UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number | 811-3749 |
DWS State Tax Free Trust
(Exact Name of Registrant as Specified in Charter)
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, including Area Code: (212) 454-7190
Paul Schubert
345 Park Avenue
New York, NY 10154
(Name and Address of Agent for Service)
Date of fiscal year end: | 03/31 |
Date of reporting period: | 03/31/06 |
ITEM 1. REPORT TO STOCKHOLDERS
MARCH 31, 2006
Annual Report
to Shareholders
DWS Massachusetts Tax-Free Fund
(formerly Scudder Massachusetts Tax-Free Fund)
 |
Contents
Click Here Performance Summary
Click Here Information About Your Fund's Expenses
Click Here Portfolio Management Review
Click Here Portfolio Summary
Click Here Investment Portfolio
Click Here Financial Statements
Click Here Financial Highlights
Click Here Notes to Financial Statements
Click Here Report of Independent Registered Public Accounting Firm
Click Here Tax Information
Click Here Other Information
Click Here Trustees and Officers
Click Here Account Management Resources
This report must be preceded or accompanied by a prospectus. To obtain a prospectus for any of our funds, refer to the Account Management Resources information provided in the back of this booklet. We advise you to consider the fund's objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the fund. Please read the prospectus carefully before you invest.
Investments in mutual funds involve risk. Some funds have more risk than others. The fund invests in individual bonds whose yields and market values fluctuate so that your investment may be worth more or less than its original cost. Bond investments are subject to interest-rate risk such that when interest rates rise, the prices of the bonds, and thus the value of the bond fund, can decline and the investor can lose principal value. Additionally, this fund is non-diversified and can take larger positions in fewer issuers, increasing its overall potential risk. A portion of the fund's returns may be subject to federal, state, local and alternative minimum tax. Please read the fund's prospectus for specific details regarding its investments and risk profile.
DWS Scudder is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Asset Management, Inc., Deutsche Investment Management Americas Inc. and DWS Trust Company.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Performance Summary March 31, 2006
Classes A, B and C
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Please visit www.dws-scudder.com for the Fund's most recent month-end performance.
The maximum sales charge for Class A shares is 4.5%. For Class B shares, the maximum contingent deferred sales charge (CDSC) is 4% within the first year after purchase, declining to 0% after six years. Class C shares have no adjustment for front-end sales charges but redemptions within one year of purchase may be subject to a CDSC of 1%. Unadjusted returns do not reflect sales charges and would have been lower if they had.
To discourage short-term trading, shareholders redeeming shares held less than 15 days will have a lower total return due to the effect of the 2% short-term redemption fee.
Returns and rankings during all periods shown reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns and rankings would have been lower.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns and rankings may differ by share class.
A portion of the Fund's distributions may be subject to federal, state and local tax and the alternative minimum tax.
Returns shown for Class A, B and C shares for the periods prior to their inception on June 18, 2001 are derived from the historical performance of Class S shares of the DWS Massachusetts Tax-Free Fund and have been adjusted to reflect the higher gross total annual operating expenses of each specific class. Any difference in expenses will affect performance.
Average Annual Total Returns (Unadjusted for Sales Charge) as of 3/31/06 | ||||
DWS Massachusetts Tax-Free Fund | 1-Year | 3-Year | 5-Year | 10-Year |
Class A | 3.32% | 3.46% | 4.62% | 5.23% |
Class B | 2.63% | 2.69% | 3.80% | 4.40% |
Class C | 2.63% | 2.67% | 3.82% | 4.42% |
Lehman Brothers Municipal Bond Index+ | 3.81% | 4.10% | 5.18% | 5.87% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
Net Asset Value and Distribution Information | |||
| Class A | Class B | Class C |
Net Asset Value: 3/31/06 | $ 14.20 | $ 14.20 | $ 14.20 |
3/31/05 | $ 14.46 | $ 14.45 | $ 14.45 |
Distribution Information: Twelve Months: Income Dividends as of 3/31/06 | $ .583 | $ .476 | $ .476 |
Capital Gains Distributions as of 3/31/06 | $ .151 | $ .151 | $ .151 |
March Income Dividend | $ .0477 | $ .0387 | $ .0387 |
SEC 30-day Yield++ as of 3/31/06 | 3.44% | 2.83% | 2.83% |
Tax Equivalent Yield++ as of 3/31/06 | 5.59% | 4.60% | 4.60% |
Current Annualized Distribution Rate++ as of 3/31/06 | 3.96% | 3.21% | 3.21% |
++ The SEC yield is net investment income per share earned over the month ended March 31, 2006, shown as an annualized percentage of the maximum offering price per share on the last day of the period. The SEC yield is computed in accordance with a standardized method prescribed by the Securities and Exchange Commission. The SEC yield would have been 3.43%, 2.80% and 2.79% for Classes A, B and C shares, respectively, had certain expenses not been reduced. Tax equivalent yield is based on the Fund's yield and a marginal income tax rate of 38.45% (an approximate combined Massachusetts state and federal income tax rates). Current annualized distribution rate is the latest monthly dividend as an annualized percentage of net asset value on March 31, 2006. Distribution rate simply measures the level of dividends and is not a complete measure of performance. The current annualized distribution rates would have been 3.95%, 3.18% and 3.17% for Class A, B and C, respectively, had certain expenses not been reduced. Yields and distribution rates are historical, not guaranteed, and will fluctuate.
Class A Lipper Rankings — Massachusetts Municipal Debt Funds Category as of 3/31/06 | ||||
Period | Rank |
| Number of Funds Tracked | Percentile Ranking (%) |
1-Year | 22 | of | 53 | 41 |
3-Year | 28 | of | 51 | 54 |
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on total return unadjusted for sales charges with distributions reinvested. If sales charges had been included, rankings might have been less favorable. Rankings are for Class A shares; other share classes may vary.
Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) |
[] DWS Massachusetts Tax-Free Fund — Class A [] Lehman Brothers Municipal Bond Index+ |
 |
Yearly periods ended March 31 |
The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 4.50%. This results in a net initial investment of $9,550.
Comparative Results (Adjusted for Maximum Sales Charge) as of 3/31/06 | |||||
DWS Massachusetts Tax-Free Fund | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $9,867 | $10,575 | $11,968 | $15,895 |
Average annual total return | -1.33% | 1.88% | 3.66% | 4.74% | |
Class B | Growth of $10,000 | $9,968 | $10,637 | $11,953 | $15,379 |
Average annual total return | -.32% | 2.08% | 3.63% | 4.40% | |
Class C | Growth of $10,000 | $10,263 | $10,824 | $12,059 | $15,407 |
Average annual total return | 2.63% | 2.67% | 3.82% | 4.42% | |
Lehman Brothers Municipal Bond Index+ | Growth of $10,000 | $10,381 | $11,282 | $12,870 | $17,686 |
Average annual total return | 3.81% | 4.10% | 5.18% | 5.87% | |
The growth of $10,000 is cumulative.
+ 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. It is not possible to invest directly into an index.
Class AARP and Class S
Class AARP has been created especially for members of AARP. Class S shares are no longer available to new investors except under certain circumstances. (Please refer to the Fund's Statement of Additional Information.)
All performance shown is historical, assumes reinvestment of all dividends and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Please visit www.dws-scudder.com for the Fund's most recent month-end performance.
To discourage short-term trading, shareholders redeeming shares held less than 15 days will have a lower total return due to the effect of the 2% short-term redemption fee.
Returns and rankings during all periods shown for Class AARP shares reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns and rankings would have been lower.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns and rankings may differ by share class.
A portion of the Fund's distributions may be subject to federal, state and local tax and the alternative minimum tax.
Returns shown for Class AARP shares for the periods prior to its inception on October 2, 2000 are derived from the historical performance of Class S shares of the DWS Massachusetts Tax-Free Fund and have assumed the same expense structure during such periods. Any difference in expenses will affect performance.
Average Annual Total Returns as of 3/31/06 | ||||
DWS Massachusetts Tax-Free Fund | 1-Year | 3-Year | 5-Year | 10-Year |
Class S | 3.59% | 3.70% | 4.88% | 5.50% |
Class AARP | 3.58% | 3.69% | 4.89% | 5.50% |
Lehman Brothers Municipal Bond Index+ | 3.81% | 4.10% | 5.18% | 5.87% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
Net Asset Value and Distribution Information | ||
| Class AARP | Class S |
Net Asset Value: 3/31/06 | $ 14.19 | $ 14.20 |
3/31/05 | $ 14.45 | $ 14.46 |
Distribution Information: Twelve Months: Income Dividends as of 3/31/06 | $ .620 | $ .621 |
Capital Gains Distributions as of 3/31/06 | $ .151 | $ .151 |
March Income Dividend | $ .0511 | $ .0511 |
SEC 30-day Yield++ as of 3/31/06 | 3.87% | 3.86% |
Tax Equivalent Yield++ as of 3/31/06 | 6.29% | 6.27% |
Current Annualized Distribution Rate++ as of 3/31/06 | 4.24% | 4.24% |
++ The SEC yield is net investment income per share earned over the month ended March 31, 2006, shown as an annualized percentage of the maximum offering price per share on the last day of the period. The SEC yield is computed in accordance with a standardized method prescribed by the Securities and Exchange Commission. The SEC yield would have been 3.79% for Class AARP shares had certain expenses not been reduced. Tax equivalent yield is based on the Fund's yield and a marginal income tax rate of 38.45% (an approximate combined Massachusetts state and federal income tax rates). Current annualized distribution rate is the latest monthly dividend as an annualized percentage of net asset value on March 31, 2006. Distribution rate simply measures the level of dividends and is not a complete measure of performance. The current annualized distribution rates would have been 4.16% for Class AARP had certain expenses not been reduced. Yields and distribution rates are historical, not guaranteed, and will fluctuate.
Class S Lipper Rankings — Massachusetts Municipal Debt Funds Category as of 3/31/06 | ||||
Period | Rank |
| Number of Funds Tracked | Percentile Ranking (%) |
1-Year | 12 | of | 53 | 23 |
3-Year | 17 | of | 51 | 33 |
5-Year | 11 | of | 48 | 21 |
10-Year | 6 | of | 38 | 16 |
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on total return with distributions reinvested. Rankings are for Class S shares; other share classes may vary.
