SCUDDER
INVESTMENTS(SM)
[LOGO]
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BOND/TAX FREE
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Scudder
Massachusetts Limited
Term Tax Free Fund
Fund #041
Semiannual Report
September 30, 1999
The fund seeks income that is exempt from Massachusetts personal and regular
federal income taxes and is consistent with a high degree of price stability.
A no-load fund with no commissions to buy, sell, or exchange shares.
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Contents
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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
18 Financial Statements
21 Financial Highlights
22 Notes to Financial Statements
25 Officers and Trustees
26 Investment Products and Services
28 Scudder Solutions
2
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Scudder Massachusetts Limited Term Tax Free Fund
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ticker symbol SML fund number 041
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Date of o For its most recent semiannual period ended September
Inception: 30, 1999, Scudder Massachusetts Limited Term Tax Free Fund
2/15/94 posted a total return of -0.26%, higher than the -0.79%
average return of 16 similar funds tracked by Lipper
Total Net Analytical Services.^1
Assets as
of 9/30/99: o As of September 30, 1999, Scudder Massachusetts Limited
$93.7 million Term Tax Free Fund's 30-day net annualized SEC yield was
3.76%, equivalent to a 6.62% taxable yield for
Massachusetts investors subject to the 43.19% combined
federal and state income tax rate.
o Scudder Massachusetts Limited Term Tax Free Fund
received a four-star rating from Morningstar, reflecting
"above average" risk-adjusted performance through
September 30, 1999.^2
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30-Day Yield on September 30, 1999
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
3.76% 6.62%
Scudder Massachusetts Taxable Yield
Limited Term Needed to Equal
Tax Free Fund the Fund's Yield
^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 five stars for three-year performance, and four stars for
five-year performance, and was rated among 1611 and 1241 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
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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. Scudder
Massachusetts Limited Term Tax Free Fund also fared well under difficult
circumstances, posting top-quartile performance compared with similar funds for
the six-month, three-year, and five-year periods ended September 30, 1999. For
more information about the fund's market environment, strategy, and outlook,
please read the Portfolio Management Discussion that begins on page 9.
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It should be noted that Daniel Pierce retired in June of this year as President
of Scudder Massachusetts Limited Term 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 Limited Term
Tax Free Fund team in this capacity, and look forward to serving your interests.
If you have any questions regarding Scudder Massachusetts Limited Term 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 Limited Term Tax Free Fund
5
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Performance Update
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September 30, 1999 (Unaudited)
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder Massachusetts Limited Lehman Brothers Municipal
Term Tax Free Fund Bond Index (3 year)*
2/94** 10000 10000
9/94 10041 10082
9/95 10732 10810
9/96 11151 11274
9/97 11787 11925
9/98 12491 12601
9/99 12604 12938
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 9/30/1999 $10,000 Cumulative Annual
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Scudder Massachusetts Limited Term Tax Free Fund
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1 year $ 10,090 0.90% 0.90%
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5 year $ 12,552 25.52% 4.65%
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Life of Fund** $ 12,604 26.04% 4.20%
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Lehman Brothers Municipal Bond Index (3 year)*
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1 year $ 10,267 2.67% 2.67%
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5 year $ 12,833 28.33% 5.11%
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Life of Fund** $ 12,938 29.38% 4.72%
* The 3-year Lehman Brothers Municipal Bond Index is an unmanaged,
market-value-weighted measure of the short-term municipal bond market and
includes bonds with maturities of two to three years. Index returns assume
reinvested dividends and, unlike Fund returns, do not reflect fees or
expenses.
** The Fund commenced operation on February 15, 1994. Index comparisons begin
February 28, 1994.
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, total returns for the Fund would have been
lower.
