Scudder
Massachusetts
Tax Free Fund
Semiannual Report
September 30, 1998
Pure No-Load(TM) Funds
For investors seeking double tax-free income, exempt from both Massachusetts
state personal income tax and regular federal income tax.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
Scudder Massachusetts Tax Free Fund
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Date of Inception: 5/28/87 Total Net Assets as of Ticker Symbol: SCMAX
9/30/98: $403.3 million
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o For its most recent semiannual period ended September 30, 1998, Scudder
Massachusetts Tax Free Fund posted a total return of 4.57%, compared with the
4.24% average return of 57 similar funds tracked by Lipper Analytical Services.
o The Fund retained its #1 ranking for total return over the ten years ended
September 30 as rated by Lipper. Please see page for additional information on
the Fund's rankings.
o As of September 30, 1998, Scudder Massachusetts Tax Free Fund's 30-day net
annualized SEC yield was 3.90%, equivalent to a 7.34% taxable yield for
Massachusetts investors subject to the 46.85% combined federal and state income
tax rate.
o Scudder Massachusetts Tax Free Fund received a four-star rating from
Morningstar, reflecting "above average" risk-adjusted performance through
September 30, 1998.*
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
30-Day SEC Yield on September 30, 1998
BAR CHART DATA:
- -----------------------------------------
Scudder Taxable yield
Massachusetts needed to equal
Tax Free Fund the Fund's yield
- -----------------------------------------
3.90% 7.34%
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Table of Contents
3 Letter from the Fund's President 16 Financial Statements
4 Performance Update 19 Financial Highlights
5 Portfolio Summary 20 Notes to Financial Statements
6 Portfolio Management Discussion 24 Officers and Trustees
9 Glossary of Investment Terms 25 Investment Products and Services
10 Investment Portfolio 26 Scudder Solutions
* 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-year performance, and four stars for five- and ten-year performance,
and was rated among 1581, 943, and 359 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,
The municipal bond market has made a strong case for portfolio
diversification over the past several months. While volatility swept through
most global markets, including the U.S. stock market, municipal bonds posted
steady gains. We continue to see signs that investors, especially those in
higher tax brackets, are choosing to rebalance their portfolios with more
municipal bond investments.
The attractiveness of municipal bonds today is underscored by the chart on
page of the Portfolio Management Discussion. Intermediate-term municipals (which
make up most of Scudder Massachusetts Tax Free Fund's portfolio) represent their
most attractive relationships to Treasury bonds in ten years. Moreover,
Massachusetts municipal bonds are benefiting from the Commonwealth's
region-leading economic growth and strong fiscal controls.
Scudder Massachusetts Tax Free Fund's total return over its most recent
semiannual period was 4.57%, outpacing the average performance of its peers as
tracked by Lipper. The Fund also continues to rank number one in total return
among its peers for the ten-year period ended September 30, 1998.
For those of you interested in new Scudder funds, we recently introduced two
international funds: Scudder International Growth Fund -- which seeks to invest
in high growth opportunities in both developed and developing markets, and
Scudder International Value Fund -- which seeks to invest in undervalued foreign
securities. Please see pages 25 through 27 for more information on Scudder
products and services.
Please call a Scudder Investor Information representative at 1-800-225-2470
if you have questions about your Fund. Page 27 provides more information on how
to contact Scudder. Thank you for choosing Scudder Massachusetts Tax Free Fund
to help meet your investment needs.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President
Scudder Massachusetts Tax Free Fund
3 - Scudder Massachusetts Tax Free Fund
<PAGE>
Performance Update as of September 30, 1998
- -------------------------------------------
Fund Index Comparisons
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Total Return
- -------------------------------------------
Period Ended Growth of Average
9/30/98 $10,000 Cumulative Annual
- -------------------------------------------
Scudder Massachusetts Tax Free Fund
- -------------------------------------------
1 Year $10,844 8.44% 8.44%
5 Year $13,406 34.06% 6.04%
10 Year $22,412 124.12% 8.40%
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Lehman Brothers Municipal Bond Index
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1 Year $10,872 8.72% 8.72%
5 Year $13,635 36.35% 6.39%
10 Year $22,311 123.11% 8.35%
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Growth of a $10,000 Investment
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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:
Yearly periods ended September 30
Scudder Massachusetts
Tax Free Fund
Year Amount
- ---------------------
'88 $10,000
'89 $10,877
'90 $11,391
'91 $12,912
'92 $14,473
'93 $16,718
'94 $16,157
'95 $17,954
'96 $19,070
'97 $20,668
'98 $22,412
Lehman Brothers Municipal
Bond Index
Year Amount
- ---------------------
'88 $10,000
'89 $10,868
'90 $11,608
'91 $13,138
'92 $14,514
'93 $16,363
'94 $15,964
'95 $17,750
'96 $18,821
'97 $20,522
'98 $22,311
The unmanaged Lehman Brothers Municipal Bond Index is a market value-weighted
measure of municipal bonds issued across the United States. Index issues have a
credit rating of at least Baa and a maturity of at least two years. Index
returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
- -----------------------------------------------------------------
Returns and Per Share Information
- -----------------------------------------------------------------
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 September 30
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
--------------------------------------------------------------------------------
Net Asset Value $12.30 $12.03 $12.74 $13.28 $14.24 $12.95 $13.63 $13.75 $14.17 $14.64
Income Dividends $ .85 $ .82 $ .82 $ .83 $ .84 $ .78 $ .72 $ .71 $ .70 $ .70
Capital Gains and
Other Distributions $ .19 $ .02 $ .04 $ .12 $ .18 $ .04 $ -- $ -- $ -- $ --
Fund Total
Return (%) 8.77 4.73 13.35 12.09 15.51 -3.36 11.12 6.22 8.38 8.44
Index Total
Return (%) 8.68 6.80 13.19 10.45 12.74 -2.44 11.18 6.04 9.04 8.72
</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 Adviser had not temporarily capped expenses,
the average annual total return for the Fund for the five year, and ten year
periods would have been lower.
