Scudder
Massachusetts
Tax Free Fund
Annual Report
March 31, 1999
- -------------
No-Load Funds
- -------------
For investors seeking double tax-free income, exempt from both
Massachusetts state personal income tax and regular federal income tax.
A no-load fund with no commissions to buy, sell, or exchange shares.
SCUDDER
<PAGE>
Scudder Massachusetts Tax Free Fund
- --------------------------------------------------------------------------------
Date of Inception: 5/28/87 Total Net Assets as of Ticker Symbol: SCMAX
3/31/99: $420.3 million
- --------------------------------------------------------------------------------
o For its most recent annual period ended March 31, 1999, Scudder Massachusetts
Tax Free Fund posted a total return of 5.29%, compared with the 4.96% average
return of 57 similar funds tracked by Lipper Analytical Services.
o The Fund retained its #1 ranking for total return over the ten-year period
ended March 31 as rated by Lipper. Please see page 6 for additional information
on the Fund's rankings.
o Scudder Massachusetts Tax Free Fund received an overall Morningstar Rating
(TM) of four stars out of 1578 tax free funds as of March 31, 1999.*
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
- ------------------------------
30-Day Yield on March 31, 1999
- ------------------------------
CHART DATA:
3.98% 7.01%
Scudder Taxable Yield
Massachusetts Needed to Equal
Tax Free Fund the Fund's Yield
Table of Contents
3 Letter from the Fund's President 22 Notes to Financial Statements
4 Performance Update 24 Report of Independent Accountants
5 Portfolio Summary 25 Tax Information
6 Portfolio Management Discussion 26 Shareholder Meeting Results
10 Glossary of Investment Terms 28 Officers and Trustees
11 Investment Portfolio 29 Investment Products and Services
18 Financial Statements 30 Scudder Solutions
21 Financial Highlights
* 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 T-bill returns. The Fund received four stars
for the three-, five-, and ten-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, 1131, and 368 municipal funds
for the three-, five-, and ten-year periods, respectively.
2 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Letter from the Fund's President
Dear Shareholders,
We are pleased to report the results of Scudder Massachusetts Tax Free
Fund's most recent fiscal year. The Fund's total return for the 12-month period
ended March 31, 1999, was 5.29%. The Fund placed in the top third of similar
Massachusetts tax-free funds over one-, three-, five-, and ten-year periods, and
continues to hold the number one ranking among its peers over 10 years.
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 12-month period ended March 31, long-term municipal bonds
displayed considerably less price volatility than comparable Treasury
securities. For more information concerning Scudder Massachusetts Tax Free
Fund's market performance, strategy, and outlook, please see the Portfolio
Management Discussion that begins on page 6.
For those of you 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. Page 31 provides more information on how
to contact Scudder. Thank you for choosing Scudder Massachusetts Tax Free Fund
to help meet your investment needs.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President
Scudder Massachusetts Tax Free Fund
3 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Performance Update as of March 31, 1999
- ---------------------
Fund Index Comparison
- ---------------------
Total Return
---------------------------------------------
Period
Ended Growth of Average
3/31/1999 $10,000 Cumulative Annual
---------------------------------------------
Scudder Massachusetts Tax Free Fund
---------------------------------------------
1 Year $ 10,529 5.29% 5.29%
5 Year $ 14,166 41.66% 7.21%
10 Year $ 21,719 117.19% 8.06%
---------------------------------------------
Lehman Brothers Municipal Bond Index
---------------------------------------------
1 Year $ 10,620 6.20% 6.20%
5 Year $ 14,440 44.40% 7.62%
10 Year $ 22,083 120.83% 8.24%
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
- ------------------------------
Growth of a $10,000 Investment
- ------------------------------
CHART DATA:
Scudder Massachusetts Lehman Brothers Municipal
Tax Free Fund Bond Index
--------------------- -------------------------
'89 10000 10000
'90 11056 10788
'91 12075 11717
'92 13283 12943
'93 14947 14832
'94 15293 15332
'95 16430 16462
'96 17807 17824
'97 18779 18783
'98 20793 20628
'99 22083 21719
Yearly periods ended March 31
The unmanaged Lehman Brothers Municipal Bond Index is a market value-weighted
measure of municipal bonds issued across the United States. Index issues have a
credit rating of at least Baa and a maturity of at least two years. Index
returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
BAR CHART TITLE:
- ---------------------------------
Returns and Per Share Information
- ---------------------------------
Yearly periods ended March 31
CHART DATA:
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value $12.25 $12.44 $12.81 $13.61 $13.16 $13.33 $13.70 $13.72 $14.34 $14.35
- -----------------------------------------------------------------------------------------------------------------------------
Income Dividends $ .82 $ .83 $ .81 $ .84 $ .81 $ .74 $ .72 $ .70 $ .70 $ .69
- -----------------------------------------------------------------------------------------------------------------------------
Capital Gains and Other
Distributions $ .11 $ -- $ .09 $ .16 $ .12 $ .01 $ -- $ -- $ -- $ .05
- -----------------------------------------------------------------------------------------------------------------------------
Fund Total Return (%) 7.89 8.60 10.46 14.59 3.37 7.37 8.28 5.39 9.82 5.29
- -----------------------------------------------------------------------------------------------------------------------------
Index Total Return (%) 10.56 9.22 10.02 12.52 2.32 7.43 8.38 5.45 10.73 6.20
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return and
principal value will fluctuate, so an investor's shares, when redeemed, may be
worth more or less than when purchased. If the Adviser had not temporarily
capped expenses, the average annual total return for the Fund for the five
year, and ten year periods would have been lower.
4 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
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 19%
State
General
Obligation/Lease 16%
Higher
Education 11%
Water/Sewer
Revenue 10%
Housing
Finance
Authority 8%
Other
General
Obligation/Lease 7%
Electric
Utility
Revenue 6%
Sales/Special
Tax 6%
Port/Airport
Revenue 4%
Miscellaneous
Municipal 13%
--------------------------------------
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* 43%
AA 25%
A 19%
BBB 9%
CCC 1%
SKI 3%
--------------------------------------
100%
--------------------------------------
Weighted average quality: AA
*Category includes cash equivalents
Overall portfolio quality remains high, with over 85% of portfolio securities
rated A or better 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 4%
1-5
years 25%
5-10
years 31%
10-15
years 33%
15 years
or greater 7%
--------------------------------------
100%
--------------------------------------
Weighted average effective maturity:
8.16 years
Our continuing goal is to have an average effective maturity similar to that
of the Lehman Brothers Municipal Bond Index, the Fund's benchmark, but with a
superior, call-protected structure.
For more complete details about the Fund's investment portfolio, see page 11.
A quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - SCUDDER MASSACHUSETTS 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 Tax Free
Fund's most recent fiscal year. During the 12-month period ended March 31, 1999,
the Fund returned 5.29%, outpacing the 4.96% average return of Massachusetts
tax-exempt funds as tracked by Lipper Analytical Services, Inc. The Fund's total
returns over one- three-, five-, and ten-year periods placed it in the top
one-third of similar Massachusetts tax-free funds, and the Fund ranks number one
in total return compared with its peers for the ten-year period ended March 31,
1999. Please see the accompanying table for additional information concerning
the Fund's returns.
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
- --------------------------------------------------------------------
Scudder Massachusetts Tax Free Fund:
Solid Competitive Performance
(Average annual returns for periods ended March 31, 1999)
- --------------------------------------------------------------------
Scudder
Massachusetts Number
Tax Free Fund Lipper of Funds Percentile
Period Return Average Rank Tracked Rank
- --------------------------------------------------------------------
1 Year 5.29% 4.96% 16 of 57 Top 28%
- --------------------------------------------------------------------
3 Years 6.81% 6.69% 17 of 52 Top 33%
- --------------------------------------------------------------------
5 Years 7.21% 6.80% 6 of 37 Top 16%
- --------------------------------------------------------------------
10 Years 8.06% 7.57% 1 of 16 Top 6%
- --------------------------------------------------------------------
Source: Lipper Analytical Services, Inc., an independent analyst of investment
performance. Performance includes reinvestment of capital gains, and is no
guarantee of future results.
6 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
high, but manageable, given its wealth level. 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 30-year Treasury bond yields back up to July 1998 levels.
Over the Fund's most recent fiscal year, yields of 30-year Treasury bonds ended
slightly lower, beginning the period at 5.84% and ending it at 5.67%. Over the
same time frame, yields of 30-year AAA insured municipal bonds declined from
5.10% to 5.05%.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART TITLE:
- -------------------------------------------------------
Municipals Provided Greater Stability
Monthly prices of 30-year AAA-rated municipal bonds
compared with prices of 30-year U.S. Treasury Bonds,
3/31/98-3/31/99
- -------------------------------------------------------
CHART DATA:
30-year U.S. Treasury Bonds 30-year AAA-rated municipal bonds
--------------------------- ---------------------------------
3/31/98 100.00 100.00
98.47 98.49
5/31/98 100.14 100.77
103.47 100.00
7/31/98 101.57 100.00
107.12 102.33
9/30/98 114.87 105.57
111.47 102.33
11/30/98 109.83 102.33
111.47 102.33
1/31/99 111.14 103.13
103.32 101.55
3/31/99 102.11 100.77
Source: Scudder Kemper Investments, Inc.
In addition to high tax-free yields, municipal bonds have historically offered
greater price stability over 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.
Emphasizing High
Coupon Bonds
Over the past 12 months, Scudder Massachusetts Tax Free Fund pursued a two-part
strategy: First, the Fund emphasized premium "cushion" bonds -- bonds with high
coupons that compensate investors for the fact that they can be redeemed by
their issuer in a relatively short period of time. Second, the Fund continues to
hold a substantial position in noncallable bonds (41% of assets) to provide a
7 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
relatively stable income stream along with long-term price appreciation
potential. In terms of maturity, we focused on 13- to 15- year bonds, because we
believe they offer the best total return potential, based on our outlook for
interest rates and the yield differentials among bonds across the maturity
spectrum. Lastly, our continuing goal is to have an average effective maturity
similar to that of the Lehman Brothers Municipal Bond Index, but with a
superior, call-protected structure. As of March 31, the Fund's average duration
was 6.43 years. (Duration gives relative weight to both principal and interest
payments through the life of a bond and has replaced average maturity as the
standard measure of interest rate sensitivity among professional investors.
Generally, the shorter the duration, the less sensitive a portfolio will be to
changes in interest rates.)
Overall portfolio quality remains high, with over 85% of portfolio securities
rated A or better at the close of the period. We continue to invest in a broad
selection of Massachusetts tax-exempt issues, including hospital/health, general
obligation, and higher education bonds.
Outlook
Because the powerful market forces that have brought the United States close to
price stability -- including technology, deregulation, 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 relieve some of the financial imbalances (vigorous individual and
8 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
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. We plan to focus on 10-15 year premium coupon bonds as the Fund
seeks to benefit from the yield and capital appreciation opportunities afforded
by the Massachusetts tax-exempt bond market. In addition to a cautious average
duration, we will maintain high overall credit quality as we seek double-
tax-free income and competitive returns for our shareholders. 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
Tax Free Fund:
A Team Approach to Investing
Scudder Massachusetts 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.
9 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Glossary of Investment Terms
BOND An interest-bearing security issued by
the federal, state, or local government
or a corporation that obligates the
issuer to pay the bondholder a specified
amount of interest for a stated period --
usually a number of years -- and to repay the
face amount of the bond at its maturity date.
GENERAL OBLIGATION BOND A municipal bond backed by the "full
faith and credit" (including the taxing
and further borrowing power) of the city,
state, or agency that issues the bond. A
general obligation bond is repaid with
the issuer's general revenue
and borrowings.
INFLATION An overall increase in the prices of
goods and services, as happens when
business and consumer spending increases
relative to the supply of goods available
in the marketplace -- in other words,
when too much money is chasing too few
goods. High inflation has a negative
impact on the prices of
fixed-income securities.
MUNICIPAL BOND An interest-bearing debt security issued by a
state or local government entity.
NET ASSET VALUE (NAV) The price per share of a mutual fund
based on the sum of the market value of
all the securities owned by the fund
divided by the number of outstanding
shares.
TAXABLE EQUIVALENT YIELD The level of yield a fully taxable instrument
would have to provide to equal that of a
tax-free municipal bond on an after-tax basis.
30-DAY SEC YIELD The standard yield reference for bond
funds, based on a formula prescribed by
the SEC. This annualized yield
calculation reflects the 30-day average
of the income earnings of every holding
in a given fund's portfolio, net of
expenses, assuming each is held to maturity.
TOTAL RETURN The most common yardstick to measure the
performance of a fund. Total return --
annualized or compound -- is based on a
combination of share price changes plus
income and capital gain distributions, if
any, expressed as a percentage
gain or loss in value.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
10 - SCUDDER MASSACHUSETTS 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 2.9%
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts
Massachusetts Health & Educational Facilities Authority:
Series B, Daily Demand Note, 3%, 7/1/2005 (c)* .............................. 5,100,000 A1+ 5,100,000
Series C, Daily Demand Note, 3%, 7/1/2005 (c)* .............................. 7,000,000 A1+ 7,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Municipal Investments (Cost $12,100,000) 12,100,000
- ------------------------------------------------------------------------------------------------------------------------------
Long-Term Municipal Investments 97.1%
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts
Boston, MA, General Obligation, Series 1992 A, 6.5%, 7/1/2012 (c) ............. 2,320,000 AAA 2,558,981
Boston, MA, Industrial Development Finance Authority, Springhouse Project:
Series 1998, 5.5%, 7/1/2008 ................................................. 1,020,000 SKI 1,012,258
Series 1995, 9.25%, Prerefunded 7/1/2005, 7/1/2025** ........................ 2,000,000 AAA 2,577,180
Chicopee, MA, Electric System Revenue, ETM, Series 1978, 7.125%, 1/1/2017*** .. 1,210,000 AAA 1,478,886
Frontier, MA, Regional School District, General Obligation, Series 1998, 5.5%,
6/15/2014 (c) ............................................................... 1,500,000 AAA 1,596,195
Haverhill, MA, General Obligation, Series 1992 A, 7%, Prerefunded 6/15/2002,
6/15/2012 (c)** ............................................................. 600,000 AAA 670,152
Holyoke, MA, General Obligation, Series 1996 A, 6%, 6/15/2009 (c) ............. 1,560,000 AAA 1,705,782
Malden, MA, General Obligation, Series 1998, 4.5%, 10/1/2017 (c) .............. 5,135,000 AAA 4,833,370
Marthas Vineyard, MA, Series 1998 A, 5.5%, 5/1/2011 (c) ....................... 1,025,000 AAA 1,107,133
Mashpee, MA, General Obligation:
Series 1997, 5.125%, 2/1/2011 (c) ........................................... 1,025,000 AAA 1,072,775
Series 1997, 5.35%, 2/1/2012 (c) ............................................ 1,525,000 AAA 1,615,768
Massachusetts Bay Transportation Authority:
Certificate of Participation, Series 1998, 7.75%, 1/15/2006 ................. 1,000,000 A 1,151,960
General Transportation System:
Series 1993 A, 5.5%, 3/1/2009 .............................................. 1,000,000 AA 1,084,240
Series 1993 A, 5.5%, 3/1/2012 .............................................. 3,000,000 AA 3,254,520
Series 1997 B, 6.2%, 3/1/2016 .............................................. 2,100,000 AA 2,421,930
Series 1997 C, 6.1%, 3/1/2013 .............................................. 1,250,000 AA 1,422,275
Massachusetts General Obligation, Hynes Convention Center:
Series 1990 C, Zero Coupon, 12/1/2004 ....................................... 8,415,000 AA 6,674,946
Series 1991 A, 7.5%, 6/1/2004 ............................................... 12,400,000 AA 14,040,148
Series 1992, Zero Coupon, 9/1/2004 .......................................... 2,000,000 AA 1,598,500
Series 1992 A, 6.5%, Prerefunded 6/1/2002, 6/1/2008** ....................... 330,000 AAA 359,977
The accompanying notes are an integral part of the financial statements.
11 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Credit
Principal Rating(b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Series 1992 B, 6.5%, 8/1/2008 ............................................... 5,400,000 AA 6,266,700
Series 1996 A, 6%, 11/1/2010 ................................................ 10,000,000 AA 11,351,800
Series 1998 C, 5.25%, 8/1/2014 .............................................. 3,000,000 AA 3,124,740
Massachusetts Health & Educational Facilities Authority:
Anna Jaques Hospital, Series 1992 B, 6.875%, 10/1/2012 2,000,000 BBB 2,136,380
Berkshire Health System, Series 1995 D, 5.6%, 10/1/2008 (c) ................. 1,760,000 AAA 1,906,890
Boston College Issue:
Series 1998 L, 5.25%, 6/1/2012 ............................................. 1,480,000 AA 1,545,090
Series 1998 L, 5.25%, 6/1/2015 ............................................. 720,000 AA 740,520
Boston College, Series 1993K, 5.25%, 6/1/2009 ............................... 2,880,000 AA 3,073,882
Boston Medical Center, Series 1998A, 5.25%, 7/1/2013 (c) .................... 4,575,000 AAA 4,743,955
Brandeis University, Series 1998 I, 5.25%, 10/1/2013 (c) .................... 2,000,000 AAA 2,086,020
Cape Cod Health Care, Series 1998B, 5.25%, 11/15/2013 ....................... 1,365,000 BBB 1,352,005
Caritas Christi Obligation, Series 1999 A, 5.625%, 7/1/2020 ................. 1,000,000 BBB 990,730
Community College Program, Series 1992 A, 6.5%, Prerefunded 10/1/2002,
10/1/2009** .............................................................. 1,000,000 AAA 1,109,070
Cooley Dickson Hospital Inc.:
Series 1993 A, 7.125%, Prerefunded 5/15/2003, 11/15/2018** ................. 1,990,000 AAA 2,245,436
Series 1995 B, 5.25%, 11/15/2010 (c) ....................................... 2,005,000 AAA 2,093,400
Deaconess Hospital, Series 1992 D, 6.625%, Prerefunded 4/1/2002,
4/1/2012 (c)** ........................................................... 2,000,000 AAA 2,198,700
Hallmark Health System, Series 1997A, 5%, 7/1/2011 (c) ...................... 1,750,000 AAA 1,790,723
Harvard Pilgrim Health, Series 1998A, 5.25%, 7/1/2011 (c) ................... 3,600,000 AAA 3,755,196
Lowell General Hospital, Series 1996B, 5.2%, 6/1/2010 (c) ................... 1,180,000 AAA 1,236,900
Massachusetts General Hospital, Series 1992 F, 6.25%, 7/1/2012 (c) .......... 5,000,000 AAA 5,744,650
Medical Academic & Scientific, Series 1995 A, 6.5%, 1/1/2009 ................ 5,000,000 A 5,538,350
Melrose-Wakefield, Series 1996C, 6%, Prerefunded 7/1/2006, 7/1/2012** ....... 1,000,000 AAA 1,129,580
Medical Center of Central Massachusetts, Series 1991 A, 7%, 7/1/2012 (c) .... 3,600,000 AAA 3,927,636
Milford-Whitinsville Regional, Series 1998C, 5.75%, 7/15/2013 ............... 1,750,000 BBB 1,787,748
Newton-Wellesley Hospital:
Series 1995 E, 5.9%, 7/1/2011 (c) .......................................... 3,015,000 AAA 3,267,868
Series 1997 G, 6%, 7/1/2012 (c) ............................................ 1,000,000 AAA 1,104,500
North Adams, Series 1996 C, 6.625%, 7/1/2018 ................................ 1,560,000 BBB 1,677,546
Northeastern University:
Series 1992 E, 6.5%, 10/1/2012 (c) ......................................... 450,000 AAA 493,466
Series 1992 F, 6.4%, 10/1/2007 (c) ......................................... 1,000,000 AAA 1,098,870
The accompanying notes are an integral part of the financial statements.
12 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Credit
Principal Rating(b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Series 1998 G, 5.5%, 10/1/2011 (c) ......................................... 1,525,000 AAA 1,658,926
Series 1998 G, 5.5%, 10/1/2012 (c) ......................................... 1,110,000 AAA 1,207,303
Partners Healthcare System, Series 1997 S, 5.25%, 7/1/2013 (c) .............. 2,000,000 AAA 2,068,760
South Shore Hospital, Series 1992 D, 6.5%, 7/1/2010 (c) ..................... 2,500,000 AAA 2,721,250
Southcoast Health System, Series 1998A, 5.5%, 7/1/2010 (c) .................. 1,570,000 AAA 1,694,328
St. Luke's Hospital, Series 1993 C, Yield Curve Notes, 7.3%,
8/15/2010 (c)**** ........................................................ 3,400,000 AAA 3,888,750
Stonehill College, Series 1992 E, 6.55%, Prerefunded 7/1/2002, 7/1/2012 (c)** 5,000,000 AAA 5,495,018
Suffolk University, Series 1996C, 5.65%, 7/1/2011 ........................... 1,045,000 AAA 1,121,943
Massachusetts Housing Finance Agency:
Housing Project Revenue:
Residential Development, Series 1992 C, 6.875%, 11/15/2011 ................. 15,250,000 AAA 16,539,845
Series 1993 A, 6.3%, 10/1/2013 ............................................. 7,000,000 A 7,472,710
Series 1994 B, 6.05%, 12/1/2009 (c) ........................................ 3,000,000 AAA 3,118,710
Series 1995, 5.9%, 12/1/2013 ............................................... 2,355,000 A 2,468,158
Series A, 6.375%, 4/1/2021 ................................................. 3,905,000 A 4,164,526
Massachusetts Industrial Finance Agency:
Assisted Living Facilities Revenue, Marina Bay LLC Project, Series 1997, AMT,
7.5%, 12/1/2027 .......................................................... 1,000,000 SKI 1,030,430
Babson College, Series 1997 A, 5.375%, 10/1/2017 ............................ 1,700,000 A 1,755,794
Belmont High School:
Series 1998, 5.15%, 9/1/2013 ............................................... 1,000,000 A 1,011,150
Series 1998, 5.625%, 9/1/2020 .............................................. 1,265,000 A 1,308,579
College of the Holy Cross:
Series 1992, 6.375%, Prerefunded 11/1/2002, 11/1/2009** .................... 1,000,000 AAA 1,105,430
Series 1996, 5.25%, 3/1/2009 (c) ........................................... 1,190,000 AAA 1,262,090
Series 1996, 5.5%, 3/1/2016 (c) ............................................ 5,000,000 AAA 5,240,150
Concord Academy, Series 1997, 5.45%, 9/1/2017 ............................... 1,205,000 BBB 1,207,784
Dana Hall School Issue, Series 1997 A, 5.7%, 7/1/2013 ....................... 1,000,000 BBB 1,068,100
Deerfield Academy, Series 1997, 5.125%, 10/1/2017 ........................... 1,520,000 AAA 1,523,055
Dexter School Project, Series 1997, 5.4%, 5/1/2013 (c) ...................... 1,000,000 AAA 1,053,030
East Boston Neighborhood, Series 1996, 7.625%, 7/1/2026 (d) ................. 2,750,000 CCC 2,612,500
Edgewood Retirement Community, Series 1995 A, 9%, 11/15/2025 ................ 1,650,000 SKI 1,985,891
Evanswood Bethzatha, Series 1994 A, 7.875%, 1/15/2020 ....................... 1,000,000 SKI 1,037,130
The accompanying notes are an integral part of the financial statements.
13 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Credit
Principal Rating(b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts Biomedical Research Corp.:
Series 1989 A, Zero Coupon, 8/1/2000 ....................................... 2,860,000 A 2,729,841
Series 1989 A, Zero Coupon, 8/1/2001 ....................................... 3,650,000 A 3,341,612
Series 1989 A, Zero Coupon, 8/1/2002 ....................................... 3,650,000 A 3,199,627
Merrimack College:
Series 1997, 5%, 7/1/2011 (c) .............................................. 1,490,000 AAA 1,533,255
Series 1997, 5%, 7/1/2012 (c) .............................................. 1,560,000 AAA 1,596,332
Nantucket Electric Co.:
Series 1996 A, AMT, 5.875%, 7/1/2017 (c) ................................... 2,000,000 AAA 2,145,000
Series 1996 A, AMT, 5.75%, 7/1/2008 (c) .................................... 1,400,000 AAA 1,525,580
Series 1996 A, AMT, 5.75%, 7/1/2009 (c) .................................... 1,400,000 AAA 1,516,522
Pollution Control Revenue:
Boston Edison Company, Series 1994 A, 5.75%, 2/1/2014 ...................... 2,000,000 A 2,063,580
Eastern Edison Company, Series 1993, 5.875%, 8/1/2008 ...................... 4,750,000 BBB 4,882,050
Provider Lease Program, Certificate of Participation, Series 1988 A, 8.4%,
7/15/2008 ................................................................ 1,445,000 SKI 1,455,043
Resource Recovery, North Andover Solid Waste, Series 1993 A, 6.3%, 7/1/2005 . 6,500,000 BBB 6,987,435
Solid Waste Disposal, Peabody Monofil Project, Series 1994, 9%, 9/1/2005 (e) 2,905,000 SKI 3,149,049
Sturdy Memorial Hospital, Series 1989, 7.9%, 6/1/2009 ....................... 1,645,000 A 1,689,481
The Tabor Academy, Series 1998, 5.4%, 12/1/2018 ............................. 1,000,000 BBB 1,002,500
Worcester Polytechnical Institute:
Series 1997, 5%, 3/1/2010 (c) .............................................. 1,645,000 AAA 1,712,741
Series 1997, 5.125%, 9/1/2011 (c) .......................................... 1,300,000 AAA 1,353,742
Series 1997, 5.125%, 9/1/2016 (c) .......................................... 2,600,000 AAA 2,643,134
Massachusetts Municipal Wholesale Electric Company, Power Supply System Revenue:
Series 1992 A, 6.75%, 7/1/2006 .............................................. 2,855,000 BBB 3,091,851
Series 1992 B, 6.75%, 7/1/2008 .............................................. 9,000,000 BBB 9,746,640
Series 1992 C, 6.625%, 7/1/2010 ............................................. 1,000,000 BBB 1,077,640
Series 1992 C, 6.625%, 7/1/2010 (c) ......................................... 3,500,000 AAA 3,839,780
Series 1994 B, 4.95%, 7/1/2009 (c) .......................................... 1,575,000 AAA 1,622,140
Massachusetts Port Authority Revenue:
Series 1997A, 5.125%, 7/1/2016 .............................................. 3,500,000 AA 3,551,590
Series 1998A, 5.75%, 7/1/2010 ............................................... 2,000,000 AA 2,214,920
Series 1998A, 5.75%, 7/1/2012 ............................................... 2,350,000 AA 2,605,845
Series 1998A, 5.5%, 7/1/2015 ................................................ 2,670,000 AA 2,823,231
Series 1998A, 5.5%, 7/1/2016 ................................................ 1,650,000 AA 1,739,645
The accompanying notes are an integral part of the financial statements.
14 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Credit
Principal Rating(b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Special Facilities, USAir Private Jet, Series 1996 A, AMT, 5.75%,
9/1/2016 (c) .............................................................. 1,000,000 AAA 1,064,000
Tax Exempt Receipts, ETM, Step-up Coupon, 0% to 7/1/2003, 13% to 7/1/2013*** 1,000,000 SKI 1,194,670
Massachusetts Special Obligation:
Series 1996 A, 5.5%, 6/1/2011 (c) ........................................... 5,000,000 AAA 5,326,750
Series 1997 A, 5%, 6/1/2014 ................................................. 2,225,000 AA 2,284,497
Massachusetts State Grant Anticipation Note, Federal Highway:
Series 1998 A, 5.25%, 6/15/2012 ............................................. 2,000,000 AA 2,099,140
Series 1998 A, 5.25%, 12/15/2012 ............................................ 5,000,000 AA 5,306,400
Series 1998 A, Zero Coupon, 12/15/2014 ...................................... 9,000,000 AA 4,131,090
Series 1998 B, 5.125%, 12/15/2014 ........................................... 4,000,000 AA 4,094,400
Massachusetts Turnpike Authority, Metropolitan Highway System:
Series 1997 A, 5%, 1/1/2010 ................................................. 2,000,000 A 2,057,400
Series 1997 A, 5%, 1/1/2011 ................................................. 3,000,000 A 3,062,460
Series 1999 A, 5.125%, 1/1/2011 (c) ......................................... 2,870,000 AAA 2,991,516
Massachusetts Water Pollution Abatement Trust, Pooled Loan Program:
Series 1995, 5.625%, 2/1/2010 ............................................... 2,820,000 AAA 3,029,018
Series 1995, 5.7%, 2/1/2015 ................................................. 1,150,000 AAA 1,223,784
Series 1998, 5.25%, 2/1/2011 ................................................ 1,375,000 AA 1,450,625
Series 1998, 5.125%, 8/1/2013 ............................................... 2,000,000 AAA 2,065,500
Series 1998 A, 5.25%, 8/1/2013 .............................................. 3,500,000 AA 3,661,140
Massachusetts Water Resource Authority:
Series 1992 A, 6.5%, 7/15/2009 .............................................. 15,000,000 A 17,394,150
Series 1992 A, 6.5%, 7/15/2019 .............................................. 3,000,000 A 3,528,060
Series 1992 B, 6%, 11/1/2008 ................................................ 5,785,000 A 6,239,585
General Revenue:
Series 1998 A, 5.5%, 8/1/2013 (c) .......................................... 1,445,000 AAA 1,566,048
Series 1998 A, 5.5%, 8/1/2014 (c) .......................................... 1,745,000 AAA 1,886,258
Series 1993 C, 5.25%, 12/1/2015 ............................................ 4,030,000 A 4,198,454
Nantucket, MA, General Obligation, Series 1991, 6.8%, 12/1/2011 ............... 1,000,000 AAA 1,098,250
New England Educational Loan Marketing Corporation, Massachusetts Student Loan
Revenue, Series 1993 A, AMT, 5.7%, 7/1/2005 ................................. 6,250,000 A 6,629,750
North Attleboro, MA, General Obligation, Series 1997, 5%, 2/15/2012 (c) ....... 1,120,000 AAA 1,154,182
Norton, MA, General Obligation:
Series 1998, 5%, 10/1/2012 (c) .............................................. 2,570,000 AAA 2,635,586
Series 1998, 5%, 10/1/2013 (c) .............................................. 1,000,000 AAA 1,019,290
Somerville, MA, General Obligation, Series 1997, 5.25%, 2/15/2012 (c) ......... 1,180,000 AAA 1,237,383
The accompanying notes are an integral part of the financial statements.
15 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Credit
Principal Rating(b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Springfield, MA, General Obligation:
Series 1996, 5.3%, 8/1/2011 (c) ............................................. 1,250,000 AAA 1,311,263
Series 1997, 5%, 9/1/2009 (c) ............................................... 1,000,000 AAA 1,042,870
University of Massachusetts, Building Authority Revenue:
Series 1995 B, 6.625%, 5/1/2009 ............................................. 2,415,000 AA 2,840,064
Series 1995 B, 6.625%, 5/1/2010 ............................................. 2,575,000 AA 3,050,783
Series 1995 B, 6.75%, 5/1/2011 .............................................. 2,745,000 AA 3,295,784
Series 1995 B, 6.875%, 5/1/2014 ............................................. 1,300,000 AA 1,573,780
Worcester, MA, General Obligation:
Series 1991, 6.9%, Prerefunded 5/15/2002, 5/15/2005 (c)** ................... 1,850,000 AAA 2,056,534
Series 1991, 6.9%, Prerefunded 5/15/2002, 5/15/2006 (c)** ................... 1,500,000 AAA 1,667,460
Series 1998 B, 5.25%, 11/1/2011 (c) ......................................... 1,805,000 AAA 1,905,268
Series 1998 B, 5.25%, 11/1/2012 (c) ......................................... 1,830,000 AAA 1,924,391
Puerto Rico
Puerto Rico Highway and Transportation Authority, Highway Revenue, Series 1996 Y,
6.25%, 7/1/2014 ............................................................. 2,000,000 A 2,308,540
- ------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $375,156,631) 402,022,596
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $387,256,631) (a) 414,122,596
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $387,256,631. At March 31,
1999, net unrealized appreciation for all securities based on tax cost
was $26,865,965. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $27,203,196 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over market value of $337,231.
(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, Inc. (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 amounted to $2,612,500 (0.62%
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
$2,710,059. The security may also have certain restrictions as to
resale.
(e) Restricted Securities are securities which have not been registered
with the Securities and Exchange Commission under the Securities Act of
1933, as amended. The aggregate fair value of restricted securities at
March 31, 1999, amounted to $3,149,049 which represents 0.75% of net
assets. Information concerning such restricted securities at March 31,
1999 is as follows:
<TABLE>
<CAPTION>
Security Principal ($) Acquisition Date Cost ($)
- -------- ------------- ---------------- --------
<S> <C> <C> <C>
Massachusetts Industrial Finance Agency Solid Waste
Disposal, Peabody Monofil Project, Series 1994, 9%,
9/1/2005 2,905,000 12/30/1994 2,905,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
- --------------------------------------------------------------------------------
* Floating rate and monthly, weekly, or daily demand notes are securities
whose yields vary with a designated market index or market rate, such
as the coupon-equivalent of the Treasury bill rate. Variable rate
demand notes are securities whose yields are periodically reset at
levels that are generally comparable to exempt commercial paper. These
securities are payable on demand within seven calendar days and
normally incorporate an irrevocable letter of credit from a major bank.
These notes are carried, for purposes of calculating average weighted
maturity, at the longer of the period remaining until the next rate
change or to the extent of the demand period.
** Prerefunded: Bonds which are prerefunded are collateralized by U.S.
Treasury securities which are held in escrow and are used to pay
principal and interest on the tax-exempt issue and to retire the bonds
in full at the earliest refunding date.
*** ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by
a trustee and used to pay principal and interest on bonds so
designated.
**** Inverse floating rate notes are instruments whose yields have an
inverse relationship to benchmark interest rates. These securities are
shown at their rate as of March 31, 1999.
AMT: Subject to alternative minimum tax
The accompanying notes are an integral part of the financial statements.
17 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of March 31, 1999
<TABLE>
<CAPTION>
Assets
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $387,256,631) ............ $ 414,122,596
Cash ............................................................. 752,995
Interest receivable .............................................. 6,168,396
Receivable for Fund shares sold .................................. 433,184
Other assets ..................................................... 4,826
----------------
Total assets ..................................................... 421,481,997
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Dividends payable ................................................ 597,485
Payable for Fund shares redeemed ................................. 295,448
Accrued management fee ........................................... 206,036
Other payables and accrued expenses .............................. 113,170
----------------
Total liabilities ................................................ 1,212,139
-------------------------------------------------------------------------------------------
Net assets, at market value $ 420,269,858
-------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments ........ 26,865,965
Accumulated net realized loss .................................... (1,505,474)
Paid-in capital .................................................. 394,909,367
-------------------------------------------------------------------------------------------
Net assets, at market value $ 420,269,858
-------------------------------------------------------------------------------------------
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($420,269,858 /
29,290,636 outstanding shares of beneficial interest, $.01 par ----------------
value, unlimited number of shares authorized) ................. $14.35
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Statement of Operations
year ended March 31, 1999
<TABLE>
<CAPTION>
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Interest .................................................... $ 21,767,119
----------------
Expenses:
Management fee .............................................. 2,375,568
Services to shareholders .................................... 269,789
Custodian and accounting fees ............................... 101,635
Trustees' fees and expenses ................................. 25,256
Reports to shareholders ..................................... 35,370
Auditing .................................................... 26,223
Legal ....................................................... 13,760
Registration fees ........................................... 28,999
Other ....................................................... 15,884
----------------
2,892,484
-------------------------------------------------------------------------------------------
Net investment income 18,874,635
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments ................... 1,904,413
Net unrealized appreciation (depreciation) during the period on
investments ................................................. (550,979)
-------------------------------------------------------------------------------------------
Net gain (loss) on investments transactions 1,353,434
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 20,228,069
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Years Ended March 31,
Increase (Decrease) in Net Assets 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................. $18,874,635 $17,463,904
Net realized gain (loss) from investment transactions .. 1,904,413 1,438,854
Net unrealized appreciation (depreciation) on
investment transactions during the period .............. (550,979) 13,722,609
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ............................................. 20,228,069 32,625,367
Distributions to shareholders from:
Net investment income .................................. (18,874,635) (17,463,904)
---------------- ----------------
Net realized gains ..................................... (1,324,804) --
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .............................. 103,177,594 80,795,273
Net asset value of shares issued to shareholders in
reinvestment of distributions .......................... 12,867,811 10,415,340
Cost of shares redeemed ................................ (69,710,003) (62,308,419)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ........................................... 46,335,402 28,902,194
---------------- ----------------
Increase (decrease) in net assets ...................... 46,364,032 44,063,657
Net assets at beginning of period ...................... 373,905,826 329,842,169
---------------- ----------------
Net assets at end of period ............................ $420,269,858 $373,905,826
---------------- ----------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .............. 26,075,571 24,047,228
---------------- ----------------
Shares sold ............................................ 7,153,879 5,700,172
Shares issued to shareholders in reinvestment of
distributions .......................................... 890,970 735,264
Shares redeemed ........................................ (4,829,784) (4,407,093)
---------------- ----------------
Net increase (decrease) in Fund shares ................. 3,215,065 2,028,343
---------------- ----------------
Shares outstanding at end of period .................... 29,290,636 26,075,571
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Years Ended March 31,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................... $ 14.34 $ 13.72 $ 13.70 $ 13.33 $ 13.16
----------------------------------------------------------
Income from investment operations:
Net investment income .......................................... .69 .70 .70 .72 .74
Net realized and unrealized gain (loss) on investment transactions .06 .62 .02 .37 .18
----------------------------------------------------------
Total from investment operations ............................... .75 1.32 .72 1.09 .92
----------------------------------------------------------
Less distributions:
From net investment income ..................................... (.69) (.70) (.70) (.72) (.74)
From net realized gains on investment transactions ............. (.05) -- -- -- (.01)
----------------------------------------------------------
Total distributions ............................................ (.74) (.70) (.70) (.72) (.75)
----------------------------------------------------------
----------------------------------------------------------
Net asset value, end of period ................................. $ 14.35 $ 14.34 $ 13.72 $ 13.70 $ 13.33
----------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) ............................................... 5.29 9.82 5.39 8.28(a) 7.37(a)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ......................... 420 374 330 314 296
Ratio of operating expenses, net to average daily net assets (%) .73 .76 .76 .75 .47
Ratio of operating expenses before expense reductions, to average
daily net assets (%) ......................................... .73 .76 .76 .76 .77
Ratio of net investment income to average daily net assets (%) . 4.76 4.97 5.12 5.23 5.73
Portfolio turnover rate (%) .................................... 10.7 8.4 11.5 20.9 10.2
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced.
21 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Massachusetts Tax Free Fund (the "Fund") is a non-diversified series of
Scudder State Tax Free Trust (the "Trust"). The Trust is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. There are
currently six series in the Trust.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities 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. Accordingly, the Fund paid no federal income taxes and no
federal income tax provision was required.
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 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.
Other. Investment security 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.
22 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
B. Purchases and Sales of Securities
During the year ended March 31, 1999, purchases and sales of municipal
securities (excluding short-term investments) aggregated $71,719,397 and
$41,036,782, 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 0.60%, computed and
accrued daily and payable monthly. For the year ended March 31, 1999, the fees
pursuant to these agreements amounted to $2,375,568, of which $206,036 was
unpaid at March 31, 1999.
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 Scudder Kemper, 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
year ended March 31, 1999, the amount charged to the Fund by SSC aggregated
$193,395, of which $15,963 was unpaid at March 31, 1999.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
March 31, 1999, the amount charged to the Fund by SFAC aggregated $66,955, of
which $11,433 was unpaid at March 31, 1999.
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 March 31, 1999,
Trustees' fees and expenses charged to the Fund aggregated $25,256.
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.
23 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Report of Independent Accountants
To the Trustees of Scudder State Tax Free Trust and the Shareholders of Scudder
Massachusetts Tax Free Fund:
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 Tax Free Fund
(the "Fund") at March 31, 1999, the results of its operations for the year then
ended and 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 five years in the
period then ended, 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, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
May 12, 1999
24 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Tax Information
The Fund paid distributions of $0.045 per share from net long-term capital gains
during its year ended March 31, 1999, of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$1,800,000 as capital gain dividends for its year ended March 31, 1999, of which
100% represents 20% rate gains.
Of the dividends paid from net investment income for the taxable year ended
March 31, 1999, 100% are designated as exempt interest dividends for federal
income tax.
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.
25 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Massachusetts 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*
--- ------- ------- -----------------
17,456,930 368,211 554,378 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
15,612,708 638,897 719,762 1,408,152
- --------------------------------------------------------------------------------
* 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.
26 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
This Page
intentionally
left blank.
27 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
Dawn-Marie Driscoll
Trustee; President, Driscoll Associates; Executive Fellow, 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.
28 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series --
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder 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.
29 - SCUDDER MASSACHUSETTS 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
- ------------------------------------------------------------------------------------------------------------------------------
30 - SCUDDER MASSACHUSETTS 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 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
- ------------------------------------------------------------------------------------------------------------------------------
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>
31 - SCUDDER MASSACHUSETTS TAX FREE FUND
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $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
[LOGO]