6
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Returns and Per Share Information
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
Yearly periods ended September 30
Scudder Massachusetts Lehman Brothers
Limited Term Tax Free Fund Municipal Bond Index (3 year)
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1994(a) 0.41 0.82
1995 6.88 7.22
1996 3.90 4.29
1997 5.70 5.77
1998 5.98 5.68
1999 0.90 2.67
1994(a) 1995 1996 1997 1998 1999
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Fund Total
Return (%) .41 6.88 3.90 5.70 5.98 .90
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Index Total
Return (%) .82 7.22 4.29 5.77 5.68 2.67
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Net Asset
Value ($) 11.73 11.98 11.94 12.08 12.29 11.93
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Income
Dividends ($) .32 .54 .50 .53 .49 .47
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(a) For the period February 15, 1994 (commencement of operations) to September
30, 1994.
7
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Portfolio Summary
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September 30, 1999 (Unaudited)
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Diversification
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Transportation Revenue 14% The fund invests in a
Hospital/Health Revenue 14% broad selection of
Other General Obligation/ Massachusetts municipal
Lease 13% bonds.
Sales/Special Tax 11%
State General Obligation/
Lease 9%
Higher Education 5%
Resource Recovery 4%
Student Loans 4%
Electric Utility Revenue 2%
Water/Sewer Revenue 1%
Miscellaneous Municipal 23%
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100%
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Quality
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
AAA* 67% Overall credit quality
AA 17% remains high, with over
A 1% 80% of portfolio
BBB 14% securities rated AAA or
BB 1% AA as of September 30.
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100%
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Weighted average quality: AA
*Category includes cash equivalents
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Effective Maturity
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Less than 1 year 8% Over the fund's most
1-5 years 62% recent semiannual
5-10 years 30% period, the Fund
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100% tax-exempt bonds with
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nine years to take
Weighted average effective advantage of higher
maturity: 4.4 years yields and what we felt
were the most promising
opportunities for
capital appreciation
within the Fund's range
of acceptable maturities.
For more complete details about the Fund's investment portfolio, see page
14. A quarterly Fund Summary and Portfolio Holdings are available upon
request.
8
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Portfolio Management Discussion
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September 30, 1999
Dear Shareholders,
During a difficult period for most fixed-income securities, Scudder
Massachusetts Limited Term Tax Free Fund posted a slightly negative return but
displayed strong competitive performance. The fund's total return for its most
recent fiscal year ended September 30, 1999, was -0.26%, outpacing the -0.79%
average return of 16 similar funds as tracked by Lipper Analytical Services,
Inc. The fund's 30-day SEC yield as of September 30 was 3.76%, equivalent to a
6.62% taxable yield for Massachusetts investors subject to the 43.19% combined
federal and state income tax rate.
The fund's total returns over the six-month, three-year, and five-year
periods placed it in the top quartile of similar Massachusetts short-term
tax-free funds. Please see the accompanying table 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 the Commonwealth's balance sheet
during its 1999 fiscal
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Scudder Massachusetts Limited Term Tax Free Fund:
Competitive Performance
(Average annual returns for periods ended September 30, 1999)
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Scudder
Massachusetts
Limited Term
Tax Free Fund Lipper Number of Percentile
Period Return Average Rank Funds Tracked Rank
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1 Year 0.90% 0.30% 5 of 16 Top 30%
3 Years 4.17% 3.80% 3 of 12 Top 24%
5 Years 4.65% 4.35% 2 of 7 Top 25%
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Past performance does not guarantee future results.
9
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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.
Double Tax-Free Income With Less Risk
Scudder Massachusetts Limited Term Tax Free Fund is designed to deliver double
tax-free income with below-average price risk through investments primarily in
municipal bonds with effective maturities between one and ten years. The fund
seeks higher income than is typically available from tax-free money market
investments and less share price fluctuation than is found in intermediate- and
long-term tax-free bonds. The fund's professional management, economies of
scale, liquidity, and ability to diversify its assets continue to offer
advantages compared with the holding of individual municipal bonds.
Over the fund's most recent fiscal year the fund purchased Massachusetts
tax-exempt bonds with maturities of seven to nine years and sold bonds with
shorter maturities. We did this to take advantage of higher yields and what we
felt were the most promising opportunities for capital
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appreciation within the fund's range of acceptable maturities. We also continued
to emphasize premium bonds (92% of the fund's portfolio as of September 30),
which generally exhibit less interest rate sensitivity than bonds priced at par.