4 - Scudder Massachusetts Tax Free Fund
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Portfolio Summary as of September 30, 1998
Diversification
A graph in the form of a pie chart appears here, illustrating the exact data
points in the above table.
Hospital/Health 19%
General Obligation 15%
Higher Education 15%
Water/Sewer Revenue 10%
Housing Finance Authority 9%
Electric Utility Revenue 7%
Other General Obligation/Lease 7%
Pollution Control/Industrial
Development 5%
Miscellaneous Municipal 13%
--------------------------------------
100%
--------------------------------------
The Fund is broadly diversified, with investments in more than 10 categories of
municipal bonds and over 140 individual bond issues.
Quality
A graph in the form of a pie chart appears here, illustrating the exact data
points in the above table.
AAA 40%
AA 26%
A 21%
BBB 9%
BB 1%
Not Rated 3%
--------------------------------------
100%
--------------------------------------
Weighted average quality: AA
Overall credit quality remains at a high level, with more than 85% of portfolio
securities rated A or better as of September 30.
Effective Maturity
A graph in the form of a pie chart appears here, illustrating the exact data
points in the above table.
Less than 1 year 1%
1-5 years 29%
5-10 years 31%
10-15 years 34%
15 years or greater 5%
--------------------------------------
100%
--------------------------------------
Weighted average effective maturity:
8.51 years
Our continuing goal is to have an average effective maturity similar to that of
the Fund's benchmark, the Lehman Brothers Municipal Bond Index, but with a
superior, call-protected portfolio structure.
For more complete details about the Fund's investment portfolio, see page 10. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Massachusetts Tax Free Fund
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Portfolio Management Discussion
Dear Shareholders,
Municipal bonds registered gains in the wake of a strong U.S. Treasury bond
rally during Scudder Massachusetts Tax Free Fund's most recent semiannual period
ended September 30, 1998. During the six-month period, the Fund posted a 4.57%
total return, comparing favorably with the 4.24% average return of Massachusetts
tax-exempt funds as tracked by Lipper Analytical Services, Inc. The Fund's
returns over six-month, and one-, three-, five-, and ten-year periods placed it
in the top one-third of similar Massachusetts tax free funds, and the Fund
continues to rank number one in total return among its peers for the ten-year
period ended September 30, 1998.
Massachusetts Update
Massachusetts continues to lead economic growth in the New England region. Job
creation has been strong, resulting in revenue collections that have exceeded
projections. The Commonwealth finished its 1998 fiscal year with another
surplus, and has increased the funding level of its stabilization fund.
Massachusetts' unemployment rate as of August 1998 was 3%, the lowest level
since 1989. Over the past twelve months the Commonwealth has added over 88,000
jobs, most of them in the services and construction sectors. Massachusetts' debt
level is high, but manageable, given its high wealth levels. The largest focus
of the Commonwealth's capital budget is the Central Artery Project, scheduled to
be completed by 2005. Although we will continue to monitor the substantial
financial impact of the Central Artery Project, we believe the Commonwealth's
focus on fiscal controls has succeeded in improving its overall credit quality.
Scudder Massachusetts Tax Free Fund:
Competitive Long-Term Performance
(Average annual returns for periods ended September 30, 1998)
Scudder
Massachusetts Number
Tax Free Fund Lipper of Funds Percentile
Period return Average Rank Tracked Rank
------ ------ ------- ---- ------- ----
1 Year 8.44% 8.00% 17 of 57 Top 30%
3 Years 7.67% 7.33% 16 of 52 Top 31%
5 Years 6.04% 5.52% 3 of 29 Top 10%
10 Years 8.40% 7.80% 1 of 16 Top 6%
Past performance does not guarantee future results.
6 - Scudder Massachusetts Tax Free Fund
<PAGE>
Bonds Provided a Safe Haven
Investors worldwide went in search of a relative "safe haven" in the form of
U.S. Treasury bonds during the period, as a series of dramatic financial crises
rocked the global financial markets, most notably in Russia, Japan, and Brazil.
The Federal Reserve lowered interest rates by one quarter of a percentage point
on September 29 in an attempt to restore order. Initial reaction from market
participants was that the Fed's action was insufficient, driving even more
investors to Treasury bonds. On the domestic front, the U.S. stock market
continually advanced to new highs until late July, when it succumbed to pressure
from overseas, as well as a series of domestic earnings disappointments. The
near collapse of the Long Term Capital Management hedge fund also contributed to
a sharp rise in Treasury bond prices near the close of the period.
As is typically true during a strong Treasury bond rally, prices of municipal
bonds did not keep up. During the six-month period, 10-year Treasury bond yields
declined one percentage point and their prices rose 9%. Over the same time
frame, 10-year AAA-rated municipal bond yields declined less than one half of a
percentage point, and their prices rose 3.3%. Two factors were most responsible
for the disparity in performance between the Treasury and municipal markets:
first, the "flight to quality" into Treasuries; second, the heavy supply of new
tax-exempt issues from January through September 1998. Municipal supply is
expected to reach approximately $282 billion in 1998, which would be second only
to 1993's total of $292 billion over the past ten years.
