Scudder
Massachusetts
Limited Term
Tax Free Fund
Annual Report
October 31, 1998
Pure No-Load(TM) Funds
A fund seeking to provide as high a level of income exempt from Massachusetts
state personal income and regular federal income tax as is consistent with a
high degree of price stability.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
Scudder Massachusetts Limited Term Tax Free Fund
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Date of Inception: 2/15/94 Total Net Assets as of Ticker Symbol: SMLFX
10/31/98: $95.58 million
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o As of October 31, 1998, Scudder Massachusetts Limited Term Tax Free Fund's
30-day net annualized SEC yield was 3.06%, equivalent to a 5.76% taxable yield
for Massachusetts investors subject to the 46.85% combined federal and state
income tax rate.
o For its most recent fiscal year ended October 31, 1998, Scudder Massachusetts
Limited Term Tax Free Fund posted a total return of 5.59%. The Fund's return
outpaced the average performance of the Fund's peers over the one- and
three-year periods ended October 31, according to Lipper Analytical Services,
Inc.
o Scudder Massachusetts Limited Term Tax Free Fund received a four-star rating
from Morningstar, reflecting an "above-average" rating for risk-adjusted
performance through October 31, 1998.^1
Table of Contents
3 Letter from the Fund's President 17 Financial Highlights
4 Performance Update 18 Notes to Financial Statements
5 Portfolio Summary 21 Report of Independent Accountants
6 Portfolio Management Discussion 22 Tax Information
9 Glossary of Investment Terms 24 Officers and Trustees
10 Investment Portfolio 25 Investment Products and Services
14 Financial Statements 26 Scudder Solutions
^1 For your information, these ratings are subject to change every month and
are calculated from the Fund's 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 four
stars for three-year performance, and was rated among 1,586 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,
Short-term municipal bond funds such as Scudder Massachusetts Limited Term
Tax Free Fund have afforded investors a gratifying level of principal stability
over the past 12 months, during a period when events around the globe have led
to greater volatility in most financial markets. We believe municipal bonds rank
second only to U.S. Treasuries in the security they can provide investors. Most
municipal issuers are able to raise money to pay principal and interest on the
bonds they issue by levying taxes. Because of this taxing power, municipal bond
performance tends to be less reliant on economic cycles than that of other asset
classes. Added to municipals' characteristics of comparative stability and
security is their high relative value at present compared with U.S. Treasuries:
In October 1998, yields of 5-year AAA-rated municipal bonds were at their
highest level versus 5-year Treasury yields in 10 years.
Scudder Massachusetts Limited Term Tax Free Fund's total return over its most
recent annual period was 5.59%, outpacing the average performance of its peers
as tracked by Lipper. The Fund also surpassed the average performance of its
peers over the three-year period ended October 31, 1998. Please see the
Portfolio Management Discussion beginning on page 6 for additional information.
For those of you who are interested in new Scudder products, we recently
introduced the Scudder Tax Managed Growth Fund, investing in medium- to
large-sized U.S. companies, and Scudder Tax Managed Small Company Fund, which
invests in stocks of small U.S. companies. Using a combination of quantitative
and fundamental research, the funds will focus on companies with strong earnings
growth, reasonable valuations, and favorable risk profiles. Both funds strive to
maximize after-tax returns by systematically taking into account the tax
implications of portfolio transactions and seeking to offset capital gains by
realizing losses when appropriate. Please see pages 25 through 26 for more
information on Scudder products and services.
As always, please call a Scudder Investor Information representative at
1-800-225-2470 if you have questions about your Fund, or visit our Web site at
www.scudder.com. Thank you for choosing Scudder Massachusetts Limited Term Tax
Free Fund to help meet your investment needs.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Massachusetts Limited Term Tax Free Fund
3 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Performance Update as of October 31, 1998
- ----------------------
Fund Index Comparisons
- ----------------------
Total Return
---------------------------------------------------
Period Ended Growth of Average
10/31/98 $10,000 Cumulative Annual
---------------------------------------------------
Scudder Massachusetts Limited Term
Tax Free Fund
---------------------------------------------------
1 Year $ 10,559 5.59% 5.59%
Life of Fund* $ 12,511 25.11% 4.88%
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Lehman Brothers Municipal Bond Index (3 year)
---------------------------------------------------
1 Year $ 10,572 5.72% 5.72%
Life of Fund* $ 12,663 26.63% 5.18%
---------------------------------------------------
* The Fund commenced operation on February 15, 1994.
