4.62
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 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
PORTFOLIO SUMMARY as of April 30, 1997
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Hospital/Health 32%
Other General Obligation/
Lease 19%
Housing Finance Authority 10%
State General Obligation 10%
Student Loans 6%
Higher Education 5%
Electric Utility Revenue 5%
Pollution Control/Industrial
Development 4%
Water/Sewer Revenue 3%
Miscellaneous Municipal 6%
- --------------------------------------
100%
- --------------------------------------
Among the Fund's diverse
holdings are several categories of
Massachusetts general obligation
bonds, which offer attractive
value, high overall quality, and
relative stability.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
QUALITY
- --------------------------------------------------------------------------
AAA 67%
AA 10%
A 10%
BBB 10%
Not Rated 2%
Below Investment Grade 1%
- --------------------------------------
100%
- --------------------------------------
Weighted average quality: AA
Overall credit quality remains
high, with over 75% of the bonds
in the Fund's portfolio rated AAA
or 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 12%
1 - 5 years 56%
5 - 10 years 30%
Greater than 10 years 2%
- ----------------------------------------------
100%
- ----------------------------------------------
Weighted average effective maturity: 4.1 years
Over the most recent semi-annual
period we continued to diversify
the Fund's maturities, but
reduced our position in two- to
three-year bonds because of the
possibility of further short-term
interest rate increases by the Fed.
For more complete details about the Fund's investment portfolio, see page 10.
5 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Scudder Massachusetts Limited Term Tax Free Fund performed well over a
semiannual period that witnessed mixed performance for municipal bonds, and
included an interest rate hike by the Federal Reserve. On April 30, 1997, the
Fund's 30-day net annualized SEC yield was 4.33%, equivalent to a fully taxable
yield of 8.15% for shareholders subject to the 46.85% combined federal and state
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. The Fund's tax-equivalent yield also compares favorably with the 5.37%
average yield of 2-year bank certificates of deposit as of April 30, 1997. Of
course, unlike fixed-rate CDs, which are FDIC-insured up to certain limits, the
Fund's yield and share price fluctuate, and principal investments in the Fund
are not insured.
As the accompanying graph shows, over the past six months, the Fund's
tax-equivalent yield has been consistently higher than the average yield of
2-year CDs tracked nationally.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE:
Scudder Massachusetts Limited Term Tax Free Fund's
Tax-Equivalent Yield vs. National Two-Year CD Rates
November 1996 through April 1997
LINE CHART DATA:
National average SMALTTFF
of two-year CD yields tax-equivalent yield
--------------------- --------------------
11/96 5.20% 7.28%
12/96 5.15 7.38
1/97 5.17 7.71
2/97 5.18 7.53
3/97 5.21 7.81
4/97 5.37 8.15
Source of CD data: BanxQuote.
Tax equivalent yields are for the 46.85% maximum federal and state tax rate.
As short-term interest rates rose during the six-month period, prices of
short-term municipal bonds generally declined. Despite the rise in rates, the
Fund posted a positive 1.36% total return for the six months ended April 30,
1997. During the period, $0.26 in income distributions offset a net asset value
decline of $0.10 to $11.89. The Fund's total return compares favorably with the
1.01% return of the 38 similar municipal bond funds tracked by Lipper Analytical
Services, Inc. As shown in the chart on page 7, the Fund's performance placed it
in the top 25% of its peer group for the six-month, one-year and three-year
periods:
6 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Consistently Above-Average Performance
(Returns for periods ended April 30, 1997)
Number
Scudder of
MALTTFF Lipper Funds Percentile
Period return return Rank tracked Ranking
------ ------ ------ ---- ------- -------
6 mos. 1.36% 1.01% 7 of 38 18%
1 year 3.89 3.46 8 of 38 21%
3 years* 4.85 4.33 3 of 19 16%
*Average annual returns; 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 and personal income
taxes -- 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 stabilized its trend of losses dating back to the
1980s.
Although future debt issuance is expected to be heavy, the Commonwealth's debt
burden should remain manageable given its high wealth levels and scheduled debt
retirement. Future debt issuance is expected to cover financing for
transportation-related projects, particularly the Central Artery Depression, or
"Big Dig."
Economic and Market Review
Scudder Massachusetts Limited Term Tax Free Fund's most recent semiannual period
witnessed a healthy U.S. economy that combined strong 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 of 1997 was on track for GDP growth of 2.5% or higher in 1997. The stock
market scaled unprecedented heights despite a short-lived sell-off in 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 semiannual period, where
yields of 10-year Treasury bonds rose approximately one third of a percentage
point, and prices declined 2.6%.