A Shift in Strategy
Over the past several years, the Fund's primary strategy has been to purchase
noncallable bonds to provide a relatively stable income stream along with
long-term price appreciation potential. While we plan to retain and take full
advantage of the Fund's large existing position in noncallable bonds, we have
recently felt that most noncallable bonds available for purchase did not
represent attractive value. Therefore, over the course of the most recent
semiannual period, the Fund shifted its emphasis toward the purchase of premium
bonds -- bonds with high coupons that compensate investors for the fact that
they can be redeemed by their issuer before maturity. In terms of maturity, we
focused on 15-year bonds, because we believe they offer the best total return
potential, based on our outlook for interest rates and the yield differentials
among bonds across the maturity spectrum. Another shift in strategy has been to
de-emphasize lower quality bonds, because differences in yield between higher
and lower quality municipal bonds have shrunk to the point that investors in
lower quality bonds are not rewarded for taking on additional credit risk.
Lastly, our continuing goal is to have an average effective maturity similar to
that of the Lehman Brothers Municipal Bond Index, but with a superior,
7 - Scudder Massachusetts Tax Free Fund
<PAGE>
call-protected structure. As of September 30, the Fund's average effective
maturity was 8.51 years.Overall portfolio quality remains at a high level, with
87% of portfolio securities rated A or better at the close of the period. We
continue to invest in a broad selection of Massachusetts tax-exempt bonds,
including hospital/health, general obligation, and higher education.
Outlook
There are several factors that -- taken together or separately -- could boost
bond prices over the next several months: First, the Fed may choose to continue
its recent series of interest rate reductions, which could cause short-term as
well as intermediate-term municipal bond yields to decline further. Second, we
view the selling off of leveraged holdings by the large hedge funds that began
in late September as a "wild card" that could continue to drive investors to
"safe haven" fixed income securities. Third, we expect inflation -- at 1.8% as
of September 30 -- to remain low and U.S. economic growth to slow significantly
in 1999.
In addition to these positive signs for bonds overall, municipal bonds are
currently attractively valued, as indicated by the fact that the ratio of
municipal yields to Treasury yields on bonds of similar maturity is by far the
highest it has been in 10 years. (Please see the following chart.) If, as we
expect, Treasury yields remain low, the tendency would be for municipals yields
to decline and prices to rise, restoring a more typical relationship between
municipals and Treasuries.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE:
Yields of 10-year AAA-Municipal Bonds Compared With 10-year Treasury Bonds
January 1, 1988 - September 30, 1998
10-year 10-year
AAA-Municipal Bonds Treasury Bonds
------------------- --------------
1/88 6.60% 8.80%
6.70 8.80
6.70 9.21
6.50 8.12
1/90 6.40 7.89
6.60 8.44
6.40 8.09
6.30 8.30
1/92 5.60 6.84
5.55 7.13
5.30 6.68
4.75 5.85
1/94 4.40 5.78
5.50 7.32
5.80 7.81
5.05 6.26
1/96 4.65 5.62
5.15 6.82
4.85 6.34
4.80 6.48
1/98 4.40 5.74
4.40 5.46
9/98 4.00 4.42
(Chart indicates a 0.42% spread between the 10-year Treasury Bonds at 4.42%
(9/98) and the 10-year AAA-Municipal Bonds ata 4.00% (9/98).)
CHART CAPTION:
The "spread" between yields of 10-year municipal bonds and 10-year Treasuries is
at its narrowest point in 10 years.
Source: Scudder Kemper Investments, Inc.
We will continue to focus on 15-year premium bonds to try to take advantage of
(1) capital appreciation opportunities over time, and (2) intermediate-term
yield declines if the U.S. economy slows in the near future as we anticipate. As
in the past, we will attempt to limit share price volatility by maintaining a
neutral average maturity and high overall credit quality as we seek
double-tax-free income and competitive returns for Scudder Massachusetts Tax
Free Fund shareholders. Thank you for investing with us.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Kathleen A. Meany
Philip G. Condon Kathleen A. Meany
8 - Scudder Massachusetts Tax Free Fund
<PAGE>
Glossary of Investment Terms
BOND An interest-bearing security issued by the federal,
state, or local government or a corporation that
obligates the issuer to pay the bondholder a
specified amount of interest for a stated period --
usually a number of years -- and to repay the face
amount of the bond at its maturity date.
GENERAL OBLIGATION BOND A municipal bond backed by the "full faith and
credit" (including the taxing and further
borrowing power) of the city, state, or agency that
issues the bond. A general obligation bond is repaid
with the issuer's general revenue and borrowings.
INFLATION An overall increase in the prices of goods and
services, as happens when business and consumer
spending increases relative to the supply of goods
available in the marketplace-- in other words, when
too much money is chasing too few goods. High
inflation has a negative impact on the prices of
fixed-income securities.
MUNICIPAL BOND An interest-bearing debt security issued by a
state or local government entity.
NET ASSET VALUE (NAV) The price per share of a mutual fund based on the
sum of the market value of all the securities owned
by the fund divided by the number of outstanding
shares.
TAXABLE EQUIVALENT YIELD The level of yield a fully taxable instrument
would have to provide to equal that of a
tax-free municipal bond on an after-tax basis.