Index comparisons begin February 28, 1994.
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Growth of a $10,000 Investment
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THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Lehman Brothers Municipal Scudder Massachusetts Limited
Bond Index (3 year) Term Tax Free Fund
2/94* 10000 10000
4/94 9938 9912
10/94 10058 10030
4/95 10401 10414
10/95 10862 10840
4/96 11051 10997
10/96 11352 11271
4/97 11561 11425
10/97 11978 11885
4/98 12204 12094
10/98 12663 12549
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
- ---------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
Yearly periods ended October 31
<TABLE>
<CAPTION>
1994* 1995 1996 1997 1998
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<S> <C> <C> <C> <C> <C>
Net Asset Value $ 11.64 $ 12.02 $ 11.99 $ 12.10 $ 12.27
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Income Dividends $ .36 $ .54 $ .50 $ .53 $ .49
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Total Return (%) .00 8.08 3.98 5.44 5.59
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Index Total Return (%) .56 8.01 4.51 5.51 5.72
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</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 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 October 31, 1998
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Diversification
- ---------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Hospital/Health 26%
Other General Obligation/Lease 20%
Sales & Special Tax 10%
State General Obligation 9%
Toll Revenue/Transportation 7%
Higher Education 7%
Water/Sewer Revenue 5%
Student Loans 4%
Electric Utility Revenue 4%
Pollution Control/Industrial
Development 3%
Miscellaneous Municipal 5%
---------------------------------------------
100%
---------------------------------------------
The Fund is broadly diversified, with holdings in several
categories of Massachusetts revenue and general obligation
bonds.
- -------
Quality
- -------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
AAA 70%
AA 10%
A 6%
BBB 10%
BB 1%
Not Rated 3%
---------------------------------------------
100%
---------------------------------------------
Weighted average quality: AA
Overall portfolio credit quality remains high, with 80% of
the Fund's holdings rated AAA or AA.
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Effective Maturity
- ------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Less than 1 year 10%
1 - 5 years 54%
5 - 10 years 36%
---------------------------------------------
100%
---------------------------------------------
Weighted average effective maturity:
4.08 years
During the most recent fiscal year, we focused on
Massachusetts tax-exempt bonds with maturities of two to six
years to take advantage of higher yields and what we felt
were the most promising capital appreciation opportunities
within the Fund's range of acceptable maturities.
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 Limited Term Tax Free Fund
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
In the face of heightened volatility in most of the world's financial markets,
Scudder Massachusetts Limited Term Tax Free Fund registered gains over its most
recent fiscal year ended October 31, 1998. The Fund posted a 5.59% total return
over the 12 months ended October 31, surpassing the 5.08% average performance of
19 similar short-term state tax free funds as compiled by Lipper Analytical
Services, Inc. As of October 31, the Fund's 30-day net annualized SEC yield was
3.06%, equal to a 5.76% taxable yield for Massachusetts investors in the top
state and federal tax brackets.
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. The project is being financed by
various sources, including federal highway reimbursements, G.O. bonds, federal
grant anticipation notes, Massport, and the Massachusetts Turnpike Authority.
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.
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 markets. In the international capital markets, the most
damaging developments were Russia's economic collapse -- including its
short-term debt default and ruble devaluation, Japan's failure to initiate
needed banking reform and climb out of recession, and Brazil's continuing
currency crisis. The Federal Reserve lowered short-term interest rates by one
quarter of a percentage point on September 29 in an attempt to restore order to
worldwide financial markets. Initial reaction from market participants was that
the Fed's action was insufficient, driving even more investors to Treasury
bonds. A subsequent interest rate reduction by the Fed along with mixed economic
signals left investors wondering about the future direction of short-term
interest rates. 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.
As is typically true during a strong Treasury bond rally, prices of municipal
bonds did not keep up. During the 12-month period, 5-year Treasury bond yields
6 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
declined approximately one and one half of a percentage point and their prices
rose 6.5%. Over the same time frame, 5-year AAA-rated municipal bond yields
declined approximately one half of a percentage point, and their prices rose 2%.