Growth of an Assumed $10,000 Investment |
[] DWS Massachusetts Tax-Free Fund — Class S [] Lehman Brothers Municipal Bond Index+ |
 |
Yearly periods ended March 31 |
Comparative Results as of 3/31/06 | |||||
DWS Massachusetts Tax-Free Fund | 1-Year | 3-Year | 5-Year | 10-Year | |
Class S | Growth of $10,000 | $10,359 | $11,151 | $12,692 | $17,087 |
Average annual total return | 3.59% | 3.70% | 4.88% | 5.50% | |
Class AARP | Growth of $10,000 | $10,358 | $11,148 | $12,699 | $17,089 |
Average annual total return | 3.58% | 3.69% | 4.89% | 5.50% | |
Lehman Brothers Municipal Bond Index+ | Growth of $10,000 | $10,381 | $11,282 | $12,870 | $17,686 |
Average annual total return | 3.81% | 4.10% | 5.18% | 5.87% | |
The growth of $10,000 is cumulative.
+ 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. It is not possible to invest directly into an index.
Information About Your Fund's Expenses
As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, all classes except Class S shares of the Fund limited these expenses; had they not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended March 31, 2006.
The tables illustrate your Fund's expenses in two ways:
Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended March 31, 2006 | |||||
Actual Fund Return | Class A | Class B | Class C | Class AARP | Class S |
Beginning Account Value 10/1/05 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 3/31/06 | $ 1,009.00 | $ 1,006.00 | $ 1,006.00 | $ 1,010.60 | $ 1,010.40 |
Expenses Paid per $1,000* | $ 5.01 | $ 8.75 | $ 8.80 | $ 3.71 | $ 3.76 |
Hypothetical 5% Fund Return | Class A | Class B | Class C | Class AARP | Class S |
Beginning Account Value 10/1/05 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 3/31/06 | $ 1,019.95 | $ 1,016.21 | $ 1,016.16 | $ 1,021.24 | $ 1,021.19 |
Expenses Paid per $1,000* | $ 5.04 | $ 8.80 | $ 8.85 | $ 3.73 | $ 3.78 |
* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A | Class B | Class C | Class AARP | Class S |
DWS Massachusetts Tax-Free Fund | 1.00% | 1.75% | 1.76% | .74% | .75% |
For more information, please refer to the Fund's prospectus.
DWS Massachusetts Tax-Free Fund: A Team Approach to Investing
Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), which is part of Deutsche Asset Management, is the investment advisor for DWS Massachusetts Tax-Free Fund. DeIM and its predecessors have more than 80 years of experience managing mutual funds and DeIM provides a full range of investment advisory services to institutional and retail clients. DeIM is also responsible for selecting brokers and dealers and for negotiating brokerage commissions and dealer charges.
Deutsche Asset Management is a global asset management organization that offers a wide range of investing expertise and resources. This well-resourced global investment platform brings together a wide variety of experience and investment insight across industries, regions, asset classes and investing styles.
DeIM is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution that is engaged in a wide range of financial services, including investment management, mutual funds, retail, private and commercial banking, investment banking and insurance.
Portfolio Management Team
Philip G. Condon
Managing Director of Deutsche Asset Management and Lead Portfolio Manager of the fund.
Joined Deutsche Asset Management in 1983 and the fund in 1989.
Over 29 years of investment industry experience.
BA and MBA, University of Massachusetts at Amherst.
Rebecca Flinn
Vice President of Deutsche Asset Management and Portfolio Manager of the fund.
Joined Deutsche Asset Management in 1986 and the fund in 1999.
Over 19 years of investment industry experience.
BA, University of Redlands, California.
Philip G. Condon serves as lead portfolio manager of DWS Massachusetts Tax-Free Fund. Rebecca Flinn is a portfolio manager. In the following interview, the DWS municipal bond team discusses the fund's performance for the period and the market environment for municipal bonds.
Q: Will you characterize conditions in the municipal bond market during the annual period ended March 31, 2006?
A: Over the period, results for both the taxable and municipal bond markets were positive. The municipal bond market, as measured by the Lehman Brothers Municipal Bond Index, returned 3.81% for the 12-month period ended March 31, 2006.1 This compared favorably with the broad taxable bond market, which returned 2.26% for the same period, as measured by the Lehman Brothers Aggregate Bond Index.2 Of course, past performance is no guarantee of future results.
1 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.
2 The Lehman Brothers Aggregate Bond Index is an unmanaged index representing domestic taxable investment-grade bonds, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities with average maturities of one year or more.
Index returns assume reinvestment of dividends and, unlike fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
The relationship between supply of and demand for municipal issues can be an important factor in the performance of this market. High demand or low supply can drive municipal bond prices higher, while low demand or high supply can have the reverse effect. For most of 2005, the supply of municipal issues coming to market was relatively heavy, driven in large part by refunding activity as borrowers sought to take advantage of low interest rates. Toward the end of 2005, supply began to drop off. This trend has prevailed so far in 2006, as supply both on the national level and within Massachusetts is down significantly as compared to the first quarter of 2005. On the demand side, interest from institutional investors such as insurance companies remained strong. Mutual funds also provided support, and purchases by retail investors continued to increase as municipal yields rose.
During the period, the Federal Reserve Board (the Fed) increased the fed funds rate, a benchmark short-term lending rate, on eight occasions in increments of 0.25%, to its current level of 4.75%. Yields on shorter-term municipals rose along with the Fed's tightening, while longer-term municipal rates were relatively stable or even fell. Since a bond's yield moves in the opposite direction of its price, this meant that prices of short-term bonds generally fell and that longer-maturity municipals provided the best performance over the year.
The overall result of rising short-term yields and stable-to- declining long-term yields was that the tax-free yield curve flattened substantially over the 12-month period.3 On the municipal bond curve, yields on two-year issues increased by 79 basis points, while bonds with 30-year maturities experienced a yield decrease of 10 basis points, resulting in a total flattening of 89 basis points. (100 basis points equals one percentage point. See the accompanying graph for a depiction of municipal bond yield changes between the beginning and end of the period.)
With respect to credit quality, the trend in the municipal market was toward improved ratings over the period, as municipalities benefited from a growing economy nationally. Returns were generally highest among lower-quality issues, as yield spreads vs. the AAA-rated market continued their tightening trend.
3 The yield curve is a graph with a left-to-right line that shows how high or low yields are, from the shortest to the longest maturities. Typically (and when the yield curve is characterized as "steep," this is especially true) the line rises from left to right as investors who are willing to tie up their money for a longer period are rewarded with higher yields.
Municipal Bond Yield Curve (as of 3/31/05 and 3/31/06) |
 |
Source: Municipal Market Data
Chart is for illustrative purposes only and does not represent any DWS product.
Past performance is no guarantee of future results.
Q: How did DWS Massachusetts Tax-Free Fund perform for the annual period?
A: DWS Massachusetts Tax-Free Fund's Class A shares posted a positive return for the period of 3.32% (Returns are unadjusted for sales charges. If sales charges had been included, returns would have been lower. Past performance is no guarantee of future results. Please see pages 4 through 8 for the performance of other share classes and more complete performance information). This return compares with a return of 3.81% for the fund's benchmark, the Lehman Brothers Municipal Bond Index. The fund's performance for the 12 months exceeded the 3.09% average of its peer group, the Lipper Massachusetts Municipal Debt Funds category.4
4 The Lipper Massachusetts Municipal Debt Funds category comprises funds that limit their assets to securities that are exempt from taxation in Massachusetts. Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper Inc. as falling into the Lipper Massachusetts Municipal Debt Funds category. For the one- and three-year periods, this category's average was 3.09% (53 funds) and 3.68% (51 funds), respectively, as of March 31, 2006. It is not possible to invest directly into a Lipper category.
Q: How was the fund positioned, and how did this positioning affect performance over the period?
A: We continue to manage the fund for total return, while also seeking to provide shareholders with a relatively consistent level of income and to minimize taxable capital gains distributions.
Over the period, we maintained a relatively defensive posture, meaning that we sought to avoid taking any undue credit or interest-rate risk. This translated into an underweighting of both lower quality and longer-maturity issues.
With respect to credit risk, the yield advantage provided by BBB-rated vs. AAA-rated issues has for some time been narrow by historical standards, and we did not feel that we could justify any significant tilt toward lower quality given the minimal incremental reward. However, lower-quality issues outperformed over the year as spreads narrowed even further, and this held back fund returns to a degree.
A similar risk/reward analysis underlies the fund's positioning with respect to the maturities held. We do not attempt to predict the direction of interest rates, and instead seek to maintain a neutral portfolio duration and corresponding sensitivity to interest-rate changes. In attempting to maintain a duration-neutral stance, we may shift the fund's relative exposure to shorter and longer maturities to reflect our view of where the best return opportunities lie. The flattening of the yield curve that has occurred has significantly reduced the income advantage provided by longer-term issues. We believe that there is currently more value to be found among intermediate-term bonds and that while our relatively low exposure to longer-term issues did not help our performance over the past 12 months, we are well-positioned for the next market cycle.
The fund's returns for the period benefited from the utilization of instruments known as interest-rate swaps, which we used to allow us to benefit from the outperformance of the municipal market vs. taxable bonds. Performance also benefited from our efforts to minimize the impact of a flattening yield curve on returns, in particular by hedging our exposure to the 10-year segment of the market. We have begun to reposition the fund for the likelihood of a somewhat steeper yield curve.
Q: What is your current assessment of the Massachusetts economy and municipal bond market?
A: The fiscal health of Massachusetts remains sound and continued to show signs of improvement during the period. Standard & Poor's Corp. continued to rate the state's bonds AA with a stable outlook over the period, while Moody's Investors Service, Inc. held its rating at Aa2 with a stable outlook.5
Massachusetts carries a relatively high debt burden and faces many of the same challenges faced by other states, including rising health care and pension costs. In addition, significant new issuance is planned to support improvements to local schools. However, the state has a diverse economy, with depth in areas including education, health care, technology and financial services. While the Massachusetts economy continues to recover at a slower pace than many states, the employment picture continues to improve, and personal income tax revenues have experienced a strong rebound.
The state has established a strong record of professional management and fiscal discipline, which is reflected in improving reserves and the avoidance of using one-time revenue sources to offset ongoing costs. We continue to believe that the Massachusetts economy is on an upward course and that the outlook for the state's debt is positive.
5 The ratings of Moody's Investors Service, Inc. (Moody's) and Standard & Poor's Corporation (S&P) represent these companies' opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The fund's credit quality does not remove market risk.