7 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Municipals outperformed Treasuries during the six-month period, as yields of
10-year municipals rose only one fifth of a percentage point, and prices
declined 2%. Municipal bond prices were supported by shrinking overall supply, a
moderate level of new issuance, and steady demand from both individuals and
institutions such as insurance companies.
Our Portfolio Strategy
Scudder Massachusetts Limited Term Tax Free Fund is designed to deliver double
tax-free income with below-average price risk through investments primarily in
municipal bonds with effective maturities between one and 10 years. The Fund
seeks higher income than is typically available from tax-free money market
investments and less share price fluctuation than is found in intermediate- and
long-term tax free bonds. The Fund's professional management, economies of
scale, liquidity, and ability to diversify its assets continue to offer
advantages compared with the holding of individual municipal bonds. Over the
Fund's most recent semi-annual period we continued to diversify the Fund's
maturities, but reduced our position in two- to three-year bonds because of the
possibility of further short-term interest rate increases by the Fed. The Fund
also continued to emphasize premium noncallable bonds, which generally exhibit
less interest rate sensitivity than bonds priced at par.
The Fund holds 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 (approximately 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 of U.S. Treasury bonds designated to retire the
original municipal 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 over 75% of the bonds in the Fund's portfolio rated
AAA or AA.
Our Outlook
Though it is possible that the national economy's 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 Limited Term Tax Free Fund
<PAGE>
We will continue to maintain a conservative investment strategy, including
holding premium coupon bonds, diversifying broadly, and keeping the Fund's
credit quality high. We will also search for attractive value by weighing the
maturity characteristics, call features, credit quality, and income potential of
each bond we consider adding to the Fund's portfolio. Thank you for your
investment in Scudder Massachusetts Limited Term Tax Free Fund.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Kathleen A. Meany
Philip G. Condon Kathleen A. Meany
9 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Investment Portfolio as of April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(b) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Municipal Investments 7.2%
- --------------------------------------------------------------------------------------------------------------------
Massachusetts
Massachusetts, General Obligation, Dedicated Income Tax:
Series B, Daily Demand Note, 3.85%, 12/1/97* ................................... 1,200,000 MIG1 1,200,000
Series E, Daily Demand Note, 3.85%, 12/1/97* ................................... 700,000 MIG1 700,000
Massachusetts Health & Educational Facilities Authority:
Series B, Daily Demand Note, 4%, 7/1/05 (c)* ................................... 950,000 A-1+ 950,000
Series D, Weekly Demand Note, 3.95%, 1/1/35 (c)* ............................... 200,000 SP1+ 200,000
Massachusetts Industrial Finance Agency, Merritt Care, Daily Demand Note,
3.95%, 4/1/09* ................................................................. 100,000 MIG1 100,000
Massachusetts Port Authority, Variable Demand Note, 3.75%, 7/1/15* ............... 700,000 A-1+ 700,000
New Bedford, MA, General Obligation, Revenue Anticipation Note, 4.5%, 6/30/97 .... 1,000,000 NR 1,000,360
- --------------------------------------------------------------------------------------------------------------------
Total Short-Term Municipal Investments (Cost $4,850,654) 4,850,360
- --------------------------------------------------------------------------------------------------------------------
Intermediate-Term Municipal Investments 92.8%
- --------------------------------------------------------------------------------------------------------------------
Massachusetts
Lowell, MA, General Obligation, prerefunded 2/15/01, 8.3%, 2/15/05** ............. 1,635,000 AAA 1,875,345
Massachusetts Educational Loan Authority, Issue E, Series A, 6.7%, 1/1/02 (c) .... 435,000 AAA 463,739
Massachusetts General Obligation:
Series A, 5.25%, 2/1/01 (c) .................................................... 3,000,000 AAA 3,050,790
Series A, 5.2%, 6/1/04 ......................................................... 1,000,000 AA 1,011,170
Series C, prerefunded 12/1/00, 7.5%, 12/1/07** ................................. 750,000 AAA 832,530
Series C, prerefunded 12/1/00, 7%, 12/1/10** ................................... 775,000 AAA 834,481
Massachusetts Health & Educational Facilities Authority:
Berkshire Health System, Series D, 5.3%, 10/1/03 (c) ........................... 1,350,000 AAA 1,371,209
Berkshire Health System, Series C, 5.9%, 10/1/11 ............................... 1,000,000 BBB 954,310
Central Massachusetts Medical Center, Series B, 6%, 7/1/02 (c) ................. 500,000 AAA 524,110
Daughters of Charity, Carney Hospital, prerefunded 7/1/00, 7.5%, 7/1/05** ...... 1,000,000 AAA 1,099,350