Two factors were most responsible for the disparity in performance between the
Treasury and municipal markets: first, the "flight to quality" from stocks,
emerging market bonds, and corporate bonds into Treasuries; second, the heavy
supply of new tax-exempt issues from January through October 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.
Partly because they have lagged in performance, 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. If, as we expect, Treasury yields remain low, the tendency
would be for municipal yields to decline and prices to rise, restoring a more
typical relationship between municipals and Treasuries.
Double-Tax-Free Income and Below-Average Risk
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 ten
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 fiscal year the Fund emphasized Massachusetts
tax-exempt bonds with maturities of two to six years. We did this to take
advantage of higher yields and what we felt were the most promising
opportunities for capital appreciation within the Fund's range of acceptable
maturities. We also continued to emphasize premium bonds (98% of the Fund's
portfolio as of October 31), which generally exhibit less interest rate
sensitivity than bonds priced at par. In addition, the Fund holds a large
percentage of pre-refunded bonds (32% as of October 31). 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 80% of the bonds in the Fund's portfolio rated AAA or
AA.
Outlook
The Federal Reserve enacted its two recent reductions in the Fed Funds Rate both
to promote global economic stability and to keep the U.S. economy from sliding
into a recession. If the Fed sees the need to act on either front over the
coming months and cut interest rates further, the two- to six-year municipal
bonds the Fund has been focusing on should continue to benefit. Once we feel the
Fund has derived the bulk of likely near-term price gains from the two- to
7 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
six-year sector, we will look to enhance the Fund's yield by shifting a portion
of its assets into longer-maturity bonds while maintaining a similar average
maturity.
We will continue to maintain a conservative investment strategy, including
holding premium bonds, diversifying broadly, and keeping the Fund's credit
quality at a high level. We will also search for attractive value by weighing
the maturity characteristics, credit quality, and income potential of each bond
we consider adding to the Fund's portfolio. 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
Scudder Massachusetts Limited
Term Tax Free Fund: A Team
Approach to Investing
Scudder Massachusetts Limited Term Tax Free Fund is managed by a team of
Scudder Kemper Investments, Inc. (the "Adviser") professionals, each of whom
plays an important role in the Fund's management process. Team members work
together to develop investment strategies and select securities for the Fund's
portfolio. They are supported by the Adviser's large staff of economists,
research analysts, traders, and other investment specialists who work in our
offices across the United States and abroad. We believe our team approach
benefits Fund investors by bringing together many disciplines and leveraging
our extensive resources.
Philip G. Condon, Lead Portfolio Manager, joined Scudder in 1983 and has over
17 years of experience as a portfolio manager and in municipal research. Phil
has managed Scudder Massachusetts Limited Term Tax Free Fund since its
inception and Scudder Massachusetts Tax Free Fund since 1989. Kathleen A.
Meany, Portfolio Manager, joined Scudder in 1988 and has over 20 years of
municipal sales and portfolio management experience. Kate has managed Scudder
Massachusetts Limited Term Tax Free Fund since its inception and Scudder
Massachusetts Tax Free Fund since 1988.