30-DAY SEC YIELD The standard yield reference for bond funds, based
on a formula prescribed by the SEC. This annualized
yield calculation reflects the 30-day average of the
income earnings of every holding in a given fund's
portfolio, net of expenses, assuming each is held to
maturity.
TOTAL RETURN The most common yardstick to measure the performance
of a fund. Total return -- annualized or
compound -- is based on a combination of share price
changes plus income and capital gain distributions,
if any, expressed as a percentage gain or loss in
value.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
9 - Scudder Massachusetts Tax Free Fund
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Investment Portfolio as of September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-term Municipal Investments 0.2%
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Massachusetts
Massachusetts Health & Educational Facilities Authority, Series C, Daily Demand -----------
Note, 3.7%, 7/1/2005 (c)* (Cost $800,000) .................................... 800,000 A1+ 800,000
-----------
Long-term Municipal Investments 99.8%
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts
Boston, MA, General Obligation, Series A, 6.5%, 7/1/2012 (c) ................... 2,320,000 AAA 2,583,343
Boston, MA, Industrial Development Authority, Springhouse Project, 9.25%,
7/1/2025 ..................................................................... 2,000,000 AAA 2,633,780
Boston, MA, Industrial Development Financing Authority, 5.5%, 7/1/2008 ......... 1,020,000 SKI 1,035,290
Chicopee, MA, Electric System Revenue, ETM, 7.125%, 1/1/2017*** ................ 1,210,000 AAA 1,505,579
Easton, MA, General Obligation, Series 1997, 5%, 10/1/2017 (c) ................. 1,205,000 AAA 1,231,618
Frontier, MA, Regional School District, General Obligation, Series 1998,
5.5%, 6/15/2014 (c) .......................................................... 1,500,000 AAA 1,629,030
Haverhill, MA, Unlimited Tax, General Obligation, Series A, 7%, 6/15/2012 (c) .. 600,000 AAA 677,556
Holyoke, MA, General Obligation, Series 1996 A, 6%, 6/15/2009 (c) .............. 1,560,000 AAA 1,740,289
Marthas Vineyard, MA, Land Bank, Series 1998, 5.5%, 5/1/2011 (c) ............... 1,025,000 AAA 1,136,961
Mashpee, MA, General Obligation:
5.125%, 2/1/2011 (c) ......................................................... 1,025,000 AAA 1,094,003
5.35%, 2/1/2012 (c) .......................................................... 1,525,000 AAA 1,652,078
Massachusetts Bay Transportation Authority, General Transportation System:
Certificate of Participation, 7.75%, 1/15/2006 ............................... 1,000,000 A 1,178,910
Series A, 5.5%, 3/1/2009 ..................................................... 1,000,000 AA 1,106,980
Series A, 5.5%, 3/1/2012 ..................................................... 3,000,000 AA 3,322,020
Series B, 6.2%, 3/1/2016 ..................................................... 2,100,000 AA 2,482,809
Series C, 6.1%, 3/1/2013 ..................................................... 1,250,000 A 1,454,334
Massachusetts Federal Highway Grant:
Revenue Bond, 5.25%, 6/15/2012 ............................................... 2,000,000 AA 2,142,740
Series A, 5.25%, 12/15/2012 .................................................. 5,000,000 AA 5,412,050
Zero Coupon, 12/15/2014 ...................................................... 9,000,000 AA 4,205,250
Massachusetts General Obligation:
Series 1996 A, 6%, 11/1/2010 ................................................. 10,000,000 AA 11,599,200
Series A, 6.5%, 6/1/2008 ..................................................... 330,000 AA 363,818
Series B, 6.5%, 8/1/2008 ..................................................... 5,400,000 AA 6,408,720
Series C, Zero Coupon, 12/1/2004 ............................................. 8,415,000 AA 6,626,813
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Massachusetts Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated Loan, Series C, 5.25%, 8/1/2014 ................................. 3,000,000 AA 3,186,570
Consolidated Loan, Series A, 7.5%, 6/1/2004 .................................. 12,400,000 AA 14,260,248
Hynes Convention Center, Zero Coupon, 9/1/2004 ............................... 2,000,000 AA 1,590,320
Massachusetts Health & Educational Facilities Authority:
Anna Jaques Hospital, Series B, 6.875%, 10/1/2012 ............................ 2,000,000 BBB 2,170,380
Berkshire Health System, Series D, 5.6%, 10/1/2008 (c) ....................... 1,760,000 AAA 1,948,056
Boston College:
Series 1993 K, 5.25%, 6/1/2009 .............................................. 2,880,000 A 3,132,547
Series L, 5.25%, 6/1/2012 ................................................... 1,480,000 AA 1,578,316
Series L, 5.25%, 6/1/2015 ................................................... 720,000 AA 757,202
Series L, 5%, 6/1/2018 ...................................................... 1,655,000 AA 1,672,626
Boston Medical Center, Series 1998 A, 5.25%, 7/1/2013 (c) .................... 4,575,000 AAA 4,824,521
Cape Cod Health Care, Series 1998 B, 5.25%, 11/15/2013 ....................... 1,365,000 NR 1,386,963
Community College Program, Series A, 6.5%, 10/1/2009 ......................... 1,000,000 AAA 1,119,170
Cooley Dickenson Hospital Inc.:
Prerefunded 5/15/2003, 7.125%, 11/15/2018** ................................. 2,035,000 AAA 2,296,436
Series B, 5.25%, 11/15/2010 (c) ............................................. 2,005,000 AAA 2,138,072
Deaconess Hospital, Series B, 6.625%, 4/1/2012 (c) ........................... 2,000,000 AAA 2,222,920
Hallmark Health System, Series 1997 A, 5%, 7/1/2011 (c) ...................... 1,750,000 AAA 1,820,945
Harvard Pilgrim Health, Series 1998 A, 5.25%, 7/1/2011 (c) ................... 3,600,000 AAA 3,837,276
Lowell General Hospital, Series 1996 B, 5.2%, 6/1/2010 (c) ................... 1,180,000 AAA 1,273,716
Massachusetts General Hospital, Series F, 6.25%, 7/1/2012 (c) ................ 5,000,000 AAA 5,824,600
Medical Academic & Scientific, Series B, 6.5%, 1/1/2009 ...................... 5,000,000 A 5,600,450
Medical Center of Central Massachusetts, Series A, 7%,7/1/2012 ............... 3,600,000 AAA 3,937,212
Melrose-Wakefield, Series 1996 C, 6%, 7/1/2012 ............................... 1,000,000 A 1,142,140
Milford-Whitinsville Regional, Series 1998 C, 5.75%, 7/15/2013 ............... 1,750,000 BBB 1,857,695
Newton-Wellesley Hospital:
