Scudder
Massachusetts
Limited Term
Tax Free Fund
Annual Report
March 31, 1999
No-Load 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 no-load fund with no commissions to buy, sell, or exchange shares.
SCUDDER
<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
3/31/99: $104.4 million
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o As of March 31, 1999, Scudder Massachusetts Limited Term Tax Free Fund's
30-day net annualized SEC yield was 2.96%, equivalent to a 5.21% taxable yield
for Massachusetts investors subject to the 43.19% combined federal and state
income tax rate.
o Scudder Massachusetts Limited Term Tax Free Fund's fiscal year end has
changed from October 31 to March 31.
o For its fiscal year ended March 31, 1999, Scudder Massachusetts Limited Term
Tax Free Fund posted a total return of 4.46%, outpacing the average performance
of the Fund's peers over the same period, according to Lipper.
o Scudder Massachusetts Limited Term Tax Free Fund received an overall
four-star Morningstar Ratingt out of 1578 municipal funds, reflecting an
"above-average" rating for risk-adjusted performance as of March 31, 1999^1.
Table of Contents
3 Letter from the Fund's President 18 Notes to Financial Statements
4 Performance Update 21 Report of Independent Accountants
5 Portfolio Summary 22 Tax Information
6 Portfolio Management Discussion 23 Shareholder Meeting Results
9 Glossary of Investment Terms 24 Officers and Trustees
10 Investment Portfolio 25 Investment Products and Services
14 Financial Statements 26 Scudder Solutions
17 Financial Highlights
1 Morningstar proprietary ratings reflect risk-adjusted performance as of March
31, 1999. The ratings are subject to change every month. Past performance is
no guarantee of future results. Morningstar ratings are calculated from the
Fund's three-, five-, and ten-year average annual returns in excess of 90-day
Treasury bill returns with appropriate fee adjustments, and a risk factor
that reflects fund performance below 90-day T-bill returns. The Fund received
four stars for the three- and five-year periods. The top 10% of funds in a
broad asset class receive 5 stars, the next 22.5% receive 4 stars, and the
next 35% receive 3 stars. The Fund was rated among 1578, and 1131 municipal
funds for the three-, and five-year periods, respectively.
2 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
We are pleased to report to you on Scudder Massachusetts Limited Term Tax
Free Fund's abbreviated fiscal year ended March 31, 1999. We have changed the
Fund's fiscal year from October 31 to March 31 as part of a larger effort to
create efficiencies and reduce the costs of producing Scudder fund regulatory
materials such as fund reports and prospectuses. Going forward, you will receive
regular reports following the Fund's annual and semiannual periods ending in
March and September. The Fund posted a 4.46% total return for its fiscal year
ended March 31, higher than the 4.20% return of similar funds as compiled by
Lipper.
Investors concerned about the increased volatility of the financial markets
during the past 12 months should find the chart on page 7 of interest. The chart
shows that over the twelve-month period ended March 31, 5-year municipal bonds
displayed measurably less price volatility than comparable Treasury securities.
For more information concerning Scudder Massachusetts Limited Term Tax Free
Fund's market performance, strategy, and outlook, please see the Portfolio
Management Discussion that begins on page 6.
For those interested in new Scudder products, we are pleased to introduce
Scudder Select 500 Fund and Scudder Select 1000 Growth Fund. Both funds are
managed with the goal of pursuing long-term outperformance compared to their
benchmark indices, the S&P 500 Index and the Russell 1000 Growth Index,
respectively. For more information on either Select fund, please call us at the
number below.
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 March 31, 1999
- ---------------------
Fund Index Comparison
- ---------------------
Total Return
---------------------------------------------
Period
Ended Growth of Average
3/31/1999 $10,000 Cumulative Annual
---------------------------------------------
Scudder Massachusetts Limited Term
Tax Free Fund
---------------------------------------------
1 Year $ 10,446 4.46% 4.46%
5 Year $ 12,813 28.13% 5.08%
Life of $ 12,637 26.37% 4.67%
Fund*
---------------------------------------------
Lehman Brothers Municipal Bond Index (3 year)
---------------------------------------------
1 Year $ 10,529 5.29% 5.29%
5 Year $ 13,022 30.22% 5.42%
Life of $ 12,866 28.66% 5.08%
Fund*
---------------------------------------------
* The Fund commenced operation on February 15, 1994.
Index comparisons begin February 28, 1994.
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
CHART TITLE:
- ------------------------------
Growth of a $10,000 Investment
- ------------------------------
CHART DATA:
Scudder Massachusetts Limited Term Lehman Brothers Municipal
Tax Free Fund Bond Index (3 years)
---------------------------------- -------------------------
2/94 10000 10000
3/94 9880 9892
3/95 10366 10366
3/96 11038 10988
3/97 11512 11392
3/98 12220 12134
3/99 12866 12675
Yearly periods ended March 31
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.
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART TITLE:
- ---------------------------------
Returns and Per Share Information
- ---------------------------------
Yearly periods ended October 31
CHART DATA:
<TABLE>
<CAPTION>
1994* 1995 1996 1997 1998 1999(a)(b)
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<S> <C> <C> <C> <C> <C> <C>
Net Asset Value $ 11.64 $ 12.02 $ 11.99 $ 12.10 $ 12.27 $ 12.20
- -------------------------------------------------------------------------------------------------------------
Income Dividends $ .36 $ .54 $ .50 $ .53 $ .49 $ .19
- -------------------------------------------------------------------------------------------------------------
Fund Total Return (%) .00 8.08 3.98 5.44 5.59 1.00
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Index Total Return (%) .56 8.01 4.51 5.51 5.72 1.60
- -------------------------------------------------------------------------------------------------------------
</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, total returns for the Fund would have been lower.
(a) For the 5 months ended March 31, 1999
(b) On August 10, 1998, the Board of Trustees of the Fund changed the fiscal
year end from October 31 to March 31.
4 - Scudder Massachusetts Limited Term Tax Free Fund
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Portfolio Summary as of March 31, 1999
- ---------------
Diversification
- ---------------
A graph in the form of a pie chart appears here, illustrating the exact
data points in the table below.
Hospital/Health Revenue 24%
Other
General
Obligation/Lease 18%
State
General
Obligation/Lease 15%
Sales/Special
Tax 10%
Higher Education 7%
Cash 6%
Water/Sewer Revenue 5%
Resource Recovery 4%
Student Loans 4%
Electric Utility Revenue 3%
Miscellaneous Municipal 4%
- --------------------------------------
100%
- --------------------------------------
The Fund invests in a broad selection of Massachusetts municipal bonds.
- --------
Quality
- --------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
AAA* 74%
AA 11%
A 3%
BBB 10%
BB 1%
SKI 1%
- --------------------------------------
100%
- --------------------------------------
Weighted average quality: AA
*Category includes cash equivalents
Overall portfolio credit quality remains high, with 85% of portfolio securities
rated AAA or AA as of March 31.
- --------------------
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 17%
1-5 years 49%
5-10 years 34%
- --------------------------------------
100%
- --------------------------------------
Weighted average effective maturity:
3.52 years
During its most recent fiscal year ended March 31, the Fund emphasized
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
opportunities for capital appreciation 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,
Following a series of overseas and domestic financial crises that prompted
uncertainty, volatility, and a "flight to quality," bond yields plummeted, then
returned to July 1998 levels at the close of Scudder Massachusetts Limited Term
Tax Free Fund's most recent fiscal year. During the 12-month period ended March
31, 1999, the Fund returned 4.46%, outpacing the 4.20% average return of similar
funds as tracked by Lipper Analytical Services, Inc., an independent analyst of
investment performance. As of March 31, 1999, Massachusetts Limited Term Tax
Free Fund's 30-day net annualized SEC yield was 2.96%, equivalent to a 5.21%
taxable yield for Massachusetts investors subject to the 43.19% combined federal
and state income tax rate.
Massachusetts Update
Massachusetts continues to benefit from a strong local and national economy. The
Commonwealth's economic indicators are positive, revenues continue to exceed
projections, and unemployment is at its lowest level since 1989. The
Commonwealth's 1998 fiscal-year-end General Fund operating surplus was $2.6
billion, or 21% of revenues. The Commonwealth projects that it will finish its
current fiscal year with an operating surplus of more than $300 million.
A strong job market has given rise to the Commonwealth's sound financial
position. Job growth in the services sector was the principal factor in bringing
Massachusetts' average unemployment rate in 1998 down to 3.3%, from 4.0% in
1997. The Commonwealth's debt level is high, but manageable, given its wealth
levels. Massachusetts' per capita income in 1997 was $31,524 -- 23% higher than
the national average. The Commonwealth's focus on fiscal improvements has
succeeded. Funding for the Central Artery Project remains uncertain, however,
and we will continue to monitor this significant credit issue.
A Market Roller Coaster
Market turmoil hit a peak in the wake of the Russian currency devaluation on
August 17, followed by the near collapse of the Long Term Capital Management
hedge fund. Volatility in the U.S. stock market increased greatly while a
massive reallocation to U.S. Treasury bonds led to substantially lower yields.
Though presidential impeachment proceedings distracted the financial markets
through the fall and beyond, the Federal Reserve's three consecutive interest
rate cuts in September, October, and November helped to gradually restore market
stability. During this period, the U.S. economy continued to grow beyond all
expectations, recording a dramatic 6% annualized increase in GDP for the fourth
quarter of 1998. This show of strength, in turn, worried bond investors, who
responded by sending Treasury bond yields back up to July 1998 levels. Over the
Fund's most recent fiscal year, yields of five-year Treasury bonds ended lower,
beginning the period at 5.54% and ending it at 5.14%. Over the same time frame,
yields of five-year AAA insured municipal bonds also declined, from 4.10% to
3.88%.
In addition to high tax-free yields, municipal bonds have historically offered
greater price stability over
6 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART TITLE:
- -------------------------------------------------------
Municipals Provided Greater Stability
Monthly prices of 5-year AAA-rated municipal bonds
compared with prices of 5-year U.S. Treasury Bonds,
3/31/98-3/31/99
- -------------------------------------------------------
CHART DATA:
5-year U.S. Treasury Bonds 5-year AAA-rated municipal bonds
--------------------------- ---------------------------------
3/31/98 100.00 100.00
99.61 99.33
5/31/98 99.87 100.00
100.56 100.00
7/31/98 100.13 100.00
102.59 101.13
9/30/98 106.49 102.04
106.36 101.81
11/30/98 104.02 101.58
104.43 101.58
1/31/99 104.34 102.04
101.35 101.58
3/31/99 101.74 100.99
Source: Scudder Kemper Investments, Inc.
time than Treasury bonds of comparable maturity. The accompanying chart
demonstrates the record over the past 12 months, when most financial markets
were at a peak of volatility.
Double-Tax-Free Income and Below-Average Risk
Scudder Massachusetts Limited Term Tax Free Fund is designed to pursue 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 (85% of the Fund's
portfolio as of March 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 (26% as of March 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 85% of the bonds in the Fund's portfolio rated AAA or
AA.
Outlook
Because the powerful market forces that have brought the United States close to
price stability -- including technology, deregulation, globalization, and
vigilant central banks -- are still in full effect, we believe that inflation
will remain restrained over the next several years. At the same time, we believe
that higher oil prices could prompt a "gentle slowdown" in U.S. economic
activity. This would
7 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
relieve some of the financial imbalances (vigorous individual and corporate
spending contrasting with shrinking savings and profit levels, for example) that
we are currently observing in the economy.
Low inflation, and any slowing of the economy, in turn, would benefit municipal
bonds, which continue to be attractively priced versus Treasuries. At the same
time, we are mindful that the U.S. economy is nearing "full employment," and
that an economic rebound in Asia could cause the U.S. economy to overheat. We
will therefore pursue a cautious strategy over the coming months, keeping the
Fund's duration at a moderate level in an attempt to limit share price
volatility. The Fund will also continue to hold premium bonds, diversify
broadly, and keep 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 Scudder.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Rebecca L. Wilson
Philip G. Condon Rebecca L. Wilson
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 of the Fund, joined the Adviser in 1983
and has 21 years of experience in municipal investing and portfolio management.
Mr. Condon has had responsibility for the Fund since 1989. Rebecca L. Wilson,
Portfolio Manager, became a member of the team in 1999. Ms. Wilson, who joined
the Adviser in 1986, has 13 years of experience in municipal investing.
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 March 31, 1999
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Municipal Investments 4.5%
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Massachusetts
Boston, MA, Industrial Development Finance Authority, First Mortgage-
Springhouse Inc., 4.25%, 7/1/1999 ............................................ 255,000 SKI 255,069
Massachusetts Health & Educational Facilities Authority, Wellesley College,
Series G, Daily Demand Note, 2.85%, 7/1/2039 (c)* ........................... 3,000,000 A1+ 3,000,000
Massachusetts Industrial Finance Agency, Health Care Facility Revenue, Beverly
Enterprises, Daily Demand Note, 3.2%, 4/1/2009* .............................. 95,000 MIG1 95,000
Massachusetts Turnpike Authority:
Series 1996 A, Unrefunded, 5%, 6/1/1999 ..................................... 215,000 MIG1 215,684
Series 1996 A, Refunded, ETM, 5%, 6/1/1999*** ............................... 785,000 MIG1 787,473
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Total Short-Term Municipal Investments (Cost $4,351,116) 4,353,226
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Intermediate-Term Municipal Investments 95.5%
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Massachusetts
Boston, MA, Industrial Development Finance Authority, First Mortgage-
Springhouse Inc.:
Series 1998, 4.5%, 7/1/2000 ................................................. 180,000 SKI 180,023
Series 1998, 4.75%, 7/1/2001 ................................................ 195,000 SKI 194,945
Series 1998, 4.875%, 7/1/2002 ............................................... 255,000 SKI 255,064
Lowell, MA, General Obligation:
Series 1991, Prerefunded 2/15/2001, 8.3%, 2/15/2005** ........................ 1,635,000 AAA 1,820,033
Series 1992, 6.375%, 8/15/2001 ............................................... 1,000,000 A 1,059,650
Series 1997, 6%, 12/15/2004 (c) .............................................. 2,025,000 AAA 2,233,980
Malden, MA, General Obligation:
Series 1997, 5.5%, 8/1/2005 (c) .............................................. 1,570,000 AAA 1,697,782
Series 1998, 5%, 10/1/2004 (c) ............................................... 2,595,000 AAA 2,733,781
Massachusetts Bay Transportation Authority, General Obligation:
Series 1992 C, Prerefunded 3/1/2002, 6.1%, 3/1/2023** ........................ 5,000,000 AAA 5,405,950
Series 1997 C, 5%, 3/1/2004 .................................................. 500,000 AA 523,690
Series 1998 C, 5%, 3/1/2004 .................................................. 2,000,000 AA 2,094,760
Massachusetts Educational Loan Authority, Issue E, Series 1992 A, AMT, 6.7%,
1/1/2002 (c) ................................................................. 385,000 AAA 409,082
Massachusetts General Obligation:
Series 1991 A, Prerefunded 8/1/2001, 6.5%, 8/1/2011** ........................ 2,000,000 AAA 2,166,460
Series 1995 A, 5.25%, 2/1/2001 (c) ........................................... 3,000,000 AAA 3,093,000
The accompanying notes are an integral part of the financial statements.
10 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts Grant Anticipation Notes, Series 1998 A, 5%, 12/15/2005 .......... 4,000,000 AA 4,218,560
Massachusetts Health & Educational Facilities Authority:
Berkshire Health System:
Series 1994 C, 5.9%, 10/1/2011 .............................................. 1,000,000 BBB 1,025,310
Series 1995 D, 5.3%, 10/1/2003 (c) .......................................... 1,350,000 AAA 1,428,462
Boston College Issue, Series 1998 L, 5%, 6/1/2006 ............................ 520,000 AA 546,473
Caritas Christi, Series 1999 A, 5.25%, 7/1/2004 .............................. 1,000,000 BBB 1,024,040
Central Massachusetts Medical Center, Series B, 6%, 7/1/2002 (c) ............. 500,000 AAA 533,300
Daughters of Charity, Carney Hospital:
Series 1990 C, Prerefunded 7/1/2000, 7.5%, 7/1/2005** ....................... 1,000,000 AA 1,070,140
Series 1994 D, 4.9%, 7/1/2000 ............................................... 400,000 AA 407,360
Fairview Extended Care, Series 1997B, 4.55%, 1/1/2021 (c) .................... 1,695,000 AAA 1,721,798
Hallmark Health System, Series 1997A, 5.25%, 7/1/2006 (c) .................... 1,000,000 AAA 1,064,980
Massachusetts Eye and Ear Infirmary, Series 1991 A, ETM, 7%, 7/1/2001*** ..... 2,120,000 BBB 2,212,135
Medical, Academic & Scientific:
Series 1992 A, 5.9%, 1/1/2000 ............................................... 500,000 A 508,565
Series 1995 A, 6%, 1/1/2001 ................................................. 1,000,000 A 1,034,950
Series 1995 A, 6.1%, 1/1/2002 ............................................... 500,000 A 524,390
Newton-Wellesley Hospital, Series 1991 D, Prerefunded 7/1/2001,
7%, 7/1/2015 (c)** .......................................................... 1,500,000 AAA 1,636,515
St. Joseph's Hospital, Series 1989 C, Prerefunded 10/1/1999, 9.5%, 10/1/2020** 3,355,000 SKI 3,525,568
Valley Regional Health System, Series 1994 C, 5.3%, 7/1/2000 ................. 1,500,000 AAA 1,534,140
Wheaton College, Series 1989 B, Prerefunded 7/1/1999, 7.2%, 7/1/2009** ....... 590,000 AAA 607,682
Massachusetts Industrial Finance Agency:
Boston Museum of Fine Arts, Series 1996, 5.125%, 1/1/2004 (c) ................ 1,000,000 AAA 1,053,030
Cape Cod Health Systems, Series 1990, Prerefunded 11/15/2000,
8.5%, 11/15/2020** .......................................................... 2,150,000 AAA 2,365,108
College of the Holy Cross, Series 1996, 5.5%, 3/1/2006 (c) ................... 1,000,000 AAA 1,081,660
East Boston Neighborhood Project, Series 1996, 7.25%, 7/1/2006 (d) ........... 855,000 CCC 812,250
Leominster Hospital, Series 1989A, Prerefunded 8/1/1999, 8.625%, 8/1/2009** .. 2,000,000 SKI 2,074,700
Merrimack College, Series 1997, 5.5%, 7/1/2006 (c) ........................... 1,055,000 AAA 1,144,686
Milton Academy, Series 1989 A, Prerefunded 9/1/1999, 7.25%, 9/1/2019 (c)** ... 700,000 AAA 725,767
Resource Recovery, North Andover Solid Waste:
Series 1993 A, 6.15%, 7/1/2002 .............................................. 750,000 BBB 788,145
Series 1993 A, 6.3%, 7/1/2005 ............................................... 2,750,000 BBB 2,956,223
Worcester Polytechnic, Series 1997II, 5.25%, 9/1/2004 (c) .................... 1,065,000 AAA 1,134,023
The accompanying notes are an integral part of the financial statements.
11 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts Municipal Wholesale Electric Company, Power Supply System Revenue:
Series 1992 B, 6.3%, 7/1/2000 ................................................ 345,000 BBB 355,919
Series 1992 B, 6.375%, 7/1/2001 .............................................. 1,000,000 BBB 1,051,640
Series 1992 B, Prerefunded 7/1/2002, 6.75%, 7/1/2017** ....................... 1,720,000 AAA 1,910,232
Massachusetts Port Authority Revenue:
Series 1997 A, 6%, 7/1/2004 .................................................. 1,140,000 AA 1,250,318
Special Facilties-- USAir Project, Series 1996A, AMT, 5.5%, 9/1/2006 (c) ..... 640,000 AAA 687,462
Massachusetts Special Obligation:
Series 1994 A, 5.2%, 6/1/2004 ................................................ 1,000,000 AA 1,059,770
Series 1997 A, 5.5%, 6/1/2005 ................................................ 1,000,000 AA 1,079,500
Massachusetts Water Pollution Abatement Program, New Bedford Program,
Series 1998 A, 4%, 2/1/2004 .................................................. 450,000 AA 450,765
Massachusetts Water Resource Authority:
Series 1991 A, Prerefunded 12/1/2001, 6.875%, 12/1/2011** .................... 1,000,000 AAA 1,101,680
Series 1992 A, Prerefunded 7/15/2002, 6.75%, 7/15/2012** ..................... 1,000,000 AAA 1,111,620
Series 1998 A, 5%, 8/1/2004 (c) .............................................. 1,260,000 AAA 1,325,470
Nantucket, MA, General Obligation, Prerefunded 12/1/2001, 6.25%, 12/1/2002** ... 250,000 AAA 271,100
New England Education Loan Marketing Corp., Massachusetts Student Loan Revenue,
Series 1992 A, 5.8%, 3/1/2002 ................................................ 3,150,000 AAA 3,304,697
North Attleboro, MA, General Obligation, Series 1997, 6%, 3/1/2007 (c) ......... 1,000,000 AAA 1,116,560
South Essex, MA, Sewer District, General Obligation, Series 1994 B,
Prerefunded 6/1/2004, 6.75%, 6/1/2013 (c)** .................................. 1,000,000 AAA 1,148,000
Southeastern Masssachusetts, University Building Authority, Series 1995 A, 5.5%,
5/1/2004 (c) ................................................................. 1,010,000 AAA 1,083,346
Springfield, MA, General Obligation:
Series 1996, 6.375%, 8/1/2003 (c) ............................................ 2,035,000 AAA 2,235,163
Series 1996, 6.25%, 8/1/2006 (c) ............................................. 1,000,000 AAA 1,129,510
Worcester, MA, General Obligation:
Series 1995 G, 6%, 7/1/2001 (c) .............................................. 2,000,000 AAA 2,105,380
Series 1997, 5.75%, 8/1/2007 (c) ............................................. 1,000,000 AAA 1,105,750
Puerto Rico
Puerto Rico Public Building Authority, Government Facilities, Series 1995 A, 6.75%,
7/1/2004 (c) ................................................................. 2,250,000 AAA 2,553,885
The accompanying notes are an integral part of the financial statements.
12 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Virgin Islands
Virgin Islands Public Finance Authority, Series 1998 C, 5.5%, 10/1/2004 2,500,000 BBB 2,626,825
- ------------------------------------------------------------------------------------------------------------------------------
Total Intermediate-Term Municipal Investments (Cost $90,310,025) 92,692,752
- ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $94,661,141) (a) 97,045,978
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $94,672,749. At March 31,
1999, net unrealized appreciation for all securities was $2,373,229. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $2,430,469 and
aggregate gross unrealized depreciation for all investment securities in
which there was an excess of tax cost over market value of $57,240.
(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. 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, Capital Guaranty, FGIC,
FSA or MBIA/BIG.
(d) The security has been valued in good faith by the Valuation Committee of
the Board of Directors at fair value amounting to $812,250 (0.77% of net
assets). Its value has been estimated by the Board of Directors in the
absence of readily ascertainable market values. However, because of the
inherent uncertainty of valuation, the estimated value may differ
significantly from the value that would have been used had a ready market
for the security existed, and the difference could be material. The cost of
the security at March 31, 1999 aggregated $855,000. The security may also
have certain restrictions as to resale.
* 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.
*** 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.
AMT: Alternative minimum tax
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 March 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $94,661,141) ............. $ 97,045,978
Cash ............................................................. 6,215,157
Interest receivable .............................................. 1,339,491
Receivable for investments sold .................................. 5,000
Receivable for Fund shares sold .................................. 50,245
Other assets ..................................................... 1,504
----------------
Total assets ..................................................... 104,657,375
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Dividends payable ................................................ 90,804
Payable for Fund shares redeemed ................................. 71,392
Accrued management fee ........................................... 18,971
Other payables and accrued expenses .............................. 74,057
----------------
Total liabilities ................................................ 255,224
- ----------------------------------------------------------------------------------------------------------
Net assets, at market value $ 104,402,151
- ----------------------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation (depreciation) on investments ............ 2,384,837
Accumulated net realized gain (loss) ............................. (132,520)
Paid-in capital .................................................. 102,149,834
- ----------------------------------------------------------------------------------------------------------
Net assets, at market value $ 104,402,151
- ----------------------------------------------------------------------------------------------------------
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($104,402,151 / 8,556,352 outstanding shares of
beneficial interest, $.01 par value, unlimited --------------
number of shares authorized) ................................... $12.20
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Statements of Operations
<TABLE>
<CAPTION>
For the Five
Months Ended Year Ended
March 31, 1999 October 31,
Investment Income (Note E) 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest .................................................... $ 1,846,594 $ 4,396,325
---------------- ----------------
Expenses:
Management fee .............................................. 243,465 549,378
Custodian and accounting fees ............................... 21,351 56,940
Services to shareholders .................................... 33,843 64,240
Trustees' fees and expenses ................................. 12,121 19,337
Auditing .................................................... 26,454 31,755
Legal ....................................................... 4,412 6,205
Reports to shareholders ..................................... 6,908 17,885
Registration fees ........................................... 10,785 10,649
Amortization of organization expenses ....................... 1,626 5,625
Other ....................................................... 639 7,584
---------------- ----------------
Total expenses before reductions ............................ 361,604 769,598
Expense reductions .......................................... (57,273) (82,874)
---------------- ----------------
Expenses, net ............................................... 304,331 686,724
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income 1,542,263 3,709,601
- -----------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments ................... 38,573 (17,874)
Net unrealized appreciation (depreciation) on investments during the
period ...................................................... (574,030) 1,231,974
- -----------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (535,457) 1,214,100
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 1,006,806 $ 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>
For the Five
Months Ended
March 31, Years Ended October 31
1999
Increase (Decrease) in Net Assets (Note E) 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S>
Operations: <C> <C> <C>
Net investment income ............ $ 1,542,263 $ 3,709,601 $ 3,039,006
Net realized gain (loss) on
investments ...................... 38,573 (17,874) 8,891
Net unrealized appreciation
(depreciation) on investments
during the period ............. (574,030) 1,231,974 676,307
---------------- ---------------- ----------------
Net increase (decrease) in net
assets resulting from operations . 1,006,806 4,923,701 3,724,204
---------------- ---------------- ----------------
Distributions to shareholders
from net investment income ....... (1,542,263) (3,708,899) (3,039,006)
---------------- ---------------- ----------------
Fund share transactions:
Proceeds from shares sold ........ 25,066,783 56,595,157 34,983,831
Net asset value of shares issued
to shareholders in reinvestment
of distributions .............. 1,107,758 2,586,470 1,974,195
Cost of shares redeemed .......... (16,814,083) (44,345,935) (23,621,656)
---------------- ---------------- ----------------
Net increase (decrease) in net
assets from Fund share
transactions .................. 9,360,458 14,835,692 13,336,370
---------------- ---------------- ----------------
Increase (decrease) in net assets 8,825,001 16,050,494 14,021,568
Net assets at beginning of period 95,577,150 79,526,656 65,505,088
---------------- ---------------- ----------------
Net assets at end of period ...... $104,402,151 $ 95,577,150 $ 79,526,656
---------------- ---------------- ----------------
Other Information
- -----------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund
shares
Shares outstanding at beginning
of period ........................ 7,790,753 6,573,339 5,463,378
---------------- ---------------- ----------------
Shares sold ...................... 2,048,497 4,651,211 2,911,596
Shares issued to shareholders in
reinvestment of distributions .... 90,456 212,502 164,273
Shares redeemed .................. (1,373,354) (3,646,299) (1,965,908)
---------------- ---------------- ----------------
Net increase (decrease) in Fund
shares ........................... 765,599 1,217,414 1,109,961
Shares outstanding at end of ---------------- --------------- ----------------
period ........................... 8,556,352 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
For the Five (commencement of
Months Ended operations) to
March 31, 1999 Years Ended October 31, October 31,
(Note E) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------
Net asset value, beginning of period $12.27 $ 12.10 $ 11.99 $ 12.02 $ 11.64 $12.00
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .49 .53 .50 .54 .36
Net realized and unrealized gain (loss) on
investment transactions (.07) .17 .11 (.03) .38 (.36)
---------------------------------------------------------------------------------
Total from investment operations .12 .66 .64 .47 .92 .00
---------------------------------------------------------------------------------
Less distributions from net investment
income (.19) (.49) (.53) (.50) (.54) (.36)
---------------------------------------------------------------------------------
Net asset value, end of period $12.20 $ 12.27 $ 12.10 $ 11.99 $ 12.02 $11.64
---------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) 1.00** 5.59 5.44 3.98 8.08 0.00**
Ratios and Supplemental Data
Net assets, end of period ($ millions) 104 96 80 66 55 36
Ratio of operating expenses, net to
average daily net assets (%) .75* .75 .75 .67 .24 --
Ratio of operating expenses before expense
reductions, to average daily net assets .89* .84 .93 .90 .92 1.44*
(%)
Ratio of net investment income to average
daily net assets (%) 3.80* 4.05 4.40 4.16 4.56 4.45*
Portfolio turnover rate (%) 8.4* 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 (the "Trust"), a
Massachusetts business 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 purchased 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. Money market instruments purchased with an original
maturity of sixty days or less are valued at amortized cost. All other debt
securities are valued at their fair value as determined in good faith by the
Valuation Committee of the Board of Trustees.
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. The Fund accordingly paid no federal income taxes and no
federal income tax provision was required.
At March 31, 1999, the Fund had a net tax basis capital loss carryforward of
approximately $121,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until March 31,
2004, ($97,000) and March 31, 2006 ($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 identified cost 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 were deferred and amortized on a
straight-line basis over the 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
During the five months ended March 31, 1999, purchases and sales of investments
(excluding short-term) aggregated $6,310,265 and $3,256,882, respectively. 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
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies
and restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the agreement is equal to an annual rate of .60%, computed and
accrued daily and payable monthly. The Adviser agreed to maintain the annualized
expenses at 0.75% of average daily net assets until July 31, 1999. For the five
months ended March 31, 1999, the Adviser did not impose a portion of its
management fee amounting to $57,273, and the amount imposed amounted to
$186,192, of which $18,971 was unpaid at March 31, 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.
Effective 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. In December 1998, the Board of
Trustees and the shareholders of the Fund approved a new investment management
agreement with the Adviser, which is substantially identical to the former
Management Agreement, except for the dates of execution and termination.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
five months ended March 31, 1999, the amount charged to the Fund by SSC
aggregated $20,025, of which $3,437 was unpaid at March 31, 1999. For the year
ended October 31, 1998, the amount charged to the Fund by SSC aggregated
$43,271.
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 five months
ended March 31, 1999, the amount charged to the Fund by SFAC aggregated $15,000,
of which $3,000 was unpaid at March 31, 1999. For the year ended October 31,
1998, the amount charged to the Fund by SFAC aggregated $36,000.
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 five months ended March 31, 1999,
Trustees' fees aggregated $12,121. For the year ended October 31, 1998,
Trustees' fees aggregated $19,337.
19 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
D. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $850 million
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated pro rata among each of the Participants. Interest is
calculated based on the market rates at the time of the borrowing. The Fund may
borrow up to a maximum of 33 percent of its net assets under the agreement.
E. Year End Change
On August 10, 1998, the Board of Trustees of the Fund changed the fiscal year
end from October 31 to March 31.
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 March 31, 1999, the results of its operations, the
changes in its net assets and the financial highlights for 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 March
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
May 19, 1999
21 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Tax Information
Of the dividends paid by the Fund from net investment income for the year ended
March 31, 1999, 100% are designated as exempt interest dividends for federal
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 1-800-SCUDDER.
22 - Scudder Massachusetts Limited Term Tax Free Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Massachusetts
Limited Term Tax Free Fund (the "Fund") was held on December 15, 1998, at the
office of Scudder Kemper Investments, Inc., Two International Place, Boston,
Massachusetts 02110. At the Meeting the following matters were voted upon by the
shareholders (the resulting votes for each matter are presented below).
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
4,934,256 71,060 134,015 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
4,175,835 126,850 155,503 681,143
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
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; Venture Partner,
Venture Capital Group
Philip G. Condon*
Vice President
Thomas W. Joseph*
Vice President
Ann M. McCreary*
Vice President
Jeremy L. Ragus*
Vice President
Rebecca Wilson*
Vice President
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 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 Select 500 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 Select 1000 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
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
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.
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 or classes thereof 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. +++
+++ +++A no-load variable annuity contract issued by Glenbrook Life and Annuity
Company and underwritten by Allstate Financial Services, Inc., sold 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
Personal Investment Organizer: 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:
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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 transaction fee. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
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Additional Information on How to Contact Scudder:
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For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder 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 Limited Term Tax Free Fund
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About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $280 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services 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 Financial Services Group. The Zurich Financial Services 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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