8 - Scudder Massachusetts Limited Term 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 Limited Term Tax Free Fund
<PAGE>
Investment Portfolio as of October 31, 1998
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
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Short-Term Municipal Investments 2.5%
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<S> <C> <C> <C>
Boston, MA, Industrial Development Finance Authority, First
Mortgage-Springhouse Inc., 4.25%, 7/1/1999 ................................... 255,000 SKI 254,787
Massachusetts General Obligation, Refunding Series 1993 B, 4.4%, 11/1/1998 ..... 950,000 AA 950,038
Massachusetts Industrial Finance Agency, Health Care Facility Revenue,
Beverly Enterprises, Daily Demand Note, 3.7%, 4/1/2009* ...................... 100,000 MIG1 100,000
Massachusetts Turnpike Authority:
Series 1996A, Refunded, 5%, 6/1/1999 ......................................... 785,000 NR 794,585
Series 1996A, Unrefunded, 5%, 6/1/1999 ....................................... 215,000 NR 217,324
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Total Short-Term Municipal Investments (Cost $2,309,383) 2,316,734
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Intermediate-Term Municipal Investments 97.5%
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Massachusetts
Boston, MA, Industrial Development Finance Authority, First
Mortgage-Springhouse Inc.:
4.5%, 7/1/2000 .............................................................. 180,000 SKI 179,606
4.75%, 7/1/2001 ............................................................. 195,000 SKI 194,805
4.875%, 7/1/2002 ............................................................ 255,000 SKI 254,883
Lowell, MA, General Obligation:
6%, 12/15/2004 (c) ........................................................... 2,025,000 AAA 2,249,937
Prerefunded 2/15/01, 8.3%, 2/15/2005** ....................................... 1,635,000 AAA 1,847,648
Series 1992, 6.375%, 8/15/2001 ............................................... 1,000,000 A 1,065,340
Malden, MA, General Obligation, Series 1997, 5.5%, 8/1/2005 (c) ................ 1,570,000 AAA 1,710,955
Massachusetts Bay Transportation Authority:
General Obligation, Series 1997C, 5%, 3/1/2004 ............................... 500,000 A 525,500
System Revenue, Series 1992 C, Prerefunded 3/1/02, 6.1%, 3/1/2023** .......... 5,000,000 AAA 5,455,450
Massachusetts Educational Loan Authority, Issue E, Series A, 6.7%,
1/1/2002 (c) ................................................................. 400,000 AAA 428,816
Massachusetts General Obligation:
Series A, 5.25%, 2/1/2001 (c) ................................................ 3,000,000 AAA 3,108,660
Series A, Prerefunded 8/1/2001, 6.5%, 8/1/2011** ............................. 2,000,000 AAA 2,187,220
Series C, Prerefunded 12/1/2000, 7%, 12/1/2010** ............................. 775,000 AAA 829,777
Series C, Prerefunded 12/1/2000, 7.5%, 12/1/2007** ........................... 750,000 AAA 824,295
Massachusetts Grant Anticipation Notes, Revenue Bonds, 5%, 12/15/2005 .......... 4,000,000 AA3 4,248,240
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
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<S> <C> <C> <C>
Massachusetts Health & Educational Facilities Authority:
Berkshire Health System:
Series C, 5.9%, 10/1/2011 ................................................... 1,000,000 BBB 1,040,720
Series D, 5.3%, 10/1/2003 (c) ............................................... 1,350,000 AAA 1,437,548
Boston College Issue, Series 1998L, 5%, 6/1/2006 ............................. 520,000 AA- 551,970
Central Massachusetts Medical Center, Series B, 6%, 7/1/2002 (c) ............. 500,000 AAA 538,200
Daughters of Charity:
Carney Hospital, Prerefunded 7/1/2000, 7.5%, 7/1/2005** ..................... 1,000,000 AAA 1,083,630
Series D, 4.9%, 7/1/2000 .................................................... 400,000 AA 408,920
Fairview Extended Care, Series 1997B, 4.55%, 1/1/2021 (c) .................... 1,750,000 AAA 1,780,958
Hallmark Health System, Series 1997A, 5.25%, 7/1/2006 (c) .................... 1,000,000 AAA 1,076,330
Massachusetts Eye and Ear Infirmary, Series A, 7%, 7/1/2001 .................. 2,120,000 BBB 2,233,187
Medical, Academic & Scientific:
Series A, 5.9%, 1/1/2000 .................................................... 500,000 A 512,275
Series A, 6%, 1/1/2001 ...................................................... 1,000,000 A 1,041,310
Series A, 6.1%, 1/1/2002 .................................................... 500,000 A 529,405
Newton-Wellesley Hospital, Series D, Prerefunded 7/1/2001, 7%,
7/1/2015 (c)** .............................................................. 1,500,000 AAA 1,655,070
St. Joseph's Hospital, Series C, Prerefunded 10/1/1999, 9.5%, 10/1/2020** .... 3,355,000 AAA 3,614,476
Valley Regional Health System, Series C, 5.3%, 7/1/2000 ...................... 1,500,000 AAA 1,541,610