Daughters of Charity, Series D, 4.9%, 7/1/00 ................................... 700,000 AA 701,379
Massachusetts Eye and Ear Infirmary Series A, 7%, 7/1/01 ....................... 2,120,000 BBB 2,170,074
Medical, Academic & Scientific:
Series A, 5.9%, 1/1/00 ........................................................ 500,000 A 508,205
Series A, 6%, 1/1/01 .......................................................... 1,000,000 A 1,020,980
Series A, 6.1%, 1/1/02 ........................................................ 500,000 A 512,370
St. Joseph's Hospital, Series C, prerefunded 10/1/99, 9.5%, 10/1/20** .......... 3,375,000 AAA 3,762,045
Valley Regional Health System, Series C, 5.3%, 7/1/00 (c) ...................... 1,500,000 AAA 1,517,355
Wheaton College, Series B, prerefunded 7/1/99, 7.2%, 7/1/09** .................. 590,000 AAA 633,749
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(b) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts Housing Finance Agency:
Housing Project Revenue, Series A, 5.2%, 10/1/00 ............................... 575,000 A 585,160
Multi-Family Housing Project 1988, Series A, prerefunded 4/1/98, 8.7%,
4/1/14** ..................................................................... 1,430,000 AAA 1,531,902
Multi-Family Housing Project, Series A, 8.8%, 8/1/21 ........................... 665,000 A 689,266
Single-Family Mortgage Revenue, Series 3, 7.875%, 6/1/14 ....................... 4,000,000 AA 4,087,160
Massachusetts Industrial Finance Agency:
Boston Museum of Fine Arts, Series 1996, 5.125%, 1/1/04 (c) .................... 1,000,000 AAA 1,009,770
Cape Cod Health Systems, Series 1990, prerefunded 11/1/00, 8.5%, 11/15/20** .... 2,150,000 AAA 2,449,345
College of the Holy Cross, Series 1996, 5.5%, 3/1/06 (c) ....................... 1,000,000 AAA 1,028,090
East Boston Neighborhood Project, 7.25%, 7/1/06 ................................ 1,000,000 BB 998,200
Leominister Hospital, Series 1989A, prerefunded 8/1/99, 8.625%, 8/1/09** ....... 2,000,000 AAA 2,204,320
Milton Academy, Revenue Refunding, Series A, prerefunded 9/1/99, 7.25%,
9/1/19 (c)** ................................................................. 700,000 AAA 755,447
Resource Recovery, North Andover Solid Waste:
Series A, 6.15%, 7/1/02 ....................................................... 750,000 BBB 770,865
Series A, 6.3%, 7/1/05 ........................................................ 2,750,000 BBB 2,874,190
Massachusetts Municipal Wholesale Electric Company, Power Supply System Revenue:
6.75%, 7/1/17 .................................................................. 1,720,000 AAA 1,894,546
Series B, 6.3%, 7/1/00 ......................................................... 345,000 A 359,207
Series B, 6.375%, 7/1/01 ....................................................... 1,000,000 A 1,051,090
Massachusetts Port Authority USAIR 5.5%, 9/1/06 (c) .............................. 640,000 AAA 645,062
Massachusetts Turnpike Authority, Bond Anticipation Note, Series 1996A,
5%, 6/1/99 ..................................................................... 1,000,000 AA 1,009,810
Massachusetts Water Resource Authority, Series A, prerefunded 7/15/02, 6.75%,
7/15/12** ...................................................................... 1,000,000 AAA 1,102,010
Nantucket, MA, General Obligation, 6.25%, 12/1/02 ................................ 250,000 A 265,680
New England Education Loan Marketing Corp., Massachusetts Student Loan Revenue
Refunding, Issue A, 5.8%, 3/1/02 ............................................... 3,150,000 AAA 3,240,500
North Attleboro Massachusetts, General Obligation, 6%, 3/1/07 .................... 1,000,000 AAA 1,068,850
South Essex, MA, Sewer District, Series B, prerefunded 6/1/04, 6.75%,
6/1/13 (c)** ................................................................... 1,000,000 AAA 1,119,930
Southeastern Massachusetts University Building, Series A, 5.5%, 5/1/04 (c) ....... 1,010,000 AAA 1,038,926
Springfield, MA, Municipal Purpose Loan, General Obligation, Series 1996,
6.25%, 8/1/06 (c) .............................................................. 1,000,000 AAA 1,081,590
Worcester, MA, General Obligation, Revenue Refunding, Series G, 6%, 7/1/01 (c) ... 2,000,000 AAA 2,091,100
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(b) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Puerto Rico
Puerto Rico Commonwealth:
prerefunded 7/1/97, 7.125%, 7/1/02** ........................................... 410,000 AAA 420,484
7.125%, 7/1/02 ................................................................. 1,520,000 A 1,557,225
Puerto Rico Public Building Authority, 6.75%, 7/1/04 (c) ......................... 2,250,000 AAA 2,494,598
- --------------------------------------------------------------------------------------------------------------------
Total Intermediate-Term Municipal Investments (Cost $61,739,310) 62,267,514
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio - 100.0% (Cost $66,589,964) (a) 67,117,874
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $66,589,964. At April 30,
1997, net unrealized appreciation for all securities was $527,910. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $666,211 and
aggregate gross unrealized depreciation for all investment securities in
which there was an excess of tax cost over market value of $138,301.