The views expressed in this report reflect those of the portfolio managers only through the end of the period of the report as stated on the cover. The managers' view is subject to change at any time based on market and other conditions and should not be construed as a recommendation.
Diversification | 3/31/06 | 3/31/05 |
|
|
|
Hospital/Health Revenue | 16% | 15% |
Water and Sewer Revenue | 16% | 16% |
State General Obligation/Lease | 14% | 12% |
Sales/Special Tax | 11% | 14% |
Higher Education | 8% | 9% |
Other General Obligation/Lease | 7% | 15% |
Port/Airport Revenue | 6% | 4% |
Project Revenue | 3% | 3% |
Electric Revenue | 2% | 2% |
Resource Recovery | 2% | 2% |
Miscellaneous Municipal | 15% | 8% |
| 100% | 100% |
Quality | 3/31/06 | 3/31/05 |
|
|
|
AAA* | 60% | 70% |
AA | 23% | 16% |
A | 3% | 4% |
BBB | 6% | 5% |
B | 2% | 1% |
Not Rated | 6% | 4% |
| 100% | 100% |
Diversification and quality are subject to change.
Weighted average quality: AA and AA, respectively.
The quality ratings represent the lower of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings. The ratings of Moody's and S&P represent their opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The Fund's credit quality does not remove market risk.
* Includes cash equivalents
Effective Maturity | 3/31/06 | 3/31/05 |
|
|
|
Less than 1 year | 13% | 18% |
1-4.99 years | 20% | 8% |
5-9.99 years | 49% | 52% |
10-14.99 years | 13% | 11% |
15 years or greater | 5% | 11% |
| 100% | 100% |
Effective maturity is subject to change.
For more complete details about the Fund's investment portfolio, see page 19. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Fund as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. Please see the Account Management Resources section for contact information.
Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (202) 551-5850.
Investment Portfolio as of March 31, 2006
| Principal Amount ($) | Value ($) |
|
| |
Municipal Bonds and Notes 87.9% | ||
Massachusetts 84.8% | ||
Bellingham, MA, Other General Obligation, 5.375%, 3/1/2015 (a) | 1,765,000 | 1,898,858 |
Boston, MA, Industrial Development Financing Authority Revenue, Crosstown Center Project, AMT: |
|
|
6.5%, 9/1/2035 | 2,000,000 | 2,051,400 |
8.0%, 9/1/2035 | 1,000,000 | 999,440 |
Boston, MA, Project Revenue, Convention Center Act 1997, Series A, 5.0%, 5/1/2015 (a) | 2,730,000 | 2,878,294 |
Boston, MA, Senior Care Revenue, Industrial Development Finance Authority, First Mortgage, Springhouse, Inc., 5.5%, 7/1/2008 | 1,020,000 | 1,027,834 |
Chicopee, MA, Electrical Systems, ETM, 7.125%, 1/1/2017 | 1,140,000 | 1,334,986 |
Groton-Dunstable, MA, School District General Obligation, Regional School District, 5.0%, 10/15/2015 (a) | 1,920,000 | 2,038,387 |
Holyoke, MA, Electric Revenue, Gas & Electric Department, Series A, 5.375%, 12/1/2016 (a) | 1,260,000 | 1,360,208 |
Hopkinton, MA, Other General Obligation: |
|
|
5.5%, 9/1/2012 | 1,735,000 | 1,890,040 |
5.5%, 9/1/2014 | 1,735,000 | 1,885,338 |
Ipswich, MA, General Obligation, 5.25%, 11/15/2017 (a) | 2,325,000 | 2,459,711 |
Massachusetts, Airport Revenue, Port Authority, Series A, 5.75%, 7/1/2011 | 2,000,000 | 2,166,580 |
Massachusetts, Airport Revenue, Special Facilities, USAir Project, AMT, Series A, 5.5%, 9/1/2006 (a) | 640,000 | 648,090 |
Massachusetts, Airport Revenue, USAir Private Jet, AMT, Series A, 5.75%, 9/1/2016 (a) | 1,000,000 | 1,028,350 |
Massachusetts, Bay Transportation Authority Revenue: |
|
|
Series A, 5.0%, 7/1/2024 | 5,000,000 | 5,246,950 |
Series A, 5.25%, 7/1/2021 | 2,000,000 | 2,176,280 |
Series A, 5.75%, 7/1/2011 | 355,000 | 381,763 |
Series A, 5.75%, 7/1/2015 | 535,000 | 574,141 |
Series B, 6.2%, 3/1/2016 | 3,100,000 | 3,536,108 |
Massachusetts, Bay Transportation Authority, Sales Tax Revenue: Series A, 5.25%, 7/1/2020 | 6,270,000 | 6,938,194 |
Series A, 5.25%, 7/1/2021 | 5,000,000 | 5,541,750 |
Massachusetts, Bay Transportation System Authority, Series C, 6.1%, 3/1/2013 | 1,500,000 | 1,663,785 |
Massachusetts, Health & Educational Facilities Authority, Boston College, Series N, 5.25%, 6/1/2017 | 7,225,000 | 7,667,387 |
Massachusetts, Health & Educational Facilities Authority, Simmons College, Series F, 5.0%, 10/1/2019 (a) | 1,230,000 | 1,296,309 |
Massachusetts, Higher Education Revenue, Building Authority, University of Massachusetts: |
|
|
6.625%, 5/1/2010 | 2,575,000 | 2,852,044 |
6.75%, 5/1/2011 | 2,745,000 | 3,113,983 |
6.875%, 5/1/2014 | 1,300,000 | 1,530,555 |
Massachusetts, Higher Education Revenue, Development Finance Agency, Prerefunded, 5.75%, 7/1/2012 | 500,000 | 544,730 |
Massachusetts, Higher Education Revenue, Development Finance Agency, Smith College, Prerefunded, 5.75%, 7/1/2015 | 1,265,000 | 1,378,167 |
Massachusetts, Higher Education Revenue, Development Finance Agency, WGBH Educational Foundation: |
|
|
Series A, 5.375%, 1/1/2015 (a) | 1,200,000 | 1,297,020 |
Series A, 5.375%, 1/1/2016 (a) | 1,200,000 | 1,295,088 |
Series A, 5.375%, 1/1/2017 (a) | 1,200,000 | 1,295,088 |
Massachusetts, Higher Education Revenue, Health & Educational Facilities Authority, Massachusetts Institute of Technology, Series K, 5.375%, 7/1/2017 | 5,500,000 | 6,129,200 |
Massachusetts, Higher Education Revenue, Health & Educational Facilities Authority, UMass Worcester Campus, Series B, 5.25%, 10/1/2013 (a) | 500,000 | 532,310 |
Massachusetts, Higher Education Revenue, Health & Educational Facilities Authority, University of Massachusetts, Series C, 5.5%, 10/1/2014 (a) | 1,645,000 | 1,793,066 |
Massachusetts, Higher Education Revenue, Industrial Finance Agency, Babson College, Series A, 5.375%, 10/1/2017 | 1,700,000 | 1,756,678 |
Massachusetts, Higher Education Revenue, Industrial Finance Agency, Belmont Hill School: |
|
|
5.15%, 9/1/2013 | 1,000,000 | 1,028,880 |
5.625%, 9/1/2020 | 1,265,000 | 1,309,579 |
Massachusetts, Higher Education Revenue, Industrial Finance Agency, Dana Hall School Issue, 5.7%, 7/1/2013 | 1,000,000 | 1,043,570 |
Massachusetts, Higher Education Revenue, Industrial Finance Agency, The Tabor Academy, 5.4%, 12/1/2018 | 1,000,000 | 1,054,010 |
Massachusetts, Higher Education Revenue, Industrial Finance Agency, Worcester Polytechnic, Series II, 5.125%, 9/1/2016 (a) | 2,100,000 | 2,178,897 |
Massachusetts, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, Baystate Medical Center: |
|
|
Series F, 5.7%, 7/1/2027 | 3,000,000 | 3,166,740 |
Series F, 5.75%, 7/1/2033 | 2,000,000 | 2,100,840 |
Massachusetts, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, Berkshire Health System, Series E, 6.25%, 10/1/2031 | 2,000,000 | 2,107,080 |
Massachusetts, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, Civic Investments, Series A, 9.0%, 12/15/2015 | 3,900,000 | 4,713,267 |
Massachusetts, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, Massachusetts General Hospital, Series F, 6.25%, 7/1/2012 (a) | 5,000,000 | 5,374,200 |
Massachusetts, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, Medical, Academic & Scientific, Series B, 6.5%, 1/1/2009 | 5,000,000 | 5,060,300 |
Massachusetts, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, Milford-Whitinsville Regional: |
|
|
Series C, 5.75%, 7/15/2013 | 1,750,000 | 1,800,908 |
Series D, 6.35%, 7/15/2032 | 3,250,000 | 3,430,277 |
Massachusetts, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, New England Medical Center: |
|
|
Series H, 5.375%, 5/15/2018 (a) | 4,875,000 | 5,195,775 |
Series H, 5.375%, 5/15/2019 (a) | 1,800,000 | 1,918,440 |
Massachusetts, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, North Adams Hospital, Series C, 6.625%, 7/1/2018 | 730,000 | 736,709 |
Massachusetts, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, UMass Memorial, Series C, 6.625%, 7/1/2032 | 3,000,000 | 3,265,650 |
Massachusetts, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, Winchester Hospital, Series B, 6.75%, 7/1/2030 | 2,000,000 | 2,222,700 |
Massachusetts, Hospital & Healthcare Revenue, Industrial Finance Agency, East Boston Neighborhood Project: |
|
|
7.25%, 7/1/2006 | 135,000 | 134,950 |
7.625%, 7/1/2026 | 2,750,000 | 2,773,925 |
Massachusetts, Hospital & Healthcare Revenue, Partners Healthcare System, Series C, 5.75%, 7/1/2032 | 8,000,000 | 8,636,640 |
Massachusetts, Industrial Development Revenue, Development Finance Agency, Series A, 7.1%, 7/1/2032 | 3,915,000 | 4,009,665 |
Massachusetts, Project Revenue, Health & Educational Facilities Authority, Jordan Hospital, Series E, 6.75%, 10/1/2033 | 5,000,000 | 5,435,850 |
Massachusetts, Sales & Special Tax Revenue, Federal Highway Grant: |
|
|
Series A, Zero Coupon, 12/15/2014 | 9,000,000 | 6,225,390 |
Series A, 5.5%, 12/15/2013 | 5,000,000 | 5,488,300 |
Massachusetts, Sales & Special Tax Revenue, Grant Anticipation Notes: |
|
|
Series A, 5.25%, 12/15/2012 | 7,050,000 | 7,588,338 |
5.5%, 6/15/2014 | 7,000,000 | 7,361,760 |
Massachusetts, School District General Obligation, Development Finance Agency, 5.375%, 9/1/2023 | 1,175,000 | 1,240,083 |
Massachusetts, Senior Care Revenue, Industrial Finance Agency, Assisted Living Facilities, TNG Marina Bay LLC Project, AMT, 7.5%, 12/1/2027 | 935,000 | 994,765 |
Massachusetts, Special Obligation Consolidated Loan, Series A, 5.5%, 6/1/2016 (a) | 2,600,000 | 2,891,980 |