Wheaton College, Series B, Prerefunded 7/1/99, 7.2%, 7/1/2009** .............. 590,000 AAA 618,279
Massachusetts Housing Finance Agency, Housing Project Revenue, Series A,
5.2%, 10/1/2000 .............................................................. 575,000 A 587,115
Massachusetts Industrial Finance Agency:
Boston Museum of Fine Arts, Series 1996, 5.125%, 1/1/2004 (c) ................ 1,000,000 AAA 1,057,760
Cape Cod Health Systems, Series 1990, Prerefunded 11/15/00, 8.5%,
11/15/2020** ................................................................ 2,150,000 AAA 2,400,733
College of the Holy Cross, Series 1996, 5.5%, 3/1/2006 (c) ................... 1,000,000 AAA 1,093,170
East Boston Neighborhood Project, 7.25%, 7/1/2006 ............................ 855,000 BA 895,501
Leominister Hospital, Series 1989A, Prerefunded 8/1/1999, 8.625%,
8/1/2009** .................................................................. 2,000,000 AAA 2,120,720
Merrimack College, Series 1997, 5.5%, 7/1/2006 (c) ........................... 1,055,000 AAA 1,157,113
Milton Academy, Revenue Refunding, Series A, Prerefunded 9/1/99, 7.25%,
9/1/2019 (c)** .............................................................. 700,000 AAA 738,213
Resource Recovery, North Andover Solid Waste:
Series A, 6.15%, 7/1/2002 ................................................... 750,000 BBB 786,023
Series A, 6.3%, 7/1/2005 .................................................... 2,750,000 BBB 2,970,935
Worcester Polytechnic, Series 1997II, 5.25%, 9/1/2004 (c) .................... 1,065,000 AAA 1,138,773
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts Municipal Wholesale Electric Company, Power Supply System
Revenue:
Prerefunded 7/1/2002, 6.75%, 7/1/2017** ...................................... 1,720,000 AAA 1,929,685
Series B, 6.3%, 7/1/2000 ..................................................... 345,000 A 359,814
Series B, 6.375%, 7/1/2001 ................................................... 1,000,000 A 1,065,370
Massachusetts Port Authority Revenue:
Series 1997A, 6%, 7/1/2004 ................................................... 1,140,000 AA 1,260,031
Special Facilities-- USAir Project, Series 1996A, 5.5%, 9/1/2006 (c) ......... 640,000 AAA 693,696
Massachusetts Special Obligation, Series 1997A, 5.5%, 6/1/2005 ................. 1,000,000 AA 1,087,870
Massachusetts Special Obligation Revenue Bonds, Series A, 5.2%, 6/1/2004 ....... 1,000,000 AA 1,064,140
Massachusetts Water Resource Authority:
Series 1991A, Prerefunded 12/1/2001, 6.875%, 12/1/2011** ..................... 1,000,000 AAA 1,112,350
Series 1998A, 5%, 8/1/2004 (c) ............................................... 1,260,000 AAA 1,330,069
Series A, Prerefunded 7/15/02, 6.75%, 7/15/2012** ............................ 1,000,000 AAA 1,122,870
Nantucket, MA, General Obligation, Prerefunded 12/1/2001, 6.25%, 12/1/2002** ... 250,000 AAA 273,373
New England Education Loan Marketing Corp., Massachusetts Student Loan
Revenue Refunding, Issue A, 5.8%, 3/1/2002 ................................... 3,150,000 AAA 3,320,415
North Attleboro, MA, General Obligation, Series 1997, 6%, 3/1/2007 (c) ......... 1,000,000 AAA 1,132,720
South Essex, MA, Sewer District, Series B, Prerefunded 6/1/2004, 6.75%,
6/1/2013 (c)** ............................................................... 1,000,000 AAA 1,158,440
Southeastern Massachusetts University Building, Series A, 5.5%, 5/1/2004 (c) ... 1,010,000 AAA 1,088,820
Springfield, MA, General Obligation, Series 1996, 6.375%, 8/1/2003 (c) ......... 2,035,000 AAA 2,255,614
Springfield, MA, Municipal Purpose Loan, General Obligation, Series 1996,
6.25%, 8/1/2006 (c) .......................................................... 1,000,000 AAA 1,145,050
Worcester, MA, General Obligation:
Revenue Refunding, Series G, 6%, 7/1/2001 (c) ................................ 2,000,000 AAA 2,119,960
Series 1997, 5.75%, 8/1/2007 (c) ............................................. 1,000,000 AAA 1,119,320
Puerto Rico
Puerto Rico Public Building Authority, 6.75%, 7/1/2004 (c) ..................... 2,250,000 AAA 2,581,809
Virgin Islands
Virgin Islands Public Finance Authority Revenue Bonds, Series C, 5.5%,
10/1/2004 .................................................................... 2,500,000 BBB- 2,645,850
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Total Intermediate-Term Municipal Investments (Cost $86,636,826) 89,588,342
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $88,946,209) (a) 91,905,076
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
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(a) The cost for federal income tax purposes was $88,957,816. At October 31,
1998, net unrealized appreciation for all securities was $2,947,260. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $2,948,482 and
aggregate gross unrealized depreciation for all investment securities in
which there was an excess of tax cost over market value of $1,222.