Series 1997 G, 6%, 7/1/2012 (c) ............................................. 1,000,000 AAA 1,124,100
Series E, 5.9%, 7/1/2011 (c) ................................................ 3,015,000 AAA 3,344,268
Northeastern University:
Series 1998 G, 5.5%, 10/1/2011 (c) .......................................... 1,525,000 AAA 1,696,166
Series 1998 G, 5.5%, 10/1/2012 (c) .......................................... 1,110,000 AAA 1,232,944
Series E, 6.4%, 10/1/2007 (c) ............................................... 1,000,000 AAA 1,107,580
Series E, 6.5%, 10/1/2012 (c) ............................................... 450,000 AAA 499,266
North Adams Regional Hospital, Series C, 6.625%, 7/1/2018 .................... 1,560,000 BBB 1,712,225
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Massachusetts Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
South Shore Hospital, 6.5%, 7/1/2010 (c) ..................................... 2,500,000 AAA 2,742,125
Southcoast Health System, Series 1998 A, 5.5%, 7/1/2010 (c) .................. 1,570,000 AAA 1,736,169
St. Luke's Hospital New Bedford, Series C, Yield Curve Notes, 7.32%,
8/15/2010 (c)**** ........................................................... 3,400,000 AAA 3,910,000
Stonehill College, Series E, 6.55%, 7/1/2012 (c) ............................. 5,000,000 AAA 5,529,700
Suffolk University, Series 1996 C, 5.65%, 7/1/2011 (c) ....................... 1,045,000 AAA 1,147,034
Partners Healthcare System, Series 1997 A, 5.25%, 7/1/2013 (c) ............... 2,000,000 AAA 2,101,660
Massachusetts Housing Finance Agency Housing Project Refunding Revenue:
Series A, 6.3%, 10/1/2013 .................................................... 7,000,000 A 7,454,510
Series A, 6.375%, 4/1/2021 ................................................... 3,905,000 A 4,165,307
Series B, 6.05%, 12/1/2009 (c) ............................................... 3,000,000 AAA 3,141,360
Residential Development, Series C, 6.875%, 11/15/2011 ........................ 15,250,000 AAA 16,734,435
Single-Family Mortgage Revenue, Series 44, 5.9%, 12/1/2013 ................... 3,000,000 A 3,172,680
Massachusetts Industrial Finance Agency:
Assisted Living Facilities Revenue TNG, Marina Bay LLC Project, Series 1997,
7.5%, 12/1/2027 ............................................................. 1,000,000 SKI 1,055,060
Babson College:
Series A, 5%, 10/1/2018 (c) ................................................. 1,000,000 AAA 1,015,350
Series A, 5.375%, 10/1/2017 ................................................. 1,700,000 A 1,782,807
College of the Holy Cross:
Issue II, 6.375%, 11/1/2009 ................................................. 1,000,000 AAA 1,115,860
Series 1996, 5.25%, 3/1/2009 (c) ............................................ 1,190,000 AAA 1,287,973
Series 1996, 5.5%, 3/1/2016 (c) ............................................. 5,000,000 AAA 5,364,350
Dana Hall School Issue, Series 1997 A, 5.7%, 7/1/2013 ........................ 1,000,000 BBB 1,084,450
Deerfield Academy, Series 1997, 5.125%, 10/1/2017 ............................ 1,520,000 AAA 1,552,710
Dexter School Project, Series 1997, 5.4%, 5/1/2013 (c) ....................... 1,000,000 AAA 1,078,420
Edgewood Retirement Community, Series A, 9%, 11/15/2025 ...................... 1,650,000 SKI 2,036,859
East Boston Neighborhood, Series 1996, 7.625%, 7/1/2026 ...................... 2,750,000 BB 2,906,998
First Mortgage, Evanswood Bethzatha, Series A, 7.875%, 1/15/2020 ............. 1,000,000 SKI 1,081,930
Massachusetts Biomedical Research Corp.:
Series A, Zero Coupon, 8/1/2000 ............................................. 2,860,000 A 2,669,953
Series A, Zero Coupon, 8/1/2001 ............................................. 3,650,000 A 3,277,664
Series A, Zero Coupon, 8/1/2002 ............................................. 3,650,000 A 3,146,154
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Massachusetts Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Merrimack College:
Series 1997, 5%, 7/1/2011 (c) ............................................... 1,490,000 AAA 1,565,841
Series 1997, 5%, 7/1/2012 (c) ............................................... 1,560,000 AAA 1,627,158
Series 1997, 5%, 7/1/2017 (c) ............................................... 1,000,000 AAA 1,019,940
Nantucket Electric Co.:
Series 1996 A, 5.75%, 7/1/2008 (c) .......................................... 1,400,000 AAA 1,549,730
Series 1996 A, 5.75%, 7/1/2009 (c) .......................................... 1,400,000 AAA 1,543,864
Series 1996 A, 5.875%, 7/1/2017 (c) ......................................... 2,000,000 AAA 2,187,160
Pollution Control Revenue:
Boston Edison Company, Series A, 5.75%, 2/1/2014 ............................ 2,000,000 BBB 2,093,520
Eastern Edison Company Project, 5.875%, 8/1/2008 ............................ 4,750,000 BBB 4,975,198
Provider Lease Program, Series A-1, 8.4%, 7/15/2008 .......................... 1,445,000 SKI 1,476,198
Resource Recovery, North Andover Solid Waste, Series A, 6.3%, 7/1/2005 ....... 6,500,000 BBB 7,072,000
Solid Waste Disposal, Peabody Monofil Project, 9%, 9/1/2005 .................. 2,905,000 SKI 3,212,378
Sturdy Memorial Hospital, 7.9%, 6/1/2009 ..................................... 1,645,000 A 1,721,789
Worcester Polytechnical Institute:
Series 1997, 5%, 3/1/2010 (c) ............................................... 1,645,000 AAA 1,748,882
Series 1997 II, 5.125%, 9/1/2011 (c) ........................................ 1,300,000 AAA 1,383,538
Series 1997 II, 5.125%, 9/1/2016 (c) ........................................ 2,600,000 AAA 2,694,120
The Tabor Academy, 5.4%, 12/1/2018 ........................................... 1,000,000 BBB 1,027,790
Massachusetts Municipal Wholesale Electric Company Power Supply System Revenue:
Series A, 6.75%, 7/1/2006 .................................................... 2,855,000 BBB 3,124,683
Series B, 6.75%, 7/1/2008 .................................................... 9,000,000 BBB 9,863,280
Series B, 4.95%, 7/1/2009 (c) ................................................ 1,575,000 AAA 1,652,600
Series C, 6.625%, 7/1/2010 ................................................... 1,000,000 BBB+ 1,086,200
Series C, 6.625%, 7/1/2010 (c) ............................................... 3,500,000 AAA 3,873,380
Massachusetts Port Authority Revenue:
Series 1997 A, 5.125%, 7/1/2016 .............................................. 3,500,000 AA 3,625,090
Series 1998 A, 5.75%, 7/1/2010 ............................................... 2,000,000 AA 2,261,260