Massachusetts, Special Obligation Dedicated Tax Revenue, 5.25%, 1/1/2021 (a) | 5,000,000 | 5,397,100 |
Massachusetts, State Development Finance Agency Revenue, Biomedical Research: |
|
|
Series C, 6.25%, 8/1/2013 | 2,180,000 | 2,363,774 |
Series C, 6.375%, 8/1/2014 | 1,000,000 | 1,087,670 |
Massachusetts, State Development Finance Agency, Resource Recovery Revenue, Series A, 5.625%, 1/1/2015 (a) | 4,000,000 | 4,344,280 |
Massachusetts, State General Obligation: |
|
|
Series A, 5.0%, 3/1/2024 (a) | 7,500,000 | 7,842,750 |
Series D, 5.5%, 11/1/2016 | 500,000 | 555,875 |
Series D, 5.5%, 11/1/2019 | 4,325,000 | 4,876,005 |
Massachusetts, State General Obligation, Consolidated Loan: |
|
|
Series D, 5.5%, 11/1/2014 (a) | 4,990,000 | 5,510,756 |
Series D, 5.5%, 11/1/2019 (a) | 2,500,000 | 2,832,350 |
Massachusetts, State Port Authority Revenue, Series C, 5.0%, 7/1/2016 (a) | 5,000,000 | 5,309,600 |
Massachusetts, State School Building Authority, Dedicated Sales Tax Revenue, Series A, 5.0%, 8/15/2021 (a) | 4,500,000 | 4,742,415 |
Massachusetts, State Water & Sewer Revenue, Water Pollution Abatement Trust, Series 2, 5.7%, 2/1/2015 | 35,000 | 35,407 |
Massachusetts, State Water & Sewer Revenue, Water Pollution Abatement Trust, MWRA Program, Series A, 6.0%, 8/1/2019 | 4,000,000 | 4,735,840 |
Massachusetts, State Water Pollution Abatement Treatment, Pool Program: |
|
|
Series 7, 5.25%, 2/1/2014 | 3,705,000 | 3,939,156 |
Series 6, 5.625%, 8/1/2015 | 120,000 | 129,247 |
Massachusetts, State Water Pollution Abatement Trust, Pool Program: Series 11, 5.0%, 8/1/2017 | 5,750,000 | 6,133,410 |
Series 11, 5.0%, 8/1/2020 | 5,750,000 | 6,090,457 |
Massachusetts, State Water Resources Authority: |
|
|
Series A, 5.0%, 8/1/2023 (a) | 10,000,000 | 10,589,900 |
Series D, 5.5%, 8/1/2011 (a) | 5,000,000 | 5,423,650 |
Massachusetts, Transportation/Tolls Revenue, Series E, 5.25%, 1/1/2022 (a) | 4,500,000 | 4,842,000 |
Massachusetts, Transportation/Tolls Revenue, Rail Connections, Inc., Route 128 Parking Garage Project: |
|
|
Series B, Prerefunded, Zero Coupon, 7/1/2015 | 750,000 | 466,598 |
Series B, Prerefunded, Zero Coupon, 7/1/2016 | 1,025,000 | 596,663 |
Series B, Prerefunded, Zero Coupon, 7/1/2017 | 1,000,000 | 544,300 |
Series A, ETM, 5.3%, 7/1/2009 | 705,000 | 740,638 |
Series A, Prerefunded, 5.4%, 7/1/2010 | 1,000,000 | 1,071,380 |
Series A, Prerefunded, 6.0%, 7/1/2012 | 250,000 | 272,403 |
Series A, Prerefunded, 6.0%, 7/1/2014 | 250,000 | 272,403 |
Massachusetts, University of Massachusetts Building Authority Project Revenue, Series 04-1, 5.25%, 11/1/2022 (a) | 2,000,000 | 2,148,760 |
Massachusetts, Water & Sewer Revenue, Water Authority, Series J, 5.5%, 8/1/2021 (a) | 10,000,000 | 11,391,100 |
Massachusetts, Water & Sewer Revenue, Water Pollution Abatement Program, New Bedford Program, Series A, 5.25%, 2/1/2013 | 1,000,000 | 1,078,380 |
Massachusetts, Water & Sewer Revenue, Water Pollution Abatement Program, Pool Loan Program, Series 5, ETM, 5.375%, 8/1/2015 | 5,000,000 | 5,526,350 |
Massachusetts, Water & Sewer Revenue, Water Resource Authority: |
|
|
Series C, 5.25%, 12/1/2015 | 4,030,000 | 4,347,483 |
Series C, 5.25%, 12/1/2015 (a) | 6,050,000 | 6,544,103 |
Series A, 5.5%, 8/1/2013 (a) | 1,445,000 | 1,587,477 |
Series A, 6.5%, 7/15/2019 | 3,110,000 | 3,667,156 |
Medford, MA, Core City General Obligation, 5.0%, 2/15/2015 (a) | 2,085,000 | 2,215,000 |
Middleborough, MA, Other General Obligation: |
|
|
5.25%, 1/15/2017 (a) | 1,525,000 | 1,615,143 |
5.25%, 1/15/2018 (a) | 1,515,000 | 1,604,552 |
5.25%, 1/15/2019 (a) | 1,470,000 | 1,555,289 |
Narragansett, MA, School District General Obligation, Regional School District, 6.5%, 6/1/2012 (a) | 1,145,000 | 1,272,244 |
Northbridge, MA, Core City General Obligation, 5.25%, 2/15/2014 (a) | 1,490,000 | 1,608,991 |
Plymouth, MA, County General Obligation: |
|
|
5.75%, 10/15/2015 (a) | 1,900,000 | 2,066,877 |
5.75%, 10/15/2016 (a) | 1,725,000 | 1,884,045 |
Route 3 North, MA, Transportation/Tolls Revenue, Transportation Improvement Association: |
|
|
5.75%, 6/15/2012 (a) | 1,105,000 | 1,187,378 |
5.75%, 6/15/2013 (a) | 2,500,000 | 2,686,375 |
5.75%, 6/15/2016 (a) | 4,910,000 | 5,270,099 |
Springfield, MA, Core City General Obligation, 5.25%, 1/15/2019 (a) | 1,000,000 | 1,073,300 |
Springfield, MA, Core City General Obligation, Municipal Purpose Loan: |
|
|
5.5%, 8/1/2015 (a) | 1,505,000 | 1,634,069 |
5.5%, 8/1/2016 (a) | 1,685,000 | 1,831,207 |
Springfield, MA, Other General Obligation, Municipal Purpose Loan, 6.0%, 10/1/2014 (a) | 1,955,000 | 2,121,566 |
Springfield, MA, Water & Sewer Revenue, Series A, 5.375%, 11/1/2016 (a) | 1,250,000 | 1,350,625 |
Tantasqua, MA, School District General Obligation, Regional School District: |
|
|
5.625%, 8/15/2012 (a) | 2,580,000 | 2,803,376 |
5.625%, 8/15/2013 (a) | 2,575,000 | 2,797,943 |
5.625%, 8/15/2014 (a) | 2,575,000 | 2,797,943 |
University of Massachusetts, Building Authority Revenue, Series 2, 5.0%, 11/1/2020 (a) | 11,880,000 | 12,560,605 |
University of Massachusetts, Higher Education Revenue, University Building Authority: |
|
|
Series 2, 5.5%, 11/1/2015 (a) | 1,185,000 | 1,275,416 |
Series 2, 5.5%, 11/1/2016 (a) | 1,250,000 | 1,345,375 |
Westfield, MA, Core City General Obligation, 6.5%, 5/1/2013 (a) | 1,170,000 | 1,303,836 |
Westford, MA, Other General Obligation Lease, 5.125%, 4/1/2017 (a) | 1,150,000 | 1,215,504 |
Westford, MA, School District General Obligation, Series A, 5.75%, 4/1/2012 (a) | 1,140,000 | 1,231,360 |
Worcester, MA, Core City General Obligation, Series A, 5.5%, 8/15/2016 (a) | 1,285,000 | 1,386,566 |
Worcester, MA, Other General Obligation, 5.625%, 8/15/2015 (a) | 705,000 | 766,039 |
370,195,139 | ||
Puerto Rico 3.1% | ||
Puerto Rico, Commonwealth Highway & Transportation Authority, Highway Revenue: |
|
|
Series Y, Prerefunded, ETM, 6.25%, 7/1/2014 | 1,855,000 | 2,133,732 |
Series Y, 6.25%, 7/1/2014 | 145,000 | 163,701 |
Puerto Rico, Municipal Finance Agency, Series A, 5.25%, 8/1/2024 | 2,500,000 | 2,627,825 |
Puerto Rico, State General Obligation, Series A, 5.5%, 7/1/2022 (a) | 5,000,000 | 5,692,900 |
Puerto Rico, State General Obligation, Highway and Transportation Authority, Series Y, 5.5%, 7/1/2015 (a) | 2,500,000 | 2,776,175 |
13,394,333 | ||
Total Municipal Bonds and Notes (Cost $365,275,113) | 383,589,472 | |
| ||
Municipal Inverse Floating Rate Notes 10.3% | ||
Massachusetts | ||
Massachusetts, Airport Revenue, Port Authority, AMT, 144A, 11.97%, 1/1/2016, Leverage Factor at purchase date: 4 to 1 (a) | 2,500,000 | 2,995,825 |
Massachusetts, Electric Revenue, Wholesale Electrical Co. Power Supply, Series 674, 144A, 11.17%, 7/1/2016, Leverage Factor at purchase date: 4 to 1 (a) | 5,397,500 | 6,877,333 |
Massachusetts, Port Authority Revenue, Rites-PA 592A, AMT, 144A, 7.597%, 7/1/2011, Leverage Factor at purchase date: 2 to 1 (a) | 4,195,000 | 4,604,977 |
Massachusetts, Port Authority Revenue, Rites-PA 592B, AMT, 144A, 7.597%, 7/1/2012, Leverage Factor at purchase date: 2 to 1 (a) | 805,000 | 883,673 |
Massachusetts, Port Authority Revenue, Rites-PA 598A, AMT, 8.759%, 7/1/2013, Leverage Factor at purchase date: 2 to 1 | 930,000 | 1,059,781 |
Massachusetts, Port Authority Revenue, Rites-PA 598B, AMT, 8.759%, 7/1/2014, Leverage Factor at purchase date: 2 to 1 | 995,000 | 1,133,852 |
Massachusetts, Port Authority Revenue, Rites-PA 598C, AMT, 8.759%, 7/1/2015, Leverage Factor at purchase date: 2 to 1 | 1,065,000 | 1,214,387 |
Massachusetts, Port Authority Revenue, Rites-PA 598D, AMT, 9.009%, 7/1/2016, Leverage Factor at purchase date: 2 to 1 | 925,000 | 1,076,691 |
Massachusetts, Port Authority Revenue, Rites-PA 598E, AMT, 9.009%, 7/1/2017, Leverage Factor at purchase date: 2 to 1 | 775,000 | 899,287 |
Massachusetts, Port Authority Revenue, Rites-PA 598F, AMT, 7.509%, 7/1/2018, Leverage Factor at purchase date: 2 to 1 | 1,310,000 | 1,435,603 |
Massachusetts, Security Trust Certificates, Series 7002B, 144A, 7.35%, 6/1/2020, Leverage Factor at purchase date: 2 to 1 (a) | 5,000,000 | 5,790,800 |
Massachusetts, State Development Finance Agency, Resource Recovery Revenue, Series 563, 144A, 7.82%, 1/1/2016, Leverage Factor at purchase date: 2 to 1 (a) | 2,500,000 | 2,924,900 |
Massachusetts, State General Obligation, Rites-PA 1281, 144A, 6.58%, 11/1/2024, Leverage Factor at purchase date: 3 to 1 (a) | 5,000,000 | 5,671,400 |
Massachusetts, State Water Resources Authority: Series R-252, 144A, 6.54%, 8/1/2021, Leverage Factor at purchase date: 2 to 1 (a) | 6,585,000 | 7,418,529 |
Series 799, 144A, 38.025%, 2/1/2015, Leverage Factor at purchase date: 10 to 1 (a) | 500,000 | 1,108,350 |
Total Municipal Inverse Floating Rate Notes (Cost $41,498,957) | 45,095,388 | |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $406,774,070)+ | 98.2 | 428,684,860 |
Other Assets and Liabilities, Net | 1.8 | 7,814,797 |
Net Assets | 100.0 | 436,499,657 |
+ The cost for federal income tax purposes was $406,622,819. At March 31, 2006, net unrealized appreciation for all securities based on tax cost was $22,062,041. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $22,460,208 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $398,167.
