SCUDDER
INVESTMENTS(SM)
[LOGO]
- -------------------
BOND/TAX FREE
- -------------------
Scudder Massachusetts
Tax Free Fund
Fund #012
Semiannual Report
September 30, 1999
The fund seeks income that is exempt from Massachusetts personal and regular
federal income taxes.
A no-load fund with no commissions to buy, sell, or exchange shares.
<PAGE>
Contents
- --------------------------------------------------------------------------------
4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
9 Portfolio Management Discussion
13 Glossary of Investment Terms
14 Investment Portfolio
21 Financial Statements
24 Financial Highlights
25 Notes to Financial Statements
28 Officers and Trustees
29 Investment Products and Services
31 Scudder Solutions
2
<PAGE>
Scudder Massachusetts Tax Free Fund
- --------------------------------------------------------------------------------
ticker symbol SCMAX fund number 012
- --------------------------------------------------------------------------------
Date of o For its most recent semiannual period ended September
Inception: 30, 1999, Scudder Massachusetts Tax Free Fund posted
5/28/87 a total return of -2.12%, higher than the -3.52%
average return of 51 similar funds tracked by Lipper
Analytical Services.^1
Total Net o The fund retained its #1 ranking for total return over
Assets as of the ten-year period ended September 30, 1999 as rated
9/30/99: by Lipper. Please see page 9 for additional information
$408 million on the fund's rankings.
o Scudder Massachusetts Tax Free Fund received a
four-star Morningstar Rating(TM), reflecting "above
average" risk-adjusted performance through September
30, 1999.^2
- --------------------------------------------------------------------------------
30-Day Yield on September 30, 1999
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
Scudder Taxable Yield
Massachusetts Needed to Equal
Tax Free Fund the Fund's Yield
4.51% 7.94%
- --------------------------------------------------------------------------------
^1 Lipper Analytical Services, Inc., is an independent analyst of investment
performance. Performance includes reinvestment of dividends and capital
gains.
^2 For your information, these ratings are subject to change every month and are
calculated from the fund's five-year average annual return in excess of
90-day Treasury bill returns with appropriate fee adjustments, and a risk
factor that reflects fund performance below T-bill returns. The fund received
four stars for three-year performance, five stars for five-year performance,
and four stars for 10-year performance, and was rated among 1611, 1241, and
375 municipal funds for the respective periods. Of the funds rated, the top
10% received five stars, and the next 22.5% received four stars. Past
performance is no guarantee of future returns.
3
<PAGE>
Letter from the Fund's President
- --------------------------------------------------------------------------------
Dear Shareholders,
Recent months have witnessed a nearly continuous rise in Treasury and municipal
bond rates across all maturity levels. A year ago, financial markets were in the
grip of a "flight to quality": Nervous investors poured their assets into
Treasury bonds to escape financial uncertainty in Asia, Latin America, and
Russia, driving 30-year Treasury bond rates below 5% for the first time in
recent memory. Following the U.S. Federal Reserve's three interest rates cuts
during the last quarter of 1998, however, the Fed, and some investors, worried
that too much liquidity may have been injected into the financial system, and
that inflation might once again pose a threat. Thus, investors, and the Fed,
have combined to gradually push rates up this year.
Despite a difficult environment for bonds, municipal bonds have held up well
compared to other high-quality fixed-income securities. Municipals have
benefited from significantly lower supply (20% less than 12 months ago) and the
relative attractiveness of municipal yields compared with Treasuries. And though
it posted a negative return of -2.12% for the six months ended September 30,
1999, Scudder Massachusetts Tax Free Fund outperformed most of its peers during
that time, ranking 2nd out of 51 similar funds for total return as tracked by
Lipper Analytical Services. The fund also retained its #1 ranking for total
return over a ten-year period. For more information about the
4
<PAGE>
fund's market environment, strategy, and outlook, please read the Portfolio
Management Discussion that begins on page 9.
It should be noted that Daniel Pierce retired in June of this year as President
of Scudder Massachusetts Tax Free Fund, at which time I assumed that role and
its responsibilities. We are fortunate that Dan's longstanding affiliation with
Scudder is ongoing, and that we will continue to benefit from his counsel going
forward. I am pleased to join the Massachusetts Tax Free Fund's team in this
capacity, and look forward to serving your interests.
If you have any questions regarding Scudder Massachusetts Tax Free Fund or any
other Scudder fund, please call 1-800-SCUDDER (1-800-728-3337). Or visit
Scudder's Web site at www.scudder.com.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President
Scudder Massachusetts Tax Free Fund
5
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
September 30, 1999
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder Massachusetts Lehman Brothers
Tax Free Fund Municipal Bond Index*
'89 10000 10000
'90 10473 10681
'91 11871 12089
'92 13306 13355
'93 15370 15056
'94 14854 14688
'95 16506 16332
'96 17533 17317
'97 19002 18883
'98 20605 20528
'99 20307 20384
Yearly periods ended September 30
- --------------------------------------------------------------------------------
Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 9/30/1999 $10,000 Cumulative Annual
- --------------------------------------------------------------------------------
Scudder Massachusetts Tax Free Fund
- --------------------------------------------------------------------------------
1 year $ 9,855 -1.45% -1.45%
- --------------------------------------------------------------------------------
5 year $ 13,671 36.71% 6.45%
- --------------------------------------------------------------------------------
10 year $ 20,307 103.07% 7.34%
- --------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index*
- --------------------------------------------------------------------------------
1 year $ 9,930 -0.70% -0.70%
- --------------------------------------------------------------------------------
5 year $ 13,878 38.78% 6.77%
- --------------------------------------------------------------------------------
10 year $ 20,384 103.84% 7.38%
- --------------------------------------------------------------------------------
* 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.