Series 1998 A, 5.75%, 7/1/2012 ............................................... 2,350,000 AA 2,658,955
Series 1998 A, 5.5%, 7/1/2015 ................................................ 2,670,000 AA 2,885,015
Series 1998 A, 5.5%, 7/1/2016 ................................................ 1,650,000 AA 1,778,816
Tax Exempt Receipts, ETM, Zero Coupon, 7/1/2013*** ........................... 1,000,000 AAA 1,151,650
Special Facilities USAir Private Jet, Series 1996 A, 5.75%, 9/1/2016 (c) ..... 1,000,000 AAA 1,086,040
Massachusetts Special Obligation, Series 1996 A, 5.5%, 6/1/2011 (c) ............ 5,000,000 AAA 5,444,750
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder Massachusetts Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts State Industrial Finance Agency:
Belmont, Series 1998, 5.625%, 9/1/2020 ....................................... 1,265,000 A 1,336,991
Belmont Hill School, Series 1998, 5.15%, 9/1/2013 ............................ 1,000,000 A 1,020,510
Concord Academy Series 1997, 5.45%, 9/1/2017 ................................. 1,205,000 BBB 1,235,860
Massachusetts State Water Pollution Abatement Trust, MWRA Loan Program,
Series 1998 A, 5.25%, 8/1/2013 ............................................... 3,500,000 AA 3,726,275
Massachusetts Turnpike Authority, Metropolitan Highway System:
Series 1997 A, 5%, 1/1/2010 .................................................. 2,000,000 A 2,098,040
Series 1997 A, 5%, 1/1/2011 .................................................. 3,000,000 A 3,121,920
Massachusetts Water Pollution Abatement Trust, Pooled Loan Program:
Series 2, 5.625%, 2/1/2010 ................................................... 2,820,000 AAA 3,087,985
Series 2, 5.7%, 2/1/2015 ..................................................... 1,150,000 AAA 1,245,542
Massachusetts Water Resource Authority:
General Series 1998 A, 5.5%, 8/1/2013 (c) .................................... 1,445,000 AAA 1,601,739
General Series 1998 A, 5.5%, 8/1/2014 (c) .................................... 1,745,000 AAA 1,926,375
General Revenue, Series C, 5.25%, 12/1/2015 .................................. 4,030,000 A 4,293,844
Series A, 6.5%, 7/15/2009 .................................................... 15,000,000 A 17,809,950
Series A, 6.5%, 7/15/2019 .................................................... 3,000,000 A 3,646,170
Series B, 6%, 11/1/2008 ...................................................... 5,785,000 A 6,272,618
Nantucket, MA, General Obligation:
6.8%, 12/1/2011 .............................................................. 1,000,000 AAA 1,109,650
Series 1997, 5%, 7/15/2017 (c) ............................................... 2,710,000 AAA 2,764,200
Series 1998 E, 5%, 7/1/2019 .................................................. 1,100,000 AAA 1,109,658
New England Educational Loan Marketing Corporation, Massachusetts Student Loan
Revenue, 5.7%, 7/1/2005 ...................................................... 6,250,000 A 6,666,375
North Attleboro, MA, General Obligation, Series 1997, 5%, 3/1/2011 (c) ......... 1,120,000 AAA 1,178,755
Norton, MA, General Obligation:
Series 1998, 5%, 10/1/2012 (c) ............................................... 2,570,000 AAA 2,690,584
Series 1998, 5%, 10/1/2013 (c) ............................................... 1,000,000 AAA 1,040,330
Somerville, MA, General Obligation, Series 1997, 5.25%, 2/15/2012 (c) .......... 1,180,000 AAA 1,263,780
Springfield, MA, General Obligation:
5%, 9/1/2009 ................................................................. 1,000,000 AAA 1,063,570
Series 1996, 5.3%, 8/1/2011 (c) .............................................. 1,250,000 AAA 1,344,138
University of Massachusetts, Building Authority Revenue:
Series B, 6.625%, 5/1/2009 ................................................... 2,415,000 A 2,906,646
Series B, 6.625%, 5/1/2010 ................................................... 2,575,000 A 3,119,329
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Massachusetts Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series B, 6.75%, 5/1/2011 .................................................... 2,745,000 A 3,375,197
Series B, 6.875%, 5/1/2014 ................................................... 1,300,000 A 1,612,351
Worcester, MA, General Obligation:
Prerefunded 5/15/02:
6.9%, 5/15/2005 (c)** ....................................................... 1,850,000 AAA 2,078,975
6.9%, 5/15/2006 (c)** ....................................................... 1,500,000 AAA 1,685,655
Series 1998 B:
5.25%, 11/1/2011 (c) ........................................................ 1,805,000 AAA 1,949,653
5.25%, 11/1/2012 (c) ........................................................ 1,830,000 AAA 1,962,693
Puerto Rico
Puerto Rico Highway and Transportation Authority, Highway Revenue, Series
1996 Y, 6.25%, 7/1/2014 ...................................................... 2,000,000 A 2,369,260
- ------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $362,899,210) 396,915,062
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $363,699,210) (a) 397,715,062
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $363,699,210. At September
30, 1998, net unrealized appreciation for all securities based on tax
cost was $34,015,852. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $34,015,852.
(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) and securities rated by Scudder Kemper Investments (SKI)
have been determined to be of comparable quality to rated eligible
securities.
(c) Bond is insured by one of these companies: AMBAC, FGIC, FSA 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 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 September 30, 1998.
The accompanying notes are an integral part of the financial statements.
15 - Scudder Massachusetts Tax Free Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of September 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $363,699,210) ................. $ 397,715,062
Cash .................................................................. 570,449
Receivable for investments sold ....................................... 3,374,625
Interest receivable ................................................... 5,836,964
Receivable for Fund shares sold ....................................... 414,698
Other assets .......................................................... 3,770
----------------
Total assets .......................................................... 407,915,568