(a) Bond is insured by one of these companies.
Insurance Coverage | As a % of Total Investment Portfolio |
Ambac Financial Group | 10.2 |
Financial Guaranty Insurance Company | 12.1 |
Financial Security Assurance, Inc. | 13.3 |
Municipal Bond Insurance Association | 16.4 |
144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
AMT: Subject to alternative minimum tax.
ETM: Bonds bearing the description ETM (escrow to maturity) are collateralized by US Treasury securities which are held in escrow and used to pay principal and interest on bonds so designated.
Prerefunded: Bonds which are prerefunded are collateralized by US Treasury securities which are held in escrow and are used to pay principal and interest on tax-exempt issues and to retire the bonds in full at the earliest refunding date.
RITES: Residual Interest Tax Exempt Security.
At March 31, 2006, open interest rate swaps were as follows:
Effective/ | Notional Amount ($) | Cash Flows Paid by the Fund | Cash Flows Received by the Fund | Unrealized Appreciation ($) |
4/12/2006 | 14,100,000+ | Fixed — 3.8% | Floating — BMA | 140,143 |
6/29/2006 | 13,500,000+ | Fixed — 4.91% | Floating — LIBOR | 451,062 |
8/16/2006 | 25,800,000++ | Fixed — 3.841% | Floating — BMA | 243,709 |
8/23/2006 | 12,500,000+++ | Fixed — 3.77% | Floating — BMA | 182,340 |
8/23/2006 | 21,800,000++ | Fixed — 3.892% | Floating — BMA | 532,265 |
Total net unrealized appreciation on open interest rate swaps | 1,549,519 | |||
| ||||
Counterparties:
+ Morgan Stanley
++ Citibank, NA
+++ JP Morgan Chase
BMA: Represents the Bond Market Association.
LIBOR: Represents the London InterBank Offered Rate.
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of March 31, 2006 | |
Assets | |
Investments in securities, at value (cost $406,774,070) | $ 428,684,860 |
Cash | 1,531 |
Receivable for investments sold | 5,226,594 |
Interest receivable | 6,112,568 |
Receivable for Fund shares sold | 120,800 |
Unrealized appreciation on interest rate swaps | 1,549,519 |
Other assets | 30,954 |
Total assets | 441,726,826 |
Liabilities | |
Distributions payable | 202,538 |
Notes payable | 3,900,000 |
Payable for Fund shares redeemed | 728,553 |
Accrued management fee | 204,944 |
Other accrued expenses and payables | 191,134 |
Total liabilities | 5,227,169 |
Net assets, at value | $ 436,499,657 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 144,702 |
Net unrealized appreciation (depreciation) on: Investments | 21,910,790 |
Interest rate swaps | 1,549,519 |
Accumulated net realized gain (loss) | 1,434,201 |
Paid-in capital | 411,460,445 |
Net assets, at value | $ 436,499,657 |
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of March 31, 2006 (continued) | |
Net Asset Value | |
Class A Net Asset Value and redemption price(a) per share ($14,027,582 ÷ 987,593 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.20 |
Maximum offering price per share (100 ÷ 95.50 of $14.20) | $ 14.87 |
Class B Net Asset Value, offering and redemption price(a) (subject to contingent deferred sales charge) per share ($6,715,505 ÷ 473,082 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.20 |
Class C Net Asset Value, offering and redemption price(a) (subject to contingent deferred sales charge) per share ($5,597,509 ÷ 394,309 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.20 |
Class AARP Net Asset Value, offering and redemption price(a) per share ($8,911,033 ÷ 627,816 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.19 |
Class S Net Asset Value, offering and redemption price(a) per share ($401,248,028 ÷ 28,251,575 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.20 |
(a) Redemption price per share for shares held less than 15 days is equal to net asset value less a 2% redemption fee.
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended March 31, 2006 | |
Investment Income | |
Income: Interest | $ 23,278,220 |
Expenses: Management fee | 2,720,372 |
Services to shareholders | 257,535 |
Custodian and accounting fees | 92,066 |
Distribution service fees | 176,171 |
Auditing | 70,000 |
Legal | 27,095 |
Trustees' fees and expenses | 19,556 |
Reports to shareholders | 55,184 |
Registration fees | 63,617 |
Interest expense | 8,771 |
Other | 89,723 |
Total expenses before expense reductions | 3,580,090 |
Expense reductions | (14,938) |
Total expenses after expense reductions | 3,565,152 |
Net investment income (loss) | 19,713,068 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 4,037,097 |
Interest rate swaps | 1,020,051 |
| 5,057,148 |
Net unrealized appreciation (depreciation) during the period on: Investments | (8,468,133) |
Interest rate swaps | 362,979 |
| (8,105,154) |
Net gain (loss) on investment transactions | (3,048,006) |
Net increase (decrease) in net assets resulting from operations | $ 16,665,062 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended March 31, | |
2006 | 2005 | |
Operations: Net investment income | $ 19,713,068 | $ 23,133,657 |
Net realized gain (loss) on investment transactions | 5,057,148 | 2,163,948 |
Net unrealized appreciation (depreciation) on investment transactions during the period | (8,105,154) | (15,274,183) |
Net increase (decrease) in net assets resulting from operations | 16,665,062 | 10,023,422 |
Distributions to shareholders from: Net investment income: Class A | (738,551) | (955,717) |
Class B | (238,397) | (280,780) |
Class C | (196,632) | (235,466) |
Class AARP | (397,852) | (451,188) |
Class S | (18,037,779) | (21,227,739) |
Net realized gains: Class A | (174,134) | (100,656) |
Class B | (74,619) | (35,231) |
Class C | (62,947) | (29,018) |
Class AARP | (96,871) | (2,085,479) |
Class S | (4,337,665) | (44,133) |
Fund share transactions: Proceeds from shares sold | 52,337,113 | 45,926,730 |
Reinvestment of distributions | 15,222,097 | 15,533,648 |
Cost of shares redeemed | (97,196,117) | (102,535,455) |
Redemption fees | 14 | 8 |
Net increase (decrease) in net assets from Fund share transactions | (29,636,893) | (41,075,069) |
Increase (decrease) in net assets | (37,327,278) | (56,497,054) |
Net assets at beginning of period | 473,826,935 | 530,323,989 |
Net assets at end of period (including undistributed net investment income and accumulated distributions in excess of net investment income of $144,702 and $27,343, respectively) | $ 436,499,657 | $ 473,826,935 |
The accompanying notes are an integral part of the financial statements.