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 Advisor had not
temporarily capped expenses, the average annual total return for the Fund
for the five year, and the ten year periods would have been lower.
6
<PAGE>
- --------------------------------------------------------------------------------
Returns and Per Share Information
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX TOTAL RETURN (%)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------
Fund Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Return (%) 4.73 13.35 12.09 15.51 -3.36 11.12 6.22 8.38 8.44 -1.45
- ------------------------------------------------------------------------------------
Index Total
Return (%) 6.80 13.19 10.45 12.74 -2.44 11.18 6.04 9.04 8.72 -.70
- ------------------------------------------------------------------------------------
Net Asset
Value ($) 12.03 12.74 13.28 14.24 12.95 13.63 13.75 14.17 14.64 13.71
- ------------------------------------------------------------------------------------
Income
Dividends ($) .82 .82 .83 .84 .78 .72 .71 .70 .70 .68
- ------------------------------------------------------------------------------------
Capital Gains
Distributions
($) .02 .04 .12 .18 .04 -- -- -- -- .05
- ------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
September 30, 1999
- --------------------------------------------------------------------------------
Diversification
- --------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Hospital/Health 16% The fund invests in a
General Obligations 15% broad selection of
Higher Education 11% Massachusetts municipal
Water/Sewer Revenue 10% bonds.
Housing Finance Authority 8%
Other General Obligation/
Lease 8%
Electric Utility Revenue 6%
Toll Revenue/Transportation 5%
Pollution Control/Industrial
Development 3%
Miscellaneous Municipal 18%
- ------------------------------------
100%
- ------------------------------------
- --------------------------------------------------------------------------------
Quality
- --------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
AAA 45% Overall portfolio
AA 23% quality remains high,
A 17% with 85% of portfolio
BBB 11% securities rated A or
Not Rated 4% better as of September
- ------------------------------------ 30.
100%
- ------------------------------------
Weighted average quality: AA
- --------------------------------------------------------------------------------
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 2% In an environment of
1-5 years 22% rising interest rates,
5-10 years 31% our strategy was to
10-15 years 33% maintain a shorter
15 years or greater 12% effective maturity
- ------------------------------------ compared to most other
100% Massachusetts municipal
- ------------------------------------ bond funds.
Weighted average effective
maturity: 9.3 years
For more complete details about the Fund's investment portfolio, see page 14. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
8
<PAGE>
Portfolio Management Discussion
- --------------------------------------------------------------------------------
September 30, 1999
Dear Shareholders,
During a difficult period for most fixed-income securities, Scudder
Massachusetts Tax Free Fund posted a negative return but displayed strong
competitive performance. The fund's total return for its most recent semiannual
period ended September 30, 1999, was -2.12%, outpacing the -3.52% average return
of 51 similar funds as tracked by Lipper Analytical Services, Inc. The fund's
30-day SEC yield as of September 30 was 4.51%, equivalent to a 7.94% taxable
yield for Massachusetts investors subject to the 43.19% combined federal and
state income tax rate.
The fund's total returns over one-, three-, five-, and ten-year periods placed
it in the top 15% 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
September 30, 1999. Please see the table below for additional information
concerning the fund's returns.
Massachusetts Update
Massachusetts is still experiencing financial strength and economic growth,
although growth has been more subdued in 1999 compared with recent years. Job
creation is strong in the Commonwealth, and unemployment is at its lowest level
since 1989. Two events negatively affected
- --------------------------------------------------------------------------------
Scudder Massachusetts Tax Free Fund:
Top-Tier Performance
(Average annual returns for periods ended September 30, 1999)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Scudder
Massachusetts
Tax Free Fund Lipper Number of Percentile
Period Return Average Rank Funds Tracked Rank
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year -1.46% -2.86% 5 of 51 Top 9%
3 Years 5.00% 4.31% 6 of 45 Top 14%
5 Years 6.45% 5.79% 4 of 35 Top 12%
10 Years 7.33% 6.69% 1 of 15 Top 7%
- -------------------------------------------------------------------------------------
</TABLE>
Past performance does not guarantee future results.
9
<PAGE>
the Commonwealth's balance sheet during its 1999 fiscal year, however. The first
was a $400 million transfer out of the Massachusetts General Fund to retire
debt. The second was a six-month delay in the passage of an unearned income tax
cut. The delay meant that eighteen months of tax cuts had to be consolidated
into twelve months of the 1999 fiscal year. Since both events were one-time
occurrences and generally reflective of the Commonwealth's strong financial
position, we do not believe they are worrisome signs.
In the last twelve months, the Commonwealth has added nearly 43,000 jobs,
primarily in the services sector. Strong employment growth has boosted the
Commonwealth's wealth levels: In 1998, personal income was up 4% over the prior
year. Although debt issuance is likely to be substantial in the near future, we
believe the resulting debt burden will be manageable given high wealth levels
and scheduled debt retirement. The largest focus of Massachusetts' capital
budget is the Central Artery project, which is being financed by various
sources. We will continue to monitor the financial impact of this $11.7 billion
project.