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ..................................... 3,671,919
Dividends payable ..................................................... 587,122
Payable for Fund shares redeemed ...................................... 62,822
Accrued management fee ................................................ 202,311
Other payables and accrued expenses ................................... 94,298
----------------
Total liabilities ..................................................... 4,618,472
-------------------------------------------------------------------------------------------
Net assets, at market value $ 403,297,096
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments ............. 34,015,852
Accumulated net realized loss ......................................... (419,507)
Paid-in capital ....................................................... 369,700,751
-------------------------------------------------------------------------------------------
Net assets, at market value $ 403,297,096
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($403,297,096 / 27,541,722 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ......................................................... $14.64
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Massachusetts Tax Free Fund
<PAGE>
Statement of Operations
six months ended September 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Interest .............................................................. $ 10,711,427
----------------
Expenses:
Management fee ........................................................ 1,159,452
Services to shareholders .............................................. 142,326
Custodian and accounting fees ......................................... 51,463
Trustees' fees and expenses ........................................... 15,650
Reports to shareholders ............................................... 18,882
Auditing .............................................................. 13,943
Legal ................................................................. 6,648
Registration fees ..................................................... 15,741
Other ................................................................. 5,183
----------------
1,429,288
-------------------------------------------------------------------------------------------
Net investment income 9,282,139
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ........................................................... 1,746,054
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments ........................................................... 6,598,908
-------------------------------------------------------------------------------------------
Net gain (loss) on investments transactions 8,344,962
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 17,627,101
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Massachusetts Tax Free Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
September 30, Year Ended
1998 March 31,
Increase (Decrease) in Net Assets (Unaudited) 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ......................................... $ 9,282,139 $ 17,463,904
Net realized gain (loss) from investment transactions ......... 1,746,054 1,438,854
Net unrealized appreciation (depreciation) on
investment transactions during the period ................... 6,598,908 13,722,609
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations .................................................. 17,627,101 32,625,367
---------------- ----------------
Distributions to shareholders from net investment
income ...................................................... (9,282,139) (17,463,904)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ..................................... 46,828,659 80,795,273
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................... 5,663,649 10,415,340
Cost of shares redeemed ....................................... (31,446,000) (62,308,419)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ................................................ 21,046,308 28,902,194
---------------- ----------------
Increase (decrease) in net assets ............................. 29,391,270 44,063,657
Net assets at beginning of period ............................. 373,905,826 329,842,169
---------------- ----------------
Net assets at end of period ................................... $403,297,096 $373,905,826
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ..................... 26,075,571 24,047,228
---------------- ----------------
Shares sold ................................................... 3,261,210 5,700,172
Shares issued to shareholders in reinvestment of
distributions ............................................... 393,254 735,264
Shares redeemed ............................................... (2,188,313) (4,407,093)
---------------- ----------------
Net increase (decrease) in Fund shares ........................ 1,466,151 2,028,343
---------------- ----------------
Shares outstanding at end of period ........................... 27,541,722 26,075,571
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - 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>
Six Months
Ended
September 30,
1998 Years Ended March 31,
(Unaudited) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------
Net asset value, beginning of period ................. $ 14.34 $ 13.72 $ 13.70 $ 13.33 $ 13.16 $ 13.61
---------------------------------------------------------------------------
Income from investment operations:
Net investment income ................................ .35 .70 .70 .72 .74 .81
Net realized and unrealized gain (loss) on
investment transactions ............................ .30 .62 .02 .37 .18 (.33)
---------------------------------------------------------------------------
Total from investment operations ..................... .65 1.32 .72 1.09 .92 .48
---------------------------------------------------------------------------
Less distributions:
From net investment income ........................... (.35) (.70) (.70) (.72) (.74) (.81)
From net realized gains on investment
transactions ....................................... -- -- -- -- -- (.08)
In excess of net realized gains ...................... -- -- -- -- (.01) (.04)
---------------------------------------------------------------------------