Class A Years Ended March 31, | 2006 | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 14.46 | $ 14.91 | $ 14.80 | $ 14.10 | $ 14.29 |
Income (loss) from investment operations: Net investment income | .59 | .64 | .65 | .66 | .53 |
Net realized and unrealized gain (loss) on investment transactions | (.12) | (.37) | .11 | .71 | (.19) |
Total from investment operations | .47 | .27 | .76 | 1.37 | .34 |
Less distributions from: Net investment income | (.58) | (.65) | (.65) | (.66) | (.53) |
Net realized gain on investment transactions | (.15) | (.07) | — | (.01) | — |
Total distributions | (.73) | (.72) | (.65) | (.67) | (.53) |
Redemption fees | .00*** | .00*** | — | — | — |
Net asset value, end of period | $ 14.20 | $ 14.46 | $ 14.91 | $ 14.80 | $ 14.10 |
Total Return (%)b | 3.32c | 1.56 | 5.25c | 9.88 | 2.34** |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 14 | 20 | 20 | 14 | 3 |
Ratio of expenses before expense reductions (%) | .98 | .94 | .97 | .97 | 1.02* |
Ratio of expenses after expense reductions (%) | .98 | .94 | .95 | .97 | 1.02* |
Ratio of net investment income (%) | 4.07 | 4.40 | 4.40 | 4.51 | 4.69* |
Portfolio turnover rate (%) | 39 | 34 | 25 | 37 | 30 |
a For the period from June 18, 2001 (commencement of operations of Class A shares) to March 31, 2002. b Total return does not reflect the effect of any sales charges. c Total returns would have been lower had certain expenses not been reduced. * Annualized ** Not annualized *** Amount is less than $.005. | |||||
Class B Years Ended March 31, | 2006 | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 14.45 | $ 14.90 | $ 14.79 | $ 14.10 | $ 14.29 |
Income (loss) from investment operations: Net investment income | .48 | .53 | .53 | .54 | .44 |
Net realized and unrealized gain (loss) on investment transactions | (.10) | (.37) | .11 | .70 | (.19) |
Total from investment operations | .38 | .16 | .64 | 1.24 | .25 |
Less distributions from: Net investment income | (.48) | (.54) | (.53) | (.54) | (.44) |
Net realized gain on investment transactions | (.15) | (.07) | — | (.01) | — |
Total distributions | (.63) | (.61) | (.53) | (.55) | (.44) |
Redemption fees | .00*** | .00*** | — | — | — |
Net asset value, end of period | $ 14.20 | $ 14.45 | $ 14.90 | $ 14.79 | $ 14.10 |
Total Return (%)b | 2.63c | .81 | 4.39c | 8.89 | 1.76** |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 7 | 8 | 8 | 7 | 2 |
Ratio of expenses before expense reductions (%) | 1.75 | 1.69 | 1.80 | 1.80 | 1.82* |
Ratio of expenses after expense reductions (%) | 1.73 | 1.69 | 1.77 | 1.80 | 1.82* |
Ratio of net investment income (%) | 3.32 | 3.65 | 3.58 | 3.68 | 3.89* |
Portfolio turnover rate (%) | 39 | 34 | 25 | 37 | 30 |
a For the period from June 18, 2001 (commencement of operations of Class B shares) to March 31, 2002. b Total return does not reflect the effect of any sales charges. c Total returns would have been lower had certain expenses not been reduced. * Annualized ** Not annualized *** Amount is less than $.005. | |||||
Class C Years Ended March 31, | 2006 | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 14.45 | $ 14.90 | $ 14.80 | $ 14.11 | $ 14.29 |
Income (loss) from investment operations: Net investment income | .48 | .53 | .53 | .54 | .44 |
Net realized and unrealized gain (loss) on investment transactions | (.10) | (.37) | .10 | .70 | (.18) |
Total from investment operations | .38 | .16 | .63 | 1.24 | .26 |
Less distributions from: Net investment income | (.48) | (.54) | (.53) | (.54) | (.44) |
Net realized gain on investment transactions | (.15) | (.07) | — | (.01) | — |
Total distributions | (.63) | (.61) | (.53) | (.55) | (.44) |
Redemption fees | .00*** | .00*** | — | — | — |
Net asset value, end of period | $ 14.20 | $ 14.45 | $ 14.90 | $ 14.80 | $ 14.11 |
Total Return (%)b | 2.63c | .81 | 4.34c | 8.91 | 1.82** |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 6 | 6 | 7 | 4 | 1 |
Ratio of expenses before expense reductions (%) | 1.74 | 1.68 | 1.78 | 1.79 | 1.79* |
Ratio of expenses after expense reductions (%) | 1.73 | 1.68 | 1.75 | 1.79 | 1.79* |
Ratio of net investment income (%) | 3.32 | 3.66 | 3.60 | 3.69 | 3.92* |
Portfolio turnover rate (%) | 39 | 34 | 25 | 37 | 30 |
a For the period from June 18, 2001 (commencement of operations of Class C shares) to March 31, 2002. b Total return does not reflect the effect of any sales charges. c Total returns would have been lower had certain expenses not been reduced. * Annualized ** Not annualized *** Amount is less than $.005. | |||||
Class AARP Years Ended March 31, | 2006 | 2005 | 2004 | 2003 | 2002 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 14.45 | $ 14.90 | $ 14.80 | $ 14.11 | $ 14.32 |
Income (loss) from investment operations: Net investment income | .62 | .67 | .69 | .69 | .71 |
Net realized and unrealized gain (loss) on investment transactions | (.11) | (.38) | .10 | .70 | (.21) |
Total from investment operations | .51 | .29 | .79 | 1.39 | .50 |
Less distributions from: Net investment income | (.62) | (.67) | (.69) | (.69) | (.71) |
Net realized gain on investment transactions | (.15) | (.07) | — | (.01) | — |
Total distributions | (.77) | (.74) | (.69) | (.70) | (.71) |
Redemption fees | .00* | .00* | — | — | — |
Net asset value, end of period | $ 14.19 | $ 14.45 | $ 14.90 | $ 14.80 | $ 14.11 |
Total Return (%) | 3.58a | 1.75a | 5.42 | 9.94 | 3.58 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 9 | 9 | 10 | 9 | 2 |
Ratio of expenses before expense reductions (%) | .80 | .76 | .74 | .74 | .74 |
Ratio of expenses after expense reductions (%) | .74 | .74 | .74 | .74 | .74 |
Ratio of net investment income (%) | 4.31 | 4.60 | 4.61 | 4.74 | 4.91 |
Portfolio turnover rate (%) | 39 | 34 | 25 | 37 | 30 |
a Total returns would have been lower had certain expenses not been reduced. * Amount is less than $.005. | |||||
Class S Years Ended March 31, | 2006 | 2005 | 2004 | 2003 | 2002 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 14.46 | $ 14.90 | $ 14.80 | $ 14.10 | $ 14.33 |
Income (loss) from investment operations: Net investment income | .62 | .68 | .68 | .69 | .71 |
Net realized and unrealized gain (loss) on investment transactions | (.11) | (.37) | .11 | .71 | (.23) |
Total from investment operations | .51 | .31 | .79 | 1.40 | .48 |
Less distributions from: Net investment income | (.62) | (.68) | (.69) | (.69) | (.71) |
Net realized gain on investment transactions | (.15) | (.07) | — | (.01) | — |
Total distributions | (.77) | (.75) | (.69) | (.70) | (.71) |
Redemption fees | .00* | .00* | — | — | — |
Net asset value, end of period | $ 14.20 | $ 14.46 | $ 14.90 | $ 14.80 | $ 14.10 |
Total Return (%) | 3.59 | 1.84 | 5.42 | 10.10 | 3.36 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 401 | 431 | 485 | 523 | 483 |
Ratio of expenses before expense reductions (%) | .74 | .70 | .74 | .74 | .74 |
Ratio of expenses after expense reductions (%) | .74 | .70 | .74 | .74 | .74 |
Ratio of net investment income (%) | 4.32 | 4.63 | 4.61 | 4.74 | 4.91 |
Portfolio turnover rate (%) | 39 | 34 | 25 | 37 | 30 |
* Amount is less than $.005. | |||||
A. Significant Accounting Policies
DWS Massachusetts Tax-Free Fund (formerly Scudder Massachusetts Tax-Free Fund) (the "Fund") is a non-diversified series of DWS State Tax Free Trust (formerly Scudder State Tax-Free 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 invests in debt instruments of municipal issuers whose ability to meet their obligations may be affected by economic and political developments in the Commonwealth of Massachusetts.
The Fund offers multiple classes of shares which provide investors with different purchase options. Class A shares are offered to investors subject to an initial sales charge. Class B shares are offered without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are offered to investors without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class C shares do not convert to another class. Shares of Class AARP were designed for members of AARP (see Note C, under the caption Other Related Parties). Class AARP and S shares are not subject to initial or contingent deferred sales charges. Class S shares are no longer available to new investors except under certain circumstances. (Please refer to the Fund's Statement of Additional Information.)
Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class such as distribution service fees, services to shareholders and certain other class-specific expenses. Differences in class-level expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class-specific arrangements.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Debt securities are valued by independent pricing services approved by the Trustees of the Fund, whose valuations are intended to reflect the mean between the bid and asked prices. If the pricing services are unable to provide valuations, securities are valued at the average of the means based on the most recent bid and asked quotations or evaluated prices obtained from a broker-dealer. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees.
Swap Agreements. The Fund may enter into interest rate swap transactions to reduce the interest rate risk inherent in the Fund's underlying investments. The use of interest rate swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In an interest rate swap, the Fund would agree to pay to the other party to the interest rate swap (which is known as the "counterparty") a fixed rate payment in exchange for the counterparty agreeing to pay to the Fund a variable rate payment that is intended to approximate the Fund's variable rate payment obligation. The payment obligations would be based on the notional amount of the swap. Certain risks may arise when entering into swap transactions including counterparty default, liquidity or unfavorable changes in interest rates. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. The value of the swap is adjusted daily based upon a price supplied by the counterparty and the change in value is recorded as unrealized appreciation or depreciation.
Inverse Floaters. Inverse floating rate notes are derivative debt instruments with a floating rate of interest that bears an inverse relationship to changes in short-term market interest rates. Investments in this type of instrument involve special risks as compared to investments in a fixed rate municipal security. The derivative debt instrument in which the Fund invests is a tender option bond trust (the "trust") established by a financial institution or broker consisting of underlying municipal obligations with relatively long maturities and a fixed interest rate. Other investors in the trust usually consist of money market fund investors receiving weekly floating interest rate payments who have put options with the financial institutions. The Fund has the price risk of the underlying municipal obligations at the applicable leverage factors that can range from 2 to 10 times. Inverse floating rate notes exhibit added interest rate sensitivity compared to other bonds with a similar maturity. Moreover, since these securities are in a trust form, a sale may take longer to settle than the standard two days after the trade date.
Futures Contracts. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). The Fund may enter into futures contracts as a hedge against anticipated interest rate changes and for duration management, risk management and return enhancement purposes.
Upon entering into a futures contract, the Fund is required to deposit with a financial intermediary an amount ("initial margin") equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments ("variation margin") are made or received by the Fund dependent upon the daily fluctuations in the value of the underlying security and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize a gain or loss equal to the difference between the value of the futures contract to sell and the futures contract to buy. Futures contracts are valued at the most recent settlement price.