(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 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.
13 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1998
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $88,946,209) ................... $ 91,905,076
Cash ................................................................... 2,723,888
Interest receivable .................................................... 1,487,159
Receivable for Fund shares sold ........................................ 24,659
Deferred organization expenses ......................................... 1,626
Other assets ........................................................... 485
----------------
Total assets ........................................................... 96,142,893
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Dividends payable ...................................................... 86,221
Payable for Fund shares redeemed ....................................... 379,214
Accrued management fee ................................................. 42,837
Other payables and accrued expenses .................................... 57,471
----------------
Total liabilities ...................................................... 565,743
--------------------------------------------------------------------------------------------
Net assets, at market value $ 95,577,150
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation on investments ................................. 2,958,867
Accumulated net realized loss .......................................... (171,093)
Paid-in capital ........................................................ 92,789,376
--------------------------------------------------------------------------------------------
Net assets, at market value $ 95,577,150
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($95,577,150/ 7,790,753 outstanding shares of beneficial ----------------
interest, $.01 par value, unlimited number of shares authorized) ..... $12.27
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Statement of Operations
year ended October 31, 1998
<TABLE>
<S> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Interest ............................................................... $ 4,396,325
----------------
Expenses:
Management fee ......................................................... 549,378
Custodian and accounting fees .......................................... 56,940
Services to shareholders ............................................... 64,240
Trustees' fees and expenses ............................................ 19,337
Auditing ............................................................... 31,755
Legal .................................................................. 6,205
Reports to shareholders ................................................ 17,885
Registration fees ...................................................... 10,649
Amortization of organization expenses .................................. 5,625
Other .................................................................. 7,584
----------------
Total expenses before reductions ....................................... 769,598
Expense reductions ..................................................... (82,874)
----------------
Expenses, net .......................................................... 686,724
--------------------------------------------------------------------------------------------
Net investment income 3,709,601
--------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .............................. (17,874)
Net unrealized appreciation (depreciation) on investments during
the period ........................................................... 1,231,974
--------------------------------------------------------------------------------------------
Net gain (loss) on investments 1,214,100
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 4,923,701
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................. $ 3,709,601 $ 3,039,006
Net realized gain (loss) on investments ............... (17,874) 8,891
Net unrealized appreciation (depreciation) on
investments during the period ...................... 1,231,974 676,307
---------------- ----------------
Net increase in net assets resulting from operations .. 4,923,701 3,724,204
---------------- ----------------
Distributions to shareholders from net investment
income ............................................. (3,708,899) (3,039,006)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ............................. 56,595,157 34,983,831
Net asset value of shares issued to shareholders in
reinvestment of distributions ...................... 2,586,470 1,974,195
Cost of shares redeemed ............................... (44,345,935) (23,621,656)
---------------- ----------------
Net increase in net assets from Fund share
transactions ....................................... 14,835,692 13,336,370
---------------- ----------------
Increase in net assets ................................ 16,050,494 14,021,568
Net assets at beginning of period ..................... 79,526,656 65,505,088
---------------- ----------------
Net assets at end of period ........................... $ 95,577,150 $ 79,526,656
---------------- ----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ............. 6,573,339 5,463,378
---------------- ----------------
Shares sold ........................................... 4,651,211 2,911,596
Shares issued to shareholders in reinvestment of
distributions ...................................... 212,502 164,273
Shares redeemed ....................................... (3,646,299) (1,965,908)
---------------- ----------------
Net increase in Fund shares ........................... 1,217,414 1,109,961
---------------- ----------------
Shares outstanding at end of period ................... 7,790,753 6,573,339
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - 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,
1994
(commencement of
Years Ended October 31, operations) to