Total distributions .................................. (.35) (.70) (.70) (.72) (.75) (.93)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net asset value, end of period ....................... $ 14.64 $ 14.34 $ 13.72 $ 13.70 $ 13.33 $ 13.16
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) ................................. 4.57** 9.82 5.39 8.28 7.37 3.37
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............... 403 374 330 314 296 332
Ratio of operating expenses, net to average
daily net assets (%) ............................... .74* .76 .76 .75 .47 .07
Ratio of operating expenses before expense
reductions, to average daily net assets (%) ........ .74* .76 .76 .76 .77 .77
Ratio of net investment income to average daily
net assets (%) ..................................... 4.80* 4.97 5.12 5.23 5.73 5.80
Portfolio turnover rate (%) .......................... 16.7* 8.4 11.5 20.9 10.2 17.0
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced
through March 31, 1996.
* Annualized
** Not annualized
19 - Scudder Massachusetts Tax Free Fund
<PAGE>
Notes to Financial Statements (Unaudited)
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 other than money market securities
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.
Money market instruments purchased with an original 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 of 1986, as amended, 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.
At September 30, 1998, the Fund had a net tax basis capital loss carryforward of
approximately $66,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until March 31,
2005, the expiration date.
Distribution of Income and Gains. All of the net investment income of the Fund
is declared as a dividend to shareholders of record as of the close of business
each day and is paid to shareholders monthly. During any particular year, net
realized gains from investment transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not distributed and, therefore,
will be distributed to shareholders. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
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.
20 - Scudder Massachusetts Tax Free Fund
<PAGE>
B. Purchases and Sales of Securities
During the six months ended September 30, 1998, purchases and sales of municipal
securities (excluding short-term investments) aggregated $50,806,830 and
$31,701,393, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, 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 Management Agreement. For the six months ended September 30, 1998, the
fees pursuant to these agreements amounted to $1,159,452, of which $202,311 was
unpaid at September 30, 1998.
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's investment management agreement with Scudder Kemper was
deemed to have been assigned and, therefore, terminated. The Board of Trustees
of the Fund has approved a new investment management agreement with Scudder
Kemper, which is substantially identical to the former investment management
agreement, except for the dates of execution and termination. The Board of
Trustees of the Fund will seek shareholder approval of the new investment
management agreement through a proxy solicitation that is currently scheduled to
conclude in mid-December.
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 September 30, 1998, the amount charged to the Fund by SSC
aggregated $96,704, of which $16,234 was unpaid at September 30, 1998.
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 September 30, 1998, the amount charged to the Fund by SFAC aggregated
$33,060, of which $5,661 was unpaid at September 30, 1998.
The Trust pays each Trustee not affiliated with the Adviser an annual retainer,
divided equally among the series of the Trust, plus specified amounts for
attended board and committee meetings. For the six months ended September 30,
1998, Trustees' fees and expenses charged to the Fund aggregated $15,650.
21 - Scudder Massachusetts Tax Free Fund
<PAGE>
This Page
intentionally
left blank.
22 - Scudder Massachusetts Tax Free Fund
<PAGE>
This Page
intentionally
left blank.
23 - Scudder Massachusetts Tax Free Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics,
Bentley College
Peter B. Freeman
Trustee; Corporate Director and
Trustee
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business
Administration, Northeastern
University, College of Business
Administration
Kathryn L. Quirk*
Trustee; Vice President and
Assistant Secretary
Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners
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
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, 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
Scudder Money Market Series--
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series--
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
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Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
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Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
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Retirement Programs
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Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
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Education IRA
UGMA/UTMA
Closed-End Funds#
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The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange and,
in some cases, on various other stock exchanges.
25 - Scudder Massachusetts Tax Free Fund
<PAGE>
Scudder Solutions
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<CAPTION>
Convenient ways to invest, quickly and reliably:
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<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
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Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- www.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 QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
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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 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
800 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
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Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
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27 - Scudder Massachusetts Tax Free Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
United States.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
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