Certain risks may arise upon entering into futures contracts, including the risk that an illiquid secondary market will limit the Fund's ability to close out a futures contract prior to the settlement date and that a change in the value of a futures contract may not correlate exactly with the changes in the value of the securities. When utilizing futures contracts to hedge, the Fund gives up the opportunity to profit from favorable price movements in the hedged positions during the term of the contract.
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. 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 accounting principles generally accepted in the United States of America. These differences primarily relate to accretion of market discount on debt securities and investment in futures contracts. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
At March 31, 2006, the Fund's components of distributable earnings (accumulated losses) on a tax basis were as follows:
Undistributed tax exempt income | $ 176,768 |
Undistributed ordinary income* | $ 1,690,014 |
Net unrealized appreciation (depreciation) on investments | $ 22,062,041 |
In addition, the tax character of distributions paid to shareholders by the Fund is summarized as follows:
| Years Ended March 31, | |
| 2006 | 2005 |
Distributions from tax-exempt income | $ 19,609,211 | $ 23,150,890 |
Distributions from ordinary income* | $ — | $ 811,479 |
Distributions from long-term capital gains | $ 4,746,236 | $ 1,483,038 |
* For tax purposes short-term capital gains distributions are considered ordinary income distributions.
Redemption Fees. The Fund imposes a redemption fee of 2% of the total redemption amount on all Fund shares redeemed or exchanged within 15 days of buying them, either by purchase or exchange. This fee is assessed and retained by the Fund for the benefit of the remaining shareholders. The redemption fee is accounted for as an addition to paid-in-capital.
Expenses. Expenses of the Trust arising in connection with a specific fund are allocated to that fund. Other Trust expenses which cannot be directly attributed to a fund are apportioned among the funds in the Trust.
Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on 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 discounts are amortized/accreted for financial reporting purposes.
B. Purchases and Sales of Securities
During the year ended March 31, 2006, purchases and sales of investment securities (excluding short-term investments) aggregated $176,304,956 and $214,589,721, respectively.
C. Related Parties
Management Agreement. Under the Management Agreement with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor 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 Advisor provides certain administrative services in accordance with the Management Agreement. The management fee payable under the Management Agreement is equal to an annual rate of 0.60% of the first $400,000,000 of the Fund's average daily net assets, 0.525% of the next $600,000,000 of such net assets and 0.50% of such net assets in excess of $1,000,000,000, computed and accrued daily and payable monthly. Accordingly, for the year ended March 31, 2006, the fee pursuant to the Management Agreement was equivalent to an annual effective rate of 0.59% of the Fund's average daily net assets.
Effective October 1, 2003 through July 31, 2006, the Advisor has contractually agreed to waive all or a portion of its management fee and reimburse or pay certain operating expenses of the Fund to the extent necessary to maintain the operating expenses of each class at 0.73% of average daily net assets for Class A, B, C, AARP and S shares (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest, Rule 12b-1 distribution and/or service fees, trustee and trustee counsel fees and organizational and offering expenses).
Service Provider Fees. DWS Scudder Investments Service Company ("DWS-SISC"), an affiliate of the Advisor, is the Fund's transfer agent, dividend-paying agent and shareholder service agent for Class A, B and C shares of the Fund. DWS Scudder Service Corporation ("DWS-SSC"), a subsidiary of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for Class AARP and S shares of the Fund. Pursuant to a sub-transfer agency agreement among DWS-SISC, DWS-SSC and DST Systems, Inc. ("DST"), DWS-SISC and DWS-SSC have delegated certain transfer agent and dividend paying agent functions to DST. DWS-SISC and DWS-SSC compensate DST out of the shareholder servicing fee they receive from the Fund. For the year ended March 31, 2006, the amounts charged to the Fund by DWS-SISC and DWS-SSC were as follows:
Services to Shareholders | Total Aggregated | Waived | Unpaid at March 31, 2006 |
Class A | $ 7,084 | $ 105 | $ 1,140 |
Class B | 3,794 | 980 | 196 |
Class C | 2,645 | 441 | 128 |
Class AARP | 10,071 | 5,484 | 1,126 |
Class S | 134,894 | — | 25,484 |
| $ 158,488 | $ 7,010 | $ 28,074 |
DWS Scudder Fund Accounting Corporation ("DWS-SFAC"), an affiliate of the Advisor, is responsible for computing the daily net asset value per share and maintaining the portfolio and general accounting records of the Fund. DWS-SFAC has retained State Street Bank and Trust Company to provide certain administrative, fund accounting and record-keeping services to the Fund. For the year ended March 31, 2006, the amount charged to the Fund by DWS-SFAC for accounting services aggregated $78,368, of which $7,649 is unpaid.
Distribution Service Agreement. Under the Distribution Service Agreement, in accordance with Rule 12b-1 under the 1940 Act, DWS Scudder Distributors, Inc. ("DWS-SDI"), a subsidiary of the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net assets of Class B and C shares. Pursuant to the agreement, DWS-SDI enters into related selling group agreements with various firms at various rates for sales of Class B and C shares. For the year ended March 31, 2006, the Distribution Fee was as follows:
Distribution Fee | Total Aggregated | Unpaid at March 31, 2006 |
Class B | $ 54,324 | $ 4,364 |
Class C | 44,794 | 3,652 |
| $ 99,118 | $ 8,016 |
In addition, DWS-SDI provides information and administrative services ("Service Fee") to Class A, B and C shareholders at an annual rate of up to 0.25% of average daily net assets for each such class. DWS-SDI in turn has various agreements with financial services firms that provide these services and pays these fees based upon the assets of shareholder accounts the firms service. For the year ended March 31, 2006, the Service Fee was as follows:
Service Fee | Total Aggregated | Unpaid at March 31, 2006 | Annual Effective Rate |
Class A | $ 44,556 | $ 4,036 | .24% |
Class B | 17,837 | 1,584 | .25% |
Class C | 14,660 | 1,168 | .25% |
| $ 77,053 | $ 6,788 |
|
Underwriting Agreement and Contingent Deferred Sales Charge. DWS-SDI is the principal underwriter for the Fund. Underwriting commissions paid in connection with the distribution of Class A shares for the year ended March 31, 2006 aggregated $6,696.
In addition, DWS-SDI receives any contingent deferred sales charge ("CDSC") from Class B share redemptions occurring within six years of purchase and Class C share redemptions occurring within one year of purchase. There is no such charge upon redemption of any share appreciation or reinvested dividends. The CDSC is based on declining rates ranging from 4% to 1% for Class B and 1% for Class C, of the value of the shares redeemed. For the year ended March 31, 2006, the CDSC for Class B and C shares aggregated $20,693 and $898, respectively. A deferred sales charge of up to 0.85% is asserted on certain redemptions of Class A shares. For the year ended March 31, 2006, DWS-SDI received $5,920.
Typesetting and Filing Service Fees. Under an agreement with DeIM, the Advisor is compensated for providing typesetting and certain regulatory filing services to the Fund. For the year ended March 31, 2006, the amount charged to the Fund by DeIM included in reports to shareholders aggregated $22,680, of which $6,720 is unpaid.
Trustees' Fees and Expenses. The Fund pays each Trustee not affiliated with the Advisor retainer fees plus specified amounts for attended board and committee meetings.
Other Related Parties. Through December 31, 2005, AARP through its affiliate, AARP Services, Inc., monitored and approved the AARP Investment Program from DWS Scudder, but did not act as an investment advisor or recommend specific mutual funds. The contractual relationship between DWS Scudder and AARP ended on December 31, 2005. As a result, the funds are no longer part of the AARP Investment Program and the AARP name and logo will be phased out in 2006. The funds will continue to be managed by Deutsche Asset Management and its affiliates.
D. Expense Reductions
For the year ended March 31, 2006, the Advisor agreed to reimburse the Fund $5,196, which represents a portion of the fee savings expected to be realized by the Advisor related to the outsourcing by the Advisor of certain administrative services to an unaffiliated service provider.
In addition, the Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the custodian expenses. During the year ended March 31, 2006, the custodian fee was reduced by $2,732 for custody credits earned.
E. Line of Credit
The Fund and several other affiliated funds (the "Participants") share in a $1.1 billion revolving credit facility administered by J.P. Morgan Chase Bank 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, based upon net assets, among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.5 percent. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. At March 31, 2006, $3,900,000 was outstanding. Interest expense incurred on the borrowings amounted to $8,771 for the year ended March 31, 2006. The average dollar amount of the borrowings was $2,190,541 and the weighted average interest rate on these borrowings was 4.15%.
F. Share Transactions
The following table summarizes share and dollar activity in the Fund:
| Year Ended March 31, 2006 | Year Ended March 31, 2005 | ||
| Shares | Dollars | Shares | Dollars |
Shares sold | ||||
Class A | 530,718 | $ 7,641,834 | 370,245 | $ 5,388,110 |
Class B | 15,972 | 230,385 | 45,587 | 664,163 |
Class C | 61,564 | 886,575 | 90,183 | 1,319,338 |
Class AARP | 67,995 | 985,419 | 90,219 | 1,319,608 |
Class S | 2,949,992 | 42,592,900 | 2,558,632 | 37,235,511 |
|
| $ 52,337,113 |
| $ 45,926,730 |
Shares issued to shareholders in reinvestment of distributions | ||||
Class A | 49,372 | $ 713,605 | 60,158 | $ 878,451 |
Class B | 14,884 | 214,713 | 14,414 | 210,290 |
Class C | 13,986 | 201,765 | 13,881 | 202,553 |
Class AARP | 21,235 | 306,346 | 21,117 | 308,121 |
Class S | 955,050 | 13,785,668 | 954,493 | 13,934,233 |
|
| $ 15,222,097 |
| $ 15,533,648 |
Shares redeemed | ||||
Class A | (973,131) | $ (14,026,115) | (408,726) | $ (5,973,044) |
Class B | (78,352) | (1,129,041) | (60,909) | (886,967) |
Class C | (106,261) | (1,531,212) | (117,808) | (1,721,632) |
Class AARP | (111,616) | (1,612,714) | (159,780) | (2,336,723) |
Class S | (5,456,838) | (78,897,035) | (6,277,253) | (91,617,089) |
|
| $ (97,196,117) |
| $ (102,535,455) |
Redemption fees | $ 14 |
| $ 8 | |
Net increase (decrease) | ||||
Class A | (393,041) | $ (5,670,676) | 21,677 | $ 293,517 |
Class B | (47,496) | (683,943) | (908) | (12,514) |
Class C | (30,711) | (442,872) | (13,744) | (199,741) |
Class AARP | (22,386) | (320,949) | (48,444) | (708,994) |
Class S | (1,551,796) | (22,518,453) | (2,764,128) | (40,447,337) |
|
| $ (29,636,893) |
| $ (41,075,069) |
G. Regulatory Matters and Litigation
Market Timing Related Regulatory and Litigation Matters. Since at least July 2003, federal, state and industry regulators have been conducting ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and have requested information from numerous mutual fund companies, including DWS Scudder. The DWS funds' advisors have been cooperating in connection with these inquiries and are in discussions with the regulators concerning proposed settlements. Publicity about mutual fund practices arising from these industry-wide inquiries serves as the general basis of a number of private lawsuits against the DWS funds. These lawsuits, which previously have been reported in the press, involve purported class action and derivative lawsuits, making various allegations and naming as defendants various persons, including certain DWS funds, the funds' investment advisors and their affiliates, and certain individuals, including in some cases fund Trustees/Directors, officers, and other parties. Each DWS fund's investment advisor has agreed to indemnify the applicable DWS funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making allegations similar to these lawsuits regarding market timing, revenue sharing, fund valuation or other subjects arising from or related to the pending inquiries. It is not possible to determine with certainty what the outcome of these inquiries will be or what the effect, if any, would be on the funds or their advisors.
With respect to the lawsuits, based on currently available information, the funds' investment advisors believe the likelihood that the pending lawsuits will have a material adverse financial impact on a DWS fund is remote and such actions are not likely to materially affect their ability to perform under their investment management agreements with the DWS funds.
With respect to the regulatory matters, Deutsche Asset Management ("DeAM") has advised the funds as follows:
DeAM expects to reach final agreements with regulators in 2006 regarding allegations of improper trading in the DWS funds. DeAM expects that it will reach settlement agreements with the Securities and Exchange Commission, the New York Attorney General and the Illinois Secretary of State providing for payment of disgorgement, penalties, and investor education contributions totaling approximately $134 million. Approximately $127 million of this amount would be distributed to shareholders of the affected DWS funds in accordance with a distribution plan to be developed by an independent distribution consultant. DeAM does not believe that any of the DWS funds will be named as respondents or defendants in any proceedings. The funds' investment advisors do not believe these amounts will have a material adverse financial impact on them or materially affect their ability to perform under their investment management agreements with the DWS funds. The above-described amounts are not material to Deutsche Bank, and they have already been reserved.
Based on the settlement discussions thus far, DeAM believes that it will be able to reach a settlement with the regulators on a basis that is generally consistent with settlements reached by other advisors, taking into account the particular facts and circumstances of market timing at DeAM and at the legacy Scudder and Kemper organizations prior to their acquisition by DeAM in April 2002. Among the terms of the expected settled orders, DeAM would be subject to certain undertakings regarding the conduct of its business in the future, including maintaining existing management fee reductions for certain funds for a period of five years. DeAM expects that these settlements would resolve regulatory allegations that it violated certain provisions of federal and state securities laws (i) by entering into trading arrangements that permitted certain investors to engage in market timing in certain DWS funds and (ii) by failing more generally to take adequate measures to prevent market timing in the DWS funds, primarily during the 1999-2001 period. With respect to the trading arrangements, DeAM expects that the settlement documents will include allegations related to one legacy DeAM arrangement, as well as three legacy Scudder and six legacy Kemper arrangements. All of these trading arrangements originated in businesses that existed prior to the current DeAM organization, which came together in April 2002 as a result of the various mergers of the legacy Scudder, Kemper and Deutsche fund groups, and all of the arrangements were terminated prior to the start of the regulatory investigations that began in the summer of 2003. No current DeAM employee approved the trading arrangements.
There is no certainty that the final settlement documents will contain the foregoing terms and conditions. The independent Trustees/Directors of the DWS funds have carefully monitored these regulatory investigations with the assistance of independent legal counsel and independent economic consultants.
Other Regulatory Matters. DeAM is also engaged in settlement discussions with the Enforcement Staffs of the SEC and the NASD regarding DeAM's practices during 2001-2003 with respect to directing brokerage commissions for portfolio transactions by certain DWS funds to broker-dealers that sold shares in the DWS funds and provided enhanced marketing and distribution for shares in the DWS funds. In addition, on January 13, 2006, DWS Scudder Distributors, Inc. received a Wells notice from the Enforcement Staff of the NASD regarding DWS Scudder Distributors' payment of non-cash compensation to associated persons of NASD member firms, as well as DWS Scudder Distributors' procedures regarding non-cash compensation regarding entertainment provided to such associated persons.
Report of Independent Registered Public Accounting Firm
To the Trustees of DWS State Tax-Free Trust and the Shareholders of DWS Massachusetts Tax-Free Fund:
In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights, present fairly, in all material respects, the financial position of DWS Massachusetts Tax-Free Fund (formerly Scudder Massachusetts Tax-Free Fund) (the "Fund") at March 31, 2006, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
Boston, Massachusetts | PricewaterhouseCoopers LLP |
The Fund paid distributions of $0.15 per share from net long-term capital gains during its year ended March 31, 2006, of which 100% represents 15% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $3,621,000 as capital gain dividends for its year ended March 31, 2006, of which 100% represents 15% rate gains.
Of the dividends paid from net investment income for the taxable year ended March 31, 2006, 100% are designated as exempt interest dividends for federal income tax purposes.
Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call 1-800-621-1048.
Additional information announced by Deutsche Asset Management regarding the terms of the expected settlements referred to in the Market Timing Related Regulatory and Litigation Matters and Other Regulatory Matters in the Notes to Financial Statements will be made available at www.dws-scudder.com/regulatory_settlements, which will also disclose the terms of any final settlement agreements once they are announced.
The following table presents certain information regarding the Trustees and Officers of the fund as of March 31, 2006. Each individual's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each individual has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity, and (ii) the address of each Trustee is c/o Dawn-Marie Driscoll, PO Box 100176, Cape Coral, FL 33904. Unless otherwise indicated, the address of each Officer is Two International Place, Boston, Massachusetts 02110. The term of office for each Trustee is until the next meeting of shareholders called for the purpose of electing Trustees and until the election and qualification of a successor, or until such Trustee sooner dies, resigns, retires or is removed as provided in the governing documents of the fund. Because the fund does not hold an annual meeting of shareholders, each Trustee will hold office for an indeterminate period. The Trustees of the fund may also serve in similar capacities with other funds in the fund complex.
Independent Trustees | ||
Name, Year of Birth, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and Other Directorships Held | Number of Funds in DWS Fund Complex Overseen |
Dawn-Marie Driscoll (1946) Chairman, 2004-present Trustee, 1987-present | President, Driscoll Associates (consulting firm); Executive Fellow, Center for Business Ethics, Bentley College; formerly, Partner, Palmer & Dodge (1988-1990); Vice President of Corporate Affairs and General Counsel, Filene's (1978-1988). Directorships: Advisory Board, Center for Business Ethics, Bentley College; Board of Governors, Investment Company Institute; Member, Executive Committee of the Independent Directors Council of the Investment Company Institute, Southwest Florida Community Foundation (charitable organization); DWS Global High Income Fund, Inc. (since October 2005), DWS Global Commodities Stock Fund, Inc. (since October 2005) | 43 |
Henry P. Becton, Jr. (1943) Trustee, 1990-present | President, WGBH Educational Foundation. Directorships: Becton Dickinson and Company (medical technology company); Belo Company (media company); Concord Academy; Boston Museum of Science; Public Radio International; DWS Global High Income Fund, Inc. (since October 2005), DWS Global Commodities Stock Fund, Inc. (since October 2005). Former Directorships: American Public Television; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service | 43 |
Keith R. Fox (1954) Trustee, 1996-present | Managing General Partner, Exeter Capital Partners (private equity funds). Directorships: Progressive Holding Corporation (kitchen importer and distributor); Cloverleaf Transportation Inc. (trucking); Natural History, Inc. (magazine publisher); Box Top Media Inc. (advertising); DWS Global High Income Fund, Inc. (since October 2005), DWS Global Commodities Stock Fund, Inc. (since October 2005) | 43 |
Kenneth C. Froewiss (1945) Trustee 2005-present | Clinical Professor of Finance, NYU Stern School of Business; Director, DWS Global High Income Fund, Inc. (since 2001), DWS Global Commodities Stock Fund, Inc. (since 2004), Scudder New Asia Fund, Inc. (since 1999), The Brazil Fund, Inc. (since 2000) and The Korea Fund, Inc. (since 2000); Member, Finance Committee, Association for Asian Studies (2002-present); Director, Mitsui Sumitomo Insurance Group (US) (2004-present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996) | 45 |
Jean Gleason Stromberg (1943) Trustee, 1999-present | Retired. Formerly, Consultant (1997-2001); Director, US Government Accountability Office (1996-1997); Partner, Fulbright & Jaworski, L.L.P. (law firm) (1978-1996). Directorships: The William and Flora Hewlett Foundation; Service Source, Inc.; DWS Global High Income Fund, Inc. (since October 2005), DWS Global Commodities Stock Fund, Inc. (since October 2005); Former Directorships: Mutual Fund Directors Forum (2002-2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987-1990 and 1994-1996) | 43 |
Carl W. Vogt (1936) Trustee, 2002-present | Senior Partner, Fulbright & Jaworski, L.L.P. (law firm); formerly, President (interim) of Williams College (1999-2000); President, certain funds in the Deutsche Asset Management Family of Funds (formerly, Flag Investors Family of Funds) (registered investment companies) (1999-2000). Directorships: Yellow Corporation (trucking); American Science & Engineering (x-ray detection equipment); ISI Family of Funds (registered investment companies, 4 funds overseen); National Railroad Passenger Corporation (Amtrak); formerly, Chairman and Member, National Transportation Safety Board; DWS Global High Income Fund, Inc. (since October 2005), DWS Global Commodities Stock Fund, Inc. (since October 2005) | 43 |
Officers2 | |
Name, Year of Birth, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and Other Directorships Held |
Michael Colon4 (1969) President, 2006-present | Managing Director3 and Chief Operating Officer, Deutsche Asset Management (since March 2005); President, DWS Global High Income Fund, Inc. (since April 2006), DWS Global Commodities Stock Fund, Inc. (since April 2006), The Brazil Fund, Inc. (since April 2006), The Korea Fund, Inc. (since April 2006); Chief Operating Officer, Deutsche Bank Alex. Brown (2002