1998 1997 1996 1995 October 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------
Net asset value, beginning of period ................... $ 12.10 $ 11.99 $ 12.02 $ 11.64 $12.00
------------------------------------------------------------------
Income from investment operations:
Net investment income .................................. .49 .53 .50 .54 .36
Net realized and unrealized gain (loss) on
investment transactions .............................. .17 .11 (.03) .38 (.36)
------------------------------------------------------------------
Total from investment operations ....................... .66 .64 .47 .92 .00
------------------------------------------------------------------
Less distributions from net investment income .......... (.49) (.53) (.50) (.54) (.36)
------------------------------------------------------------------
Net asset value, end of period ......................... $ 12.27 $ 12.10 $ 11.99 $ 12.02 $11.64
------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) ................................... 5.59 5.44 3.98 8.08 0.00**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................. 96 80 66 55 36
Ratio of operating expenses, net to average daily net
assets (%) ........................................... .75 .75 .67 .24 --
Ratio of operating expenses before expense reductions,
to average daily net assets (%) ...................... .84 .93 .90 .92 1.44*
Ratio of net investment income to average daily net
assets (%) ........................................... 4.05 4.40 4.16 4.56 4.45*
Portfolio turnover rate (%) ............................ 9.1 9.8 12.4 27.4 26.3*
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
17 - 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, whose 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, as amended, 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, 1998, the Fund had a net tax basis capital loss carryforward of
approximately $160,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until October 31,
2002, ($21,000), October 31, 2004 ($115,000) and October 31, 2005 ($24,000), 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.
18 - 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 year ended October 31, 1998, purchases and sales of investments
(excluding short-term) aggregated $22,502,221 and $7,820,416, respectively.
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Fund and Scudder Kemper was
approved by the Fund's Board of Trustees and by the Fund's Shareholders. The
Management Agreement, which was effective December 31, 1997, is the same in all
material respects as the corresponding previous Investment Management Agreement,
except that Scudder Kemper is the new investment adviser to the Fund.
Under the Management Agreement with Scudder Kemper, 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. The Adviser agreed to
maintain the annualized expenses at 0.75% of average daily net assets until
February 28, 1999. For the year ended October 31, 1998, the Adviser did not
impose a portion of its management fee amounting to $82,874, and the amount
imposed amounted to $466,504.
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 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 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
year ended October 31, 1998, the amount charged to the Fund by SSC aggregated
$43,271, of which $3,511 was unpaid at October 31, 1998.
19 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1998, the amount charged to the Fund by SFAC aggregated $36,000, of
which $6,000 was unpaid at October 31, 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 year ended October 31, 1998,
Trustees' fees aggregated $19,337.
20 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Report of Independent Accountants
To the Trustees of Scudder State Tax Free Trust and to the Shareholders of
Scudder Massachusetts Limited Term Tax Free Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Massachusetts Limited Term
Tax Free Fund (the "Fund") at October 31, 1998, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 4, 1998
21 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Tax Information
Of the dividends paid by the Scudder Massachusetts Limited Term Tax Free Fund
from net investment income for the taxable year ended October 31, 1998, 100%
constituted exempt interest dividends for regular federal income tax and
Massachusetts state income tax purposes.
Please consult a tax adviser if you have any questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Investor
Relations Representative at 1-800-225-5163.
22 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
This Page
intentionally
left blank.
23 - Scudder Massachusetts Limited Term 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,
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
Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners
Philip G. Condon*
Vice President
Thomas W. Joseph*
Vice President
Ann M. McCreary*
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 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
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
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
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 Limited Term Tax Free Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<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:
- ------------------------------------------------------------------------------------------------------------------------------
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:
- ------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------
26 - 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 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
- ------------------------------------------------------------------------------------------------------------------------------
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
</TABLE>
27 - Scudder Massachusetts Limited Term 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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