In addition, the fund holds a large percentage of pre-refunded bonds (22% as of
September 30). Bonds are pre-refunded when issuers sell new debt as lower
prevailing rates and use the proceeds to establish an escrow account of U.S.
Treasury bonds designated to retire the original municipal bonds on their future
call dates. These bonds offer the highest quality available in the municipal
marketplace, yet are typically priced lower than similar bonds of slightly lower
quality. The fund's overall credit quality remains high, with over 80% of the
bonds in the fund's portfolio rated AAA or AA.
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 significantly 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, strong state and city finances across the country have boosted the
creditworthiness of tax-exempt bonds, and
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third, the reduced supply of municipal bonds lends important support to their
prices. We believe Scudder Massachusetts Limited Term Tax Free Fund remains an
attractive investment option for investors seeking income free from
Massachusetts personal and regular federal income taxes and a high degree of
price stability.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Rebecca L. Wilson
Philip G. Condon Rebecca L. Wilson
12
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Glossary of Investment Terms
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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
Obligation credit" (including the taxing and further borrowing
Bond 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 The price per share of a mutual fund based on the sum
Value (NAV) of the 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
Equivalent have to provide to equal that of a tax-free municipal
Yield bond on an after-tax basis.
30-Day SEC The standard yield reference for bond funds, based on
Yield 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.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance
and Investment Terms)
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Investment Portfolio as of September 30, 1999 (Unaudited)
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Principal Market
Amount ($) Value ($)
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Short-Term Municipal Investments 0.3%
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Massachusetts
Boston, MA, Industrial Development Finance Authority,
First Mortgage-Springhouse, Inc., 4.5%, 7/1/2000 ..... 180,000 179,141
Massachusetts Industrial Finance Agency, Health Care
Facility Revenue, Beverly Enterprises, Daily Demand
Note, 3.8%, 4/1/2009* ................................ 95,000 95,000
Total Short-Term Municipal Investments (Cost $274,819) 274,141
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Intermediate-Term Municipal Investments 99.7%
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Massachusetts
Boston, MA, Industrial Development Finance Authority,
First Mortgage-Springhouse, Inc.:
4.75%, 7/1/2001 ...................................... 195,000 192,752
4.875%, 7/1/2002 ..................................... 255,000 250,652
Lowell, MA, General Obligation:
6%, 12/15/2004 (b) ................................... 2,025,000 2,158,670
Prerefunded 2/15/01, 8.3%, 2/15/2005** ............... 1,635,000 1,771,686
Series 1992, 6.375%, 8/15/2001 ....................... 1,000,000 1,036,750
Malden, MA, General Obligation, Series 1997, 5.5%,
8/1/2005 (b) ......................................... 1,570,000 1,636,599
Massachusetts Bay Transportation Authority:
General Obligation, Series 1997C, 5%, 3/1/2004 ....... 500,000 509,100
General Transportation System, Series D, Prerefunded
3/1/2007, 5.75%, 3/1/2014** ........................ 1,250,000 1,331,325
Massachusetts Educational Loan Authority, Issue E,
Series 1992A, AMT, 6.7%, 1/1/2002 (b) ................ 375,000 390,120
Massachusetts General Obligation:
Series 1999 C, 5%, 9/1/2005 .......................... 2,000,000 2,034,740
Series A, 5.25%, 2/1/2001 (b) ........................ 3,000,000 3,044,520
Series A, Prerefunded 8/1/01, 6.5%, 8/1/2011** ....... 2,000,000 2,120,500
Massachusetts Grant Anticipation Notes:
Revenue Bonds, 5%, 12/15/2005 ........................ 4,000,000 4,068,000
Series A, 5.25%, 6/15/2008 ........................... 5,000,000 5,097,600
Massachusetts Health & Educational Facilities Authority:
Berkshire Health System:
Series C, 5.9%, 10/1/2011 .......................... 1,000,000 985,650
Series D, 5.3%, 10/1/2003 (b) ...................... 1,350,000 1,391,148
The accompanying notes are an integral part of the financial statements.
14
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Principal Market
Amount ($) Value ($)
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Boston College Issue, Series 1998L, 5%, 6/1/2006 ........ 520,000 525,840
Caritas Christi, Group A, 5.25%, 7/1/2004 ............... 1,000,000 995,270
Central Massachusetts Medical Center, Series B, 6%,
7/1/2002 (b) .......................................... 500,000 521,280
Daughters of Charity:
Carney Hospital, Prerefunded 7/1/2000, 7.5%,
7/1/2005** .......................................... 1,000,000 1,047,250
Series D, 4.9%, 7/1/2000 .............................. 200,000 201,518
Fairview Extended Care, Series 1997B, 4.55%,
1/1/2021 (b) .......................................... 1,695,000 1,689,627
Massachusetts Eye and Ear Infirmary, Series A, ETM, 7%,
7/1/2001*** ........................................... 1,460,000 1,502,544
Medical, Academic & Scientific:
Series A, 5.9%, 1/1/2000 .............................. 500,000 501,640
Series A, 6%, 1/1/2001 ................................ 1,000,000 1,015,830
Series A, 6.1%, 1/1/2002 .............................. 500,000 512,465
Newton-Wellesley Hospital, Series D, Prerefunded
7/1/2001, 7%, 7/1/2015** .............................. 1,500,000 1,599,600
St. Joseph's Hospital, Series C, Prerefunded 10/1/99,
9.5%, 10/1/2020** ..................................... 3,305,000 3,371,596
Valley Regional Health System, Series C, 5.3%,
7/1/2000 .............................................. 1,500,000 1,515,450
Massachusetts Health & Educational Facilities Authority
Revenue, Hallmark Health System, Series 1997A, 5.25%,
7/1/2006 (b) ............................................ 1,000,000 1,025,620
Massachusetts Industrial Finance Agency:
Boston Museum of Fine Arts, Series 1996, 5.125%,
1/1/2004 (b) .......................................... 1,000,000 1,023,880
Cape Cod Health Systems, Series 1990, Prerefunded
11/15/2000, 8.5%, 11/15/2020** ........................ 2,150,000 2,299,963
College of the Holy Cross, Series 1996, 5.5%,
3/1/2006 (b) .......................................... 1,000,000 1,040,480
East Boston Neighborhood Project, Series 1996, 7.25%,
7/1/2006 .............................................. 770,000 731,130
Merrimack College, Series 1997, 5.5%, 7/1/2006 (b) ...... 1,055,000 1,099,553
Resource Recovery, North Andover Solid Waste:
Series A, 6.15%, 7/1/2002 ............................. 750,000 770,520
Series A, 6.3%, 7/1/2005 .............................. 2,750,000 2,880,680
Worcester Polytechnic, Series 1997II, 5.25%, 9/1/2004 (b) 1,065,000 1,098,430
Massachusetts Municipal Wholesale Electric Company,
Power Supply System Revenue:
Prerefunded 7/1/2002, 6.75%, 7/1/2017** ............... 1,720,000 1,860,146
Series B, 6.3%, 7/1/2000 .............................. 345,000 350,589
Series B, 6.375%, 7/1/2001 ............................ 1,000,000 1,030,500
The accompanying notes are an integral part of the financial statements.
15
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Principal Market
Amount ($) Value ($)
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Massachusetts Port Authority Revenue:
Series 1997A, 6%, 7/1/2004 ............................ 1,140,000 1,210,338
Series B, AMT, 5.25%, 7/1/2008 (b) .................... 5,000,000 5,069,650
Special Facilities -- USAir Project, Series 1996A, AMT,
5.5%, 9/1/2006 ........................................ 640,000 662,278
Massachusetts Special Obligation Revenue Bonds,
Series A, 5.2%, 6/1/2004 .............................. 1,000,000 1,027,850
Massachusetts State Water Pollution Abatement Program,
New Bedford Program, Series A, 4%, 2/1/2004 ........... 450,000 438,782
Massachusetts Water Pollution Abatement Trust, Series A,
Prerefunded 2/1/2006, 5.6%, 2/1/2010** ................ 1,750,000 1,847,370
Massachusetts Water Resource Authority:
Series 1991 A, Prerefunded 12/1/2001, 6.875%,
12/1/2011** ........................................... 1,000,000 1,074,520
Series 1998 A, 5%, 8/1/2004 (b) ....................... 1,260,000 1,285,389
Series A, Prerefunded 7/15/2002, 6.75%, 7/15/2012** ... 1,000,000 1,082,280
Massachusetts, Special Obligation, Series 1997A, 5.5%,
6/1/2005 .............................................. 1,000,000 1,041,360
Nantucket, MA, General Obligation, Prerefunded
12/1/2001, 6.25%, 12/1/2002** ......................... 250,000 264,208
New England Education Loan Marketing Corp.,
Massachusetts Student Loan Revenue Refunding,
Issue A, 5.8%, 3/1/2002 ............................... 3,150,000 3,243,618
North Attleboro, MA, General Obligation, Series 1997,
6%, 3/1/2007 (b) ...................................... 1,000,000 1,070,260
Rail Connections, Inc., Route 128 Parking Garage Project,
Series A, 5.25%, 7/1/2008 ............................. 1,205,000 1,180,912
South Essex, MA, Sewer District, Series B, Prerefunded
6/1/2004, 6.75%, 6/1/2013** ........................... 1,000,000 1,110,510
Southeastern Massachusetts University Building,
Series A, 5.5%, 5/1/2004 (b) .......................... 1,010,000 1,050,117
Springfield, MA, General Obligation, Series 1996, 6.375%,
8/1/2003 (b) .......................................... 2,035,000 2,169,391
Springfield, MA, Municipal Purpose Loan, General
Obligation, Series 1996, 6.25%, 8/1/2006 (b) .......... 1,000,000 1,081,760
Worcester, MA, General Obligation:
Revenue Refunding, Series G, 6%, 7/1/2001 (b) ......... 2,000,000 2,062,120
Series A, 5.625%, 4/1/2008 (b) ........................ 1,000,000 1,046,380
Puerto Rico
Puerto Rico Public Building Authority, 6.75%,
7/1/2004 (b) .......................................... 2,250,000 2,479,410
The accompanying notes are an integral part of the financial statements.
16
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Principal Market
Amount ($) Value ($)
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Virgin Islands
Virgin Islands Public Finance Authority Revenue Bonds,
Series C, 5.5%, 10/1/2004 .......................... 2,500,000 2,549,175
Total Intermediate-Term Municipal Investments (Cost $91,976,695) 92,278,891
Total Investment Portfolio -- 100% (Cost $92,251,514) (a) 92,553,032
(a) The cost for federal income tax purposes was $92,251,514. At September
30, 1999, net unrealized appreciation for all securities was $301,518.
This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost
of $792,676 and aggregate gross unrealized depreciation for all
investment securities in which there was an excess of tax cost over
market value of $491,158.
(b) Bond is insured by one of these companies: AMBAC, Capital Guaranty,
FGIC, FSA or MBIA/BIG.
* Floating rate and monthly, weekly, or daily demand notes are securities
whose yields vary with a designated market index or market rate, such
as the coupon-equivalent of the Treasury bill rate. Variable rate
demand notes are securities whose yields are periodically reset at
levels that are generally comparable to tax-exempt commercial paper.
These securities are payable on demand within seven calendar days and
normally incorporate an irrevocable letter of credit or line of credit
from a major bank. These notes are carried, for purposes of calculating
average weighted maturity, at the longer of the period remaining until
the next rate change or to the extent of the demand period.
** Prerefunded: Bonds which are prerefunded are collateralized by U.S.
Treasury securities which are held in escrow and are used to pay
principal and interest on tax-exempt issues and to retire the bonds in
full at the earliest refunding date.
*** ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by
a trustee and used to pay principal and interest on bonds so
designated.
AMT: Alternative minimum tax
The accompanying notes are an integral part of the financial statements.
17
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Financial Statements
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Statement of Assets and Liabilities as of September 30, 1999 (Unaudited)
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Assets
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Investments, at market (identified cost $92,251,514)............ $ 92,553,032
Cash ........................................................... 16,369
Interest receivable ............................................ 1,377,161
Receivable for investments sold ................................ 50,000
Receivable for Fund shares sold ................................ 39,815
Other assets ................................................... 457
Total assets ................................................... 94,036,834
Liabilities
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Dividends payable .............................................. 89,325
Payable for Fund shares redeemed ............................... 149,904
Accrued management fee ......................................... 84,449
Other payables and accrued expenses ............................ 51,881
Total liabilities .............................................. 375,559
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Net assets, at market value $ 93,661,275
Net Assets
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Net assets consist of:
Unrealized appreciation (depreciation) on investments........... 301,518
Accumulated net realized gain (loss) ........................... (285,209)
Paid-in capital ................................................ 93,644,966
------------
Net assets, at market value $ 93,661,275
Net Asset Value
- --------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($93,661,275 / 7,852,948 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) .................................................. $ 11.93
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations for the six months ended September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
Investment Income
- --------------------------------------------------------------------------------
Income:
Interest .................................................. $ 2,321,004
---------------
Expenses:
Management fee ............................................ 297,157
Custodian and accounting fees ............................. 53,503
Services to shareholders .................................. 34,230
Trustees' fees and expenses ............................... 14,068
Auditing .................................................. 14,085
Legal ..................................................... 1,653
Reports to shareholders ................................... 5,449
Registration fees ......................................... 2,610
Other ..................................................... 7,878
---------------
Total expenses before reductions .......................... 430,633
Expense reductions ........................................ (59,190)
---------------
Expenses, net ............................................. 371,443
Net investment income ..................................... 1,949,561
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from investments ................. (152,689)
Net unrealized appreciation (depreciation) during the period on (2,083,319)
investments .............................................
Net gain (loss) on investment transactions (2,236,008)
Net increase (decrease) in net assets resulting from operations $ (286,447)
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------
Six Months
Ended Five Months
September 30, Ended Year Ended
Increase (Decrease) in Net 1999 March 31, October 31,
Assets (Unaudited) 1999 1998
- --------------------------------------------------------------------------------
Operations:
<S> <C> <C> <C>
Net investment income ............ $ 1,949,561 $ 1,542,263 $ 3,709,601
Net realized gain (loss) from
investments..................... (152,689) 38,573 (17,874)
Net unrealized appreciation
(depreciation) on investments... (2,083,319) (574,030) 1,231,974
------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations (286,447) 1,006,806 4,923,701
------------- ------------- -------------
Distributions to shareholders
from net investment income..... (1,949,561) (1,542,263) (3,708,889)
------------- ------------- -------------
Fund share transactions:
Proceeds from shares sold ........ 13,928,724 25,066,783 56,595,157
Net asset value of shares issued
to shareholders in reinvestment
of distributions............... 1,386,377 1,107,758 2,586,470
Cost of shares redeemed .......... (23,819,969) (16,814,083) (44,345,935)
------------- ------------- -------------
Net increase (decrease) in net
assets from Fund share
transactions................... (8,504,868) 9,360,458 14,835,692
------------- ------------- -------------
Increase (decrease) in net assets (10,740,876) 8,825,001 16,050,494
Net assets at beginning of period 104,402,151 95,577,150 79,526,656
Net assets at end of period ...... $ 93,661,275 $ 104,402,151 $ 95,577,150
Other Information
- -------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning
of period.................... .. 8,556,352 7,790,753 6,573,339
------------- ------------- -------------
Shares sold ...................... 1,156,914 2,048,497 4,651,211
Shares issued to shareholders in
reinvestment of distributions... 115,259 90,456 212,502
Shares redeemed .................. (1,975,577) (1,373,354) (3,646,299)
------------- ------------- -------------
Net increase (decrease) in Fund
shares.......................... (703,404) 765,599 1,217,414
Shares outstanding at end of
period.......................... 7,852,948 8,556,352 7,790,753
The accompanying notes are an integral part of the financial statements.
20
<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.
- -------------------------------------------------------------------------------------
Years Ended October 31, 1999(a) 1999(b) 1998 1997 1996 1995 1994(c)
- -------------------------------------------------------------------------------------
Net asset value, beginning
of period $12.20 $12.27 $12.10 $11.99 $12.02 $11.64 $12.00
--------------------------------------------------------
Income from investment
operations:
Net investment income .24 .19 .49 .53 .50 .54 .36
Net realized and unrealized
gain (loss) on investments
transactions (.27) (.07) .17 .11 (.03) .38 (.36)
--------------------------------------------------------
Total from investment
operations (.03) .12 .66 .64 .47 .92 .00
Less distributions:
From net investment income (.24) (.19) (.49) (.53) (.50) (.54) (.36)
Net asset value, end
of period $11.93 $12.20 $12.27 $12.10 $11.99 $12.02 $11.64
--------------------------------------------------------
Total Return (%) (d) (.26)** 1.00** 5.59 5.44 3.98 8.08 0.00**
Ratios and Supplemental Data
- -------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 94 104 96 80 66 55 36
- -------------------------------------------------------------------------------------
Ratio of operating expenses to
average daily net assets (%) .75* .75* .75 .75 .67 .24 --
- -------------------------------------------------------------------------------------
Ratio of operating expenses,
before expense reductions,
to average daily net
assets (%) .87* .89* .84 .93 .90 .92 1.44*
- -------------------------------------------------------------------------------------
Ratio of net investment
income to average daily net
assets (%) 3.95* 3.80* 4.05 4.40 4.16 4.56 4.45*
- -------------------------------------------------------------------------------------
Portfolio turnover rate (%) 38.8* 8.4* 9.1 9.8 12.4 27.4 26.3*
</TABLE>
(a) For the six months ended September 30, 1999 (Unaudited).
(b) For the five months ended March 31, 1999.
(c) For the period February 15, 1994 (commencement of operations) to
October 31, 1994.
(d) Total returns would have been lower had certain expenses not been
reduced.
* Annualized
** Not annualized
21
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Unaudited)
A. Significant Accounting Policies
Scudder Massachusetts Limited 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.
At March 31, 1999, the Fund had a net tax basis capital loss carryforward of
approximately $121,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until March 31,
2004 ($97,000) and March 31, 2006 ($24,000), the respective expiration dates,
whichever occurs first.
Distribution of Income and Gains. All of the net investment income of the Fund
is declared as a 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.
22
<PAGE>
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
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
investments (excluding short-term) aggregated $19,808,776 and $18,631,536,
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. The Adviser agreed to maintain the annualized expenses at 0.75%
of average daily net assets until July 31, 2000. For the six months ended
September 30, 1999, the Adviser did not impose a portion of its management fee
amounting to $30,824, and the amount imposed amounted to $266,333, of which
$84,449 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 $19,468, of which $3,009 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
23
<PAGE>
SFAC aggregated $18,000, of which $3,000 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 aggregated $14,068.
D. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer
agent whereby credits realized as a result of uninvested cash balances were
used to reduce a portion of the Fund's expenses. During the period, the
Fund's custodian and transfer agent fees were reduced by $27,474 and $892,
respectively, under these arrangements.
E. 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.
24
<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* *Scudder Kemper Investments, Inc.
o Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
o Trustee; Venture Partner, Internet
Capital Group
25
<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>
26
<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.
27
<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.
28
<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
29
<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
About the Fund's Adviser
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.
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