(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 Services, Inc.
(c) Bond is insured by one of these companies: AMBAC, HIBI, 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.
The accompanying notes are an integral part of the financial statements.
12 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of April 30, 1997 (Unaudited)
Assets
- --------------------------------------------------------------------------------
Investments, at market (identified
cost $66,589,964) ............................. $ 67,117,874
Cash ............................................ 18,422
Interest receivable ............................. 1,189,502
Receivable for Fund shares sold ................. 40,438
Deferred organization expenses .................. 10,086
Other assets .................................... 1,204
------------
Total assets .................................... 68,377,526
Liabilities
- --------------------------------------------------------------------------------
Dividends payable ............................... 83,355
Payable for Fund shares redeemed ................ 44,751
Accrued management fee .......................... 22,019
Other payables and accrued expenses ............. 34,341
------------
Total liabilities ............................... 184,466
------------------------------------------------------------------
Net assets, at market value $ 68,193,060
------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation on investments .......... 527,910
Accumulated net realized loss ................... (151,997)
Paid-in capital ................................. 67,817,147
------------------------------------------------------------------
Net assets, at market value $ 68,193,060
------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Net Asset Value, offering and redemption price
per share ($68,193,060 / 5,732,994 outstanding
shares of beneficial interest, $.01 par value, --------------
unlimited number of shares authorized) ........ $ 11.89
--------------
The accompanying notes are an integral part of the financial statements.
13 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Statement of Operations
six months ended April 30. 1997 (Unaudited)
Investment Income
- -------------------------------------------------------------------------------
Interest ........................................ $ 1,697,539
------------
Expenses:
Management fee .................................. 198,738
Custodian and accounting fees ................... 26,531
Services to shareholders ........................ 30,268
Trustees' fees and expenses ..................... 6,417
Auditing ........................................ 18,492
Legal ........................................... 2,819
Reports to shareholders ......................... 16,051
Registration fees ............................... 3,480
Amortization of organization expenses ........... 2,789
Other ........................................... 3,320
------------
Total expenses before reductions ................ 308,905
Expense reductions .............................. (62,584)
------------
Expenses, net ................................... 246,321
------------------------------------------------------------------
Net investment income ........................... 1,451,218
------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -------------------------------------------------------------------------------
Net realized gain from investments .............. 410
Net unrealized depreciation on investments
during the period ............................. (522,676)
------------------------------------------------------------------
Net loss on investments ......................... (522,266)
------------------------------------------------------------------
------------------------------------------------------------------
Net increase in net assets resulting from
operations .................................... $ 928,952
------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
14 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
April 30, Year Ended
1997 October 31,
Increase (Decrease) in Net Assets (Unaudited) 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .............................. $ 1,451,218 $ 2,561,928
Net realized gain (loss) on investments ............ 410 (112,182)
Net unrealized depreciation on investments
during the period ................................ (522,676) (97,803)
------------ ------------
Net increase in net assets resulting from
operations ....................................... 928,952 2,351,943
------------ ------------
Distributions to shareholders from net
investment income ................................ (1,451,218) (2,561,928)
------------ ------------
Fund share transactions:
Proceeds from shares sold .......................... 15,810,341 39,513,439
Net asset value of shares issued to shareholders
in reinvestment of distributions ................. 927,553 1,674,479
Cost of shares redeemed ............................ (13,527,656) (30,966,008)
------------ ------------
Net increase in net assets from Fund share
transactions ..................................... 3,210,238 10,221,910
------------ ------------
Increase in net assets ............................. 2,687,972 10,011,925
Net assets at beginning of period .................. 65,505,088 55,493,163
-------------- -------------
Net assets at end of period ........................ $ 68,193,060 $ 65,505,088
-------------- -------------
Other Information
- --------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .......... 5,463,378 4,615,167
------------ ------------
Shares sold ........................................ 1,320,453 3,294,988
Shares issued to shareholders in reinvestment of
distributions .................................... 77,419 139,573
Shares redeemed .................................... (1,128,256) (2,586,350)
------------ ------------
Net increase in Fund shares ........................ 269,616 848,211
-------------- -------------
Shares outstanding at end of period ................ 5,732,994 5,463,378
-------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Massachusetts Limited Term 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
February 15,
Six Months 1994
Ended (commencement
April 30, Years Ended October 31, of operations) to
1997 October 31,
(Unaudited) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------
Net asset value, beginning of period ........................... $11.99 $12.02 $11.64 $12.00
------------------------------------------------
Income from investment operations:
Net investment income .......................................... .26 .50 .54 .36
Net realized and unrealized gain (loss) on investment
transactions ................................................. (.10) (.03) .38 (.36)
------------------------------------------------
Total from investment operations ............................... .16 .47 .92 .00
------------------------------------------------
Less distributions from net investment income .................. (.26) (.50) (.54) (.36)
------------------------------------------------
Net asset value, end of period ................................. $11.89 $11.99 $12.02 $11.64
------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) ........................................... 1.36** 3.98 8.08 0.00**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ......................... 68 66 55 36
Ratio of operating expenses, net to average daily net assets (%) .75* .67 .24 --
Ratio of operating expenses before expense reductions, to
average daily net assets (%) ................................. .94* .90 .92 1.44*
Ratio of net investment income to average daily net assets (%) . 4.42* 4.16 4.56 4.45*
Portfolio turnover rate (%) .................................... 3.5* 12.4 27.4 26.3*
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
16 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Massachusetts Limited Term Tax Free Fund (the "Fund") is a
non-diversified series of Scudder State Tax Free Trust, a Massachusetts business
trust (the "Trust"), which is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. There are
currently six series in the Trust.
The 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, 1996, the Fund had a net tax basis capital loss carryforward of
approximately $141,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until October 31,
2002, (26,000) and October 31, 2004 (115,000), the respective expiration dates,
whichever occurs first.
Distribution of Income and Gains. All of the net investment income of the Fund
is declared as a dividend to shareholders of record as of the close of business
each day and is paid to shareholders monthly. During any particular year, net
realized gains from investment transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not distributed and, therefore,
will be distributed to 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.
17 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
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, 1997, purchases and sales of investments
(excluding short-term) aggregated $7,701,456 and $1,080,111, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a fee
equal to an annual rate of 0.60% of the Fund's average daily net assets,
computed and accrued daily and payable monthly. As manager of the assets of the
Fund, the Adviser directs the investments of the Fund in accordance with its
investment objectives, policies, and restrictions. The Adviser determines the
securities, instruments, and other contracts relating to investments to be
purchased, sold or entered into by the Fund. In addition to portfolio management
services, the Adviser provides certain administrative services in accordance
with the Agreement. The Agreement also 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. The Adviser agreed to maintain the annualized expenses at 0.75% of
average daily net assets until October 31, 1997. For the six months ended April
30, 1997, the Adviser imposed fees amounting to $136,154 and the portion not
imposed amounted to $62,584 at April 30, 1997.
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, 1997, the amount charged to the Fund by SSC
aggregated $19,839 of which $3,413 was unpaid at April 30, 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 six months
ended April 30, 1997, the amount charged to the Fund by SFAC aggregated $18,000,
of which $3,000 was unpaid at April 30, 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 six months ended April 30, 1997,
Trustees' fees aggregated $6,417.
18 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
This Page
intentionally
left blank.
19 - Scudder Massachusetts Limited Term 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.
20 - Scudder Massachusetts Limited Term 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 Growth and Income 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.
21 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 lower and electronically debited from that account.
fewer when it's higher, 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:
- ------------------------------------------------------------------------------------------------------------------------------
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:
- ------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------
22 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 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
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder 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.
</TABLE>
23 - Scudder Massachusetts Limited Term Tax Free Fund
<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 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
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