A Cautious Strategy
During the fund's most recent semiannual period, fixed income investors reacted
negatively to news of tightening U.S. labor markets, the worldwide economic
revival, a weakening dollar, and economic statistics that some worried could
presage a revival of inflation. Yields on 10-year Treasury bonds rose just over
one half of a percentage point and their prices declined 4.6% over the six-month
period, while municipal bond yields rose nearly the same amount as Treasury
yields, and their prices declined 4.5%. Over the period, the fund's average
effective maturity rose slightly, from 8.2 years to 9.3 years.
During the six-month period, we maintained three key elements of our longer-term
strategy: First, we focused on premium "cushion" bonds -- high coupon bonds
trading at a premium to face value that can be redeemed prior to
10
<PAGE>
maturity. We believe that the extra yield provided by cushion bonds adequately
compensates the fund for the call feature in the current environment. Second, we
continued the fund's strong emphasis on call protection. (Generally a bond is
called in by its issuer so that it can be refinanced at a lower prevailing
rate.) Our call-protection strategy provides a more reliable income stream for
the fund than would exist if the portfolio held a significant proportion of
bonds that could be called in before their stated maturities. Third, our
emphasis on purchasing premium bonds rather than par bonds (which can more
easily decline to a discount) helped the fund by avoiding "market discount," a
provision that subjects municipal bonds sold at a discount to taxation.
Overall portfolio quality remains high, with over 80% 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 water and sewer bonds.
Outlook
Because some worry that excess financial liquidity, high-flying consumer
spending, and worker shortages could spell renewed inflation, the Federal
Reserve, with the help of many bond market participants, is striving to cool the
burgeoning U.S. economy. The Fed has raised interest rates twice in recent
months, and warned of further increases in the near future. Meanwhile, market
rates, such as those for mortgages and corporate bonds, have risen even faster
than the Fed funds rate. Such rate increases, along with a volatile stock
market, could slow the U.S. economy in 2000.
In a slightly weaker economy, municipal bonds should look attractive. Though
they would be negatively affected by further interest rate increases in the
short run, municipals should continue to benefit from steady demand from
institutional purchasers. Three other factors favor municipal bonds: First,
municipals currently yield more than 80% of Treasuries with similar maturity.
Second,
11
<PAGE>
strong state and city finances across the country have boosted the
creditworthiness of tax-exempt bonds, and third, the reduced supply of municipal
bonds lends important support to their prices. We believe Scudder Massachusetts
Tax Free Fund remains an attractive investment option for investors seeking a
high level of income free from federal and Massachusetts income taxes.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Rebecca L. Wilson
Philip G. Condon Rebecca L. Wilson
12
<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 A municipal bond backed by the "full faith and credit"
Obligation (including the taxing and further borrowing power) of the
Bond 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 The price per share of a mutual fund based on the sum of the
Value (NAV) market value of all the securities owned by the fund divided
by the number of outstanding shares.
Taxable The level of yield a fully taxable instrument would have to
Equivalent provide to equal that of a tax-free municipal bond on an
Yield after-tax basis.
30-Day SEC The standard yield reference for bond funds, based on a
Yield 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.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
13
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio as of September 30, 1999 (Unaudited)
- ------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Short-Term Municipal Investments 1.6%
- ------------------------------------------------------------------------------------
<S> <C> <C>
Massachusetts
Massachusetts Health & Educational Facilities Authority:
Series B, Daily Demand Note, 3.85%, 7/1/2005 (b)* ..... 2,000,000 2,000,000
Series C, Daily Demand Note, 3.85%, 7/1/2005 (b)* ..... 1,700,000 1,700,000
Wellesley College, Series G, Daily Demand Notes, 3.8%,
7/1/2039* ........................................... 2,700,000 2,700,000
Total Short-Term Municipal Investments (Cost $6,400,000) .. 6,400,000
- ------------------------------------------------------------------------------------
Long-Term Municipal Investments 98.4%
- ------------------------------------------------------------------------------------
Massachusetts
Boston, MA, General Obligation, Series A, Prerefunded
7/1/2002, 6.5%, 7/1/2012** ............................ 2,320,000 2,494,139
Boston, MA, Industrial Development Authority,
Springhouse Project, Prerefunded 7/1/2005, 9.25%,
7/1/2025** ............................................ 2,000,000 2,467,840
Boston, MA, Industrial Development Financing Authority,
5.5%, 7/1/2008 ........................................ 1,020,000 971,887
Chicopee, MA, Electric System Revenue, ETM, 7.125%,
1/1/2017*** ........................................... 1,210,000 1,394,707
Frontier, MA, Regional School District General Obligation,
Series 1998, 5.5%, 6/15/2014 (b) ...................... 1,500,000 1,496,865
Haverhill, MA, Unlimited Tax, General Obligation,
Series A, Prerefunded 6/15/2002, 7%, 6/15/2012 (b)** .. 600,000 652,128
Holyoke, MA, General Obligation, Series 1996A, 6%,
6/15/2009 (b) ......................................... 1,560,000 1,641,728
Malden, MA, General Obligation:
5.25%, 10/1/2012 (b) .................................. 2,370,000 2,356,752
4.5%, 10/1/2017 (b) ................................... 5,135,000 4,349,345
Marthas Vineyard, MA, Land Bank Series 1998, 5.5%,
5/1/2011 (b) .......................................... 1,025,000 1,048,903
Mashpee, MA, General Obligation:
5.125%, 2/1/2011 (b) .................................. 1,025,000 1,020,142
5.35%, 2/1/2012 (b) ................................... 1,525,000 1,533,296
Massachusetts Bay Transportation Authority:
Certificate of Participation, 7.75%, 1/15/2006 ........ 1,000,000 1,111,380
General Transportation System:
Series A, 5.5%, 3/1/2009 ............................ 1,000,000 1,033,360
Series A, 5.5%, 3/1/2012 ............................ 3,000,000 3,067,650
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Series C, 6.1%, 3/1/2013 .............................. 1,250,000 1,340,313
Revenue, Series B, 6.2%, 3/1/2016 ....................... 2,100,000 2,236,353
Massachusetts College Building Authority Project, Revenue
Bond, 5.625%, 5/1/2016 (b) .............................. 2,690,000 2,682,683
Massachusetts Federal Highway Grant, Revenue Bond,
5.25%, 6/15/2012 ........................................ 2,000,000 1,987,020
Massachusetts General Obligation:
Consolidated Loan, Series A, 7.5%, 6/1/2004 ............. 12,400,000 13,574,528
Hynes Convention Center, Zero Coupon, 9/1/2004 .......... 2,000,000 1,583,760
Inverse Floating Rate Notes, Series 1996 A, 14.00%,
6/28/2008**** ......................................... 5,000,000 5,764,700
Series A, Prerefunded 6/1/2002, 6.5%, 6/1/2008** ........ 330,000 351,047
Series B, 6.5%, 8/1/2008 ................................ 5,400,000 5,946,642
Series B, 5.25%, 5/1/2012 ............................... 10,000,000 9,944,900
Series C, Zero Coupon, 12/1/2004 ........................ 8,415,000 6,598,454
Massachusetts Health & Educational Facilities Authority:
Anna Jaques Hospital, Series B, 6.875%, 10/1/2012 ....... 2,000,000 2,054,720
Berkshire Health System, Series D, 5.6%, 10/1/2008 (b) .. 1,760,000 1,828,939
Boston College, Series 1993K, 5.25%, 6/1/2009 ........... 2,880,000 2,925,619
Boston College Issue:
Series L, 5.25%, 6/1/2012 ............................. 1,480,000 1,467,731
Series L, 5.25%, 6/1/2015 ............................. 720,000 690,257
Boston Medical Center, Series 1998A, 5.25%,
7/1/2013 (b) .......................................... 4,575,000 4,456,645
Cape Cod Health Care, Series 1998B, 5.25%, 11/15/2013 ... 1,365,000 1,256,824
Community College Program, Series A, Prerefunded
10/1/2002, 6.5%, 10/1/2009** .......................... 1,000,000 1,079,690
Cooley Dickenson Hospital Inc.:
Series B, 5.25%, 11/15/2010 (b) ....................... 2,005,000 2,012,759
Prerefunded 5/15/2003, 7.125%, 11/15/2018** ........... 1,990,000 2,179,667
Deaconess Hospital, Series B, Prerefunded 4/1/2002,
6.625%, 4/1/2012 (b)** ................................ 2,000,000 2,145,180
Hallmark Health System, Series 1997A, 5%, 7/1/2011 (b) .. 1,750,000 1,701,385
Harvard Pilgrim Health, Series 1998A, 5.25%, 7/1/2011 (b) 3,600,000 3,587,220
Lowell General Hospital, Series 1996B, 5.2%, 6/1/2010 (b) 1,180,000 1,180,448
Massachusetts General Hospital, Series F, 6.25%,
7/1/2012 (b) .......................................... 5,000,000 5,450,350
Medical Academic & Scientific, Series B, 6.5%,
1/1/2009 .............................................. 5,000,000 5,368,900
Medical Center of Central Massachusetts, Series A, 7%,
7/1/2012 (b) .......................................... 3,600,000 3,839,040
Melrose-Wakefield, Series 1996C, Prerefunded 7/1/2006,
6%, 7/1/2012** ........................................ 1,000,000 1,085,370
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Milford-Whitinsville Regional, Series 1998C, 5.75%,
7/15/2013 .......................................... 1,750,000 1,648,150
Newton-Wellesley Hospital:
Series E, 5.9%, 7/1/2011 (b) ....................... 3,015,000 3,128,515
Series 1997G, 6%, 7/1/2012 (b) ..................... 1,000,000 1,045,700
North Adams, Series C, 6.625%, 7/1/2018 .............. 1,560,000 1,584,086
Northeastern University:
Series E, 6.4%, 10/1/2007 (b) ...................... 1,000,000 1,070,600
Series 1998G, 5.5%, 10/1/2011 (b) .................. 1,525,000 1,572,336
Series 1998G, 5.5%, 10/1/2012 (b) .................. 1,110,000 1,135,907
Series E, 6.5%, 10/1/2012 (b) ...................... 450,000 480,920
Partners Healthcare System, Series 1997A, 5.25%,
7/1/2013 (b) ....................................... 2,000,000 1,948,260
South Shore Hospital, 6.5%, 7/1/2010 (b) ............. 2,500,000 2,656,025
Southcoast Health System, Series 1998A, 5.5%,
7/1/2010 (b) ....................................... 1,570,000 1,608,292
St. Luke's Hospital New Bedford, Series C, Inverse
Floating Notes, 7.37%, 8/15/2010 (b)**** ........... 3,400,000 3,540,250
Suffolk University, Series 1996C, 5.65%, 7/1/2011 (b) 1,045,000 1,070,258
Massachusetts Housing Finance Agency:
Housing Project Revenue, Series A, 6.375%, 4/1/2021 .. 3,905,000 4,048,509
Housing Project Refunding Revenue:
Series A, 6.3%, 10/1/2013 .......................... 7,000,000 7,266,140
Series B, 6.05%, 12/1/2009 (b) ..................... 3,000,000 3,030,450
Residential Development, Series C, 6.875%,
11/15/2011 ......................................... 15,250,000 16,208,158
Single-Family Mortgage Revenue, Series 44, 5.9%,
12/1/2013 .......................................... 2,135,000 2,163,673
Massachusetts Industrial Finance Agency:
Assisted Living Facilities Revenue TNG Marina Bay LLC
Project, Series 1997, 7.5%, 12/1/2027 .............. 1,000,000 1,037,380
Babson College, Series A, 5.375%, 10/1/2017 .......... 1,700,000 1,601,825
College of the Holy Cross:
Issue II, Prerefunded 11/1/2002, 6.375%, 11/1/2009** 1,000,000 1,076,650
Series 1996, 5.5%, 3/1/2016 (b) .................... 5,000,000 4,920,150
Dana Hall School Issue, Series 1997A, 5.7%, 7/1/2013 . 1,000,000 998,390
Deerfield Academy Series 1997, 5.125%, 10/1/2017 ..... 1,520,000 1,395,162
Dexter School Project Series 1997, 5.4%, 5/1/2013 (b) 1,000,000 994,240
Edgewood Retirement Community, Series A, 9%,
11/15/2025 ......................................... 1,650,000 1,912,515
East Boston Neighborhood, Series 1996, 7.625%,
7/1/2026 ........................................... 2,750,000 2,609,750
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
First Mortgage, Evanswood Bethzatha, Series A, 7.875%,
1/15/2020 ........................................... 1,000,000 1,002,830
Holy Cross, Series 1996, 5.25%, 3/1/2009 (b) .......... 1,190,000 1,206,922
Massachusetts Biomedical Research Corp.:
Series A, Zero Coupon, 8/1/2001 ..................... 3,650,000 3,366,505
Series A, Zero Coupon, 8/1/2000 ..................... 2,860,000 2,765,019
Series A, Zero Coupon, 8/1/2002 ..................... 3,650,000 3,207,401
Merrimack College:
Series 1997, 5%, 7/1/2011 (b) ....................... 1,490,000 1,460,066
Series 1997, 5%, 7/1/2012 (b) ....................... 1,560,000 1,512,670
Nantucket, Series 1996A, 5.75%, 7/1/2008 (b) .......... 1,400,000 1,455,468
Nantucket Electric Co.:
Series 1996A, AMT, 5.75%, 7/1/2009 .................. 1,400,000 1,444,520
Series 1996A, AMT, 5.875%, 7/1/2017 (b) ............. 2,000,000 2,001,820
Pollution Control Revenue:
Boston Edison Company, Series A, 5.75%, 2/1/2014 .... 2,000,000 1,954,060
Eastern Edison Company Project, 5.875%, 8/1/2008 .... 4,750,000 4,704,495
Provider Lease Program, Series A-1, 8.4%, 7/15/2008 ... 1,035,000 1,050,804
Resource Recovery, North Andover Solid Waste, Series A,
6.3%, 7/1/2005 ...................................... 6,500,000 6,808,880
Solid Waste Disposal, Peabody Monofil Project, 9%,
9/1/2005 (c) ........................................ 2,905,000 3,061,434
Sturdy Memorial Hospital, 7.9%, 6/1/2009 (b) .......... 1,545,000 1,580,504
Worcester Polytechnical Institute, Series 1997, 5%,
3/1/2011 (b) ........................................ 1,645,000 1,629,932
Worcester Polytechnical University:
Series 1997 II, 5.125%, 9/1/2011 (b) ................ 1,300,000 1,291,355
Series 1997 II, 5.125%, 9/1/2016 .................... 2,600,000 2,436,512
Massachusetts Industrial Finance Authority, The Tabor
Academy, 5.4%, 12/1/2018 .............................. 1,000,000 921,420
Massachusetts Municipal Wholesale Electric Company,
Power Supply System Revenue:
Series A, 6.75%, 7/1/2006 ............................. 2,855,000 3,039,918
Series B, 6.75%, 7/1/2008 ............................. 9,000,000 9,582,930
Series C, 6.625%, 7/1/2010 ............................ 1,000,000 1,061,590
Series C, 6.625%, 7/1/2010 (b) ........................ 3,500,000 3,748,395
Massachusetts Port Authority Revenue:
Series 1998A, 5.75%, 7/1/2010 ......................... 2,000,000 2,111,500
Series 1998A, 5.75%, 7/1/2012 ......................... 2,350,000 2,458,006
Series 1998A, 5.5%, 7/1/2015 .......................... 2,670,000 2,639,295
Series 1998A, 5.5%, 7/1/2016 .......................... 1,650,000 1,619,756
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Series B, AMT, 5.5%, 7/1/2011 (b) ................... 8,390,000 8,491,100
Series B, AMT, 5.5%, 7/1/2012 (b) ................... 1,610,000 1,616,343
Tax Exempt Receipts, ETM, Zero Coupon, 7/1/2013*** .. 1,000,000 1,137,160
USAir Private Jet, Series A, AMT, 5.75%, 9/1/2016 (b) 1,000,000 992,470
Massachusetts Special Obligation, Series 1996 A, 5.5%,
6/1/2011 (b) ........................................ 5,000,000 5,103,200
Massachusetts State, Grant Anticipation Notes, Series B,
5.125%, 12/15/2014 .................................. 2,000,000 1,909,540
Massachusetts State Grant Anticipation Revenue Note,
Series A, 5.25%, 12/15/2012 ......................... 7,550,000 7,528,030
Massachusetts State Development Financial Agency,
Revenue, Health Care Facilities, Series A, 7.1%,
7/1/2032 ............................................ 4,000,000 3,959,240
Massachusetts State Health and Educational Facilities
Authority:
Brandeis University, Series I, 5.25%, 10/1/2013 (b) . 2,000,000 1,970,780
Caritas Christi Obligation, Group A, 5.625%, 7/1/2020 1,000,000 896,780
Stonehill College, Series E:
6.55%, 7/1/2012 (b) ............................... 2,755,000 2,940,797
Prerefunded 7/1/2002, 6.55%, 7/1/2012 (b)** ....... 2,245,000 2,416,383
Massachusetts State Industrial Finance Agency:
Belmont Hill School, Series 1998, 5.15%, 9/1/2013 ... 1,000,000 943,920
Belmont, Series 1998, 5.625%, 9/1/2020 .............. 1,265,000 1,221,965
Concord Academy Series 1997, 5.45%, 9/1/2017 ........ 1,205,000 1,112,878
Massachusetts State, Revenue, Federal Highway, Series A,
Zero Coupon, 12/15/2014 ............................. 9,000,000 3,817,170
Massachusetts State Turnpike Authority, Metropolitan
Highway System, Revenue Bond, Series A, 5.125%,
1/1/2011 (b) ........................................ 2,870,000 2,851,603
Massachusetts State Water Pollution Abatement Authority:
MWRA Loan Program, Series A, 5.25%, 8/1/2013 ........ 3,500,000 3,449,040
Pooled Loan Program:
Series 4, 5.125%, 8/1/2013 ........................ 2,000,000 1,956,440
Series 5, 5.5%, 8/1/2012 .......................... 2,325,000 2,374,313
Series 5, 5.5%, 8/1/2014 .......................... 3,500,000 3,519,600
Massachusetts Turnpike Authority, Metropolitan Highway
System, Series 1997A, 5%, 1/1/2010 .................. 2,000,000 1,959,040
Massachusetts Water Pollution Abatement Trust:
Series 1998 A, 5.25%, 2/1/2013 ...................... 1,000,000 992,360
Pooled Loan Program:
Series 2, 5.625%, 2/1/2010 ........................ 2,820,000 2,918,164
Series 2, 5.7%, 2/1/2015 .......................... 1,150,000 1,164,053
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Massachusetts Water Resource Authority:
General Revenue, Series C, 5.25%, 12/1/2015 ............ 4,030,000 3,889,232
General Series 1998A, 5.5%, 8/1/2013 (b) ............... 1,445,000 1,468,712
Series A, 6.5%, 7/15/2009 .............................. 15,000,000 16,516,350
Series A, 6.5%, 7/15/2019 .............................. 3,000,000 3,298,050
Series B, 6%, 11/1/2008 ................................ 5,785,000 6,054,870
Nantucket, MA, General Obligation, 6.8%, 12/1/2011 ........ 1,000,000 1,071,620
New England Educational Loan Marketing Corporation,
Massachusetts Student Loan Revenue, Series 1993A,
AMT, 5.7%, 7/1/2005 .................................... 6,250,000 6,435,000
North Attleboro, MA, General Obligation, Series 1997,
5%, 3/1/2011 (b) ....................................... 1,120,000 1,098,014
Norton, MA, General Obligation, Series 1998, 5%,
10/1/2012 (b) .......................................... 2,570,000 2,491,178
Rail Connections, Inc., Route 128 Parking Garage:
7/1/2016 ............................................... 1,025,000 342,022
Series A, 5.4%, 7/1/2010 ............................... 1,000,000 971,730
Series A, 6%, 7/1/2012 ................................. 250,000 251,965
Series A, 6%, 7/1/2014 ................................. 250,000 249,850
Series B, Zero Coupon, 7/1/2015 ........................ 750,000 269,250
Somerville, MA, General Obligation:
Series 1997, 5.25%, 2/15/2012 (b) ...................... 1,180,000 1,176,743
Springfield, MA, General Obligation:
5%, 9/1/2009 ........................................... 1,000,000 994,550
Series 1966, 5.3%, 8/1/2011 (b) ........................ 1,250,000 1,254,275
Taunton, MA, General Obligation, 5.125%, 5/1/2012 (b) ..... 1,000,000 985,830
University of Massachusetts, Building Authority Revenue:
Series B, 6.625%, 5/1/2009 ............................. 2,415,000 2,701,105
Series B, 6.625%, 5/1/2010 ............................. 2,575,000 2,898,652
Series B, 6.75%, 5/1/2011 .............................. 2,745,000 3,121,916
Series B, 6.875%, 5/1/2014 ............................. 1,300,000 1,472,705
Worcester, MA, General Obligation:
Prerefunded 5/15/2002, 6.9%, 5/15/2005 (b)** ........... 1,850,000 2,002,607
Prerefunded 5/15/2002, 6.9%, 5/15/2006 (b)** ........... 1,500,000 1,623,735
Series 1998B, 5.25%, 11/1/2011 (b) ..................... 1,805,000 1,810,938
Series 1998B, 5.25%, 11/1/2012 ......................... 1,830,000 1,821,344
Puerto Rico
Puerto Rico Highway and Transportation Authority, Highway
Revenue, Series 1996 Y, 6.25%, 7/1/2014 ................ 2,000,000 2,160,560
- ---------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $392,358,634) 401,512,736
- ---------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $398,758,634) (a) 407,912,736
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $398,758,634. At September 30,
1999, net unrealized appreciation for all securities based on tax cost was
$9,154,102. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $14,265,935 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$5,111,833.
(b) Bond is insured by one of these companies: AMBAC, Capital Guaranty, FGIC,
FSA or MBIA/BIG.
(c) 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 September 30,
1999, amounted to $3,061,434 which represents 0.75% of net assets.
Information concerning such restricted securities at September 30, 1999 is
as follows:
<TABLE>
<CAPTION>
Principal Acquisition
Security ($) Date Cost ($)
----------------------------------------- ------------ ------------ -----------
<S> <C> <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>
* Floating rate and monthly, weekly, or daily demand notes are securities
whose yields vary with a designated market index or market rate, such as
the coupon-equivalent of the Treasury bill rate. Variable rate demand notes
are securities whose yields are periodically reset at levels that are
generally comparable to exempt commercial paper. These securities are
payable on demand within seven calendar days and normally incorporate an
irrevocable letter of credit from a major bank. These notes are carried,
for purposes of calculating average weighted maturity, at the longer of the
period remaining until the next rate change or to the extent of the demand
period.
** Prerefunded: Bonds which are prerefunded are collateralized by U.S.
Treasury securities which are held in escrow and are used to pay principal
and interest on the tax-exempt issue and to retire the bonds in full at the
earliest refunding date.
*** ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by a
trustee and used to pay principal and interest on bonds so designated.
**** Inverse floating rate notes are instruments whose yields have an inverse
relationship to benchmark interest rates. These securities are shown at
their rate as of September 30, 1999
AMT: Subject to alternative minimum tax
20
<PAGE>
Financial Statements
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Assets and Liabilities as of September 30, 1999 (Unaudited)
Assets
- ----------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $398,758,634) .................. $ 407,912,736
Cash ................................................................... 438,058
Receivable for investments sold ........................................ 16,207,695
Interest receivable .................................................... 6,596,046
Receivable for Fund shares sold ........................................ 134,271
Other assets ........................................................... 3,252
-------------
Total assets ........................................................... 431,292,058
Liabilities
- ----------------------------------------------------------------------------------------
Payable for investments purchased ...................................... 22,136,794
Dividends payable ...................................................... 536,872
Payable for Fund shares redeemed ....................................... 326,468
Accrued management fee ................................................. 209,546
Other payables and accrued expenses .................................... 50,487
-------------
Total liabilities ...................................................... 23,260,167
- ----------------------------------------------------------------------------------------
Net assets, at market value $ 408,031,891
- ----------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments .............. 9,154,102
Accumulated net realized gain (loss) ................................... (2,758,979)
Paid-in capital ........................................................ 401,636,768
- ----------------------------------------------------------------------------------------
Net assets, at market value $ 408,031,891
- ----------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------
NetAsset Value, offering and redemption price per share ($408,031,891 /
29,770,818 outstanding shares of beneficial interest, $.01 par value, -------------
unlimited number of shares authorized) .............................. $13.71
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations for the six months ended September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
Investment Income (Loss)
- --------------------------------------------------------------------------------
Income:
Interest ...................................................... $ 11,525,310
------------
Expenses:
Management fee ................................................ 1,243,255
Services to shareholders ...................................... 136,909
Custodian and accounting fees ................................. 50,733
Trustees' fees and expenses ................................... 14,823
Reports to shareholders ....................................... 11,565
Auditing ...................................................... 16,867
Legal ......................................................... 6,283
Registration fees ............................................. 17,186
Other ......................................................... 4,648
------------
1,502,269
- --------------------------------------------------------------------------------
Net investment income (loss) 10,023,041
- --------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from investments ..................... (1,253,505)
Net unrealized appreciation (depreciation) during the period on
investments ................................................ (17,711,863)
Net gain (loss) on investment transactions .................... (18,965,368)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (8,942,327)
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, March 31,
Increase (Decrease) in Net Assets 1999 (Unaudited) 1999
- ------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income ........................... $ 10,023,041 $ 18,874,635
Net realized gain (loss) from investment
transactions ................................. (1,253,505) 1,904,413
Net unrealized appreciation (depreciation) on
investment transactions during the period .... (17,711,863) (550,979)
------------- -------------
Net increase (decrease) in net assets resulting
from operations .............................. (8,942,327) 20,228,069
Distributions to shareholders from net investment
income ....................................... (10,023,041) (18,874,635)
------------- -------------
Net realized gains .............................. -- (1,324,804)
------------- -------------
Fund share transactions:
Proceeds from shares sold ....................... 63,446,565 103,177,594
Net asset value of shares issued to shareholders
in reinvestment of distributions ............. 5,464,151 12,867,811
Cost of shares redeemed ......................... (62,183,315) (69,710,003)
------------- -------------
Net increase (decrease) in net assets from Fund
share transactions ........................... 6,727,401 46,335,402
------------- -------------
Increase (decrease) in net assets ............... (12,237,967) 46,364,032
Net assets at beginning of period ............... 420,269,858 373,905,826
------------- -------------
Net assets at end of period ..................... $ 408,031,891 $ 420,269,858
------------- -------------
Other Information
- ----------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ....... 29,290,636 26,075,571
------------- -------------
Shares sold ..................................... 4,527,045 7,153,879
Shares issued to shareholders in reinvestment of
distributions ................................ 390,051 890,970
Shares redeemed ................................. (4,436,914) (4,829,784)
------------- -------------
Net increase (decrease) in Fund shares .......... 480,182 3,215,065
------------- -------------
Shares outstanding at end of period ............. 29,770,818 29,290,636
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<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(a) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $14.35 $14.34 $13.72 $13.70 $13.33 $13.16
----------------------------------------------------
- ------------------------------------------------------------------------------------
Income from investment
operations:
- ------------------------------------------------------------------------------------
Net investment income .34 .69 .70 .70 .72 .74
- ------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.64) .06 .62 .02 .37 .18
----------------------------------------------------
- ------------------------------------------------------------------------------------
Total from investment
operations (.30) .75 1.32 .72 1.09 .92
- ------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------
From net investment income (.34) (.69) (.70) (.70) (.72) (.74)
- ------------------------------------------------------------------------------------
From net realized gains on
investment transactions -- (.05) -- -- -- (.01)
----------------------------------------------------
- ------------------------------------------------------------------------------------
Total distributions (.34) (.74) (.70) (.70) (.72) (.75)
- ------------------------------------------------------------------------------------
Net asset value, end of period $13.71 $14.35 $14.34 $13.72 $13.70 $13.33
----------------------------------------------------
- ------------------------------------------------------------------------------------
Total Return (%) (2.12)** 5.29 9.82 5.39 8.28(b) 7.37(b)
- ------------------------------------------------------------------------------------
Ratios and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 408 420 374 330 314 296
- ------------------------------------------------------------------------------------
Ratio of operating expenses to
average daily net assets (%) .71* .73 .76 .76 .75 .47
- ------------------------------------------------------------------------------------
Ratio of operating expenses,
before expense reductions, to
average daily net assets (%) .71* .73 .76 .76 .76 .77
- ------------------------------------------------------------------------------------
Ratio of net investment income
to average daily net assets (%) 4.75* 4.76 4.97 5.12 5.23 5.73
- ------------------------------------------------------------------------------------
Portfolio turnover rate (%) 26.5* 10.7 8.4 11.5 20.9 10.2
- ------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended September 30, 1999 (Unaudited).
(b) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
24
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Unaudited)
A. Significant Accounting Policies
Scudder Massachusetts Tax Free Fund (the "Fund") is a non-diversified series of
Scudder State Tax Free Fund Trust (the "Trust") which is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company organized as a Massachusetts business 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 an original
maturity greater than sixty days are valued by pricing agents approved by the
officers of the Trust, 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 securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable and tax-exempt income
to its shareholders. 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 daily dividend and is distributed to shareholders monthly. 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 at least annually.
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.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
25
<PAGE>
basis. Realized gains and losses from investment transactions are recorded on an
identified cost basis. All premiums and original issue discounts are
amortized/accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
During the six months ended September 30, 1999, purchases and sales of municipal
securities (excluding short-term investments)
aggregated $71,310,746 and $53,390,603, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. (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 six months ended September 30, 1999, the fees pursuant
to these agreements amounted to $1,243,255, of which $209,546 was unpaid at
September 30, 1999.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend-paying and shareholder service agent for the Fund. For the
six months ended September 30, 1999, the amount charged to the Fund by SSC
aggregated $92,439, of which $15,200 was unpaid at September 30, 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 six months
ended September 30, 1999, the amount charged to the Fund by SFAC aggregated
$34,918, of which $5,754 was unpaid at September 30, 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 six months ended September 30,
1999, Trustees' fees and expenses charged to the Fund aggregated $14,823.
26
<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.
27
<PAGE>
Officers and Trustees
Lynn S. Birdsong* Eleanor R. Brennan*
o President and Trustee o Vice President
Henry P. Becton, Jr. Philip G. Condon*
o Trustee; President and General o Vice President
Manager, WGBH Educational
Foundation Ashton P. Goodfield*
o Vice President
Dawn-Marie Driscoll
o Trustee; President, Driscoll Ann M. McCreary*
Associates; Executive Fellow, o Vice President
Bentley College
Frank J. Rachwalski, Jr.*
Peter B. Freeman o Vice President
o Trustee; Corporate Director and
Trustee Rebecca L. Wilson*
o Vice President
George M. Lovejoy, Jr.
o Trustee; President and Director, John Millette*
Fifty Associates o Vice President and Secretary
Wesley W. Marple, Jr. John R. Hebble*
o Trustee; Professor of Business o Treasurer
Administration, Northeastern
University, College of Business Caroline Pearson*
Administration o Assistant Secretary
Kathryn L. Quirk*
o Trustee, Vice President and *Scudder Kemper Investments, Inc.
Assistant Secretary
Jean C. Tempel
o Trustee; Venture Partner, Internet
Capital Group
28
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Heath Care Fund
Scudder Pathway Conservative Portfolio Scudder Technology Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
</TABLE>
29
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Closed-End Funds#
- -----------------------------------------------------------------------------------------
<S> <C>
The Argentina Fund, Inc. Scudder Global High Income Fund, Inc.
The Brazil Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Montgomery Street Income Securities, Inc.
</TABLE>
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.
30
<PAGE>
Scudder Solutions
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average" --
buy more shares when the fund's price is lower and fewer
when it's higher, which can reduce your average purchase
price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government checks
-- invested in up to four Scudder funds at one time.
* 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- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.scudder.com
Personal Investment Organizer: Offering account information
and transactions, interactive worksheets, prospectuses and
applications for all Scudder funds, plus your current asset
allocation, whenever your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
31
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal each distribution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
32
<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
About the Fund's Adviser
SCUDDER
INVESTMENTS(SM)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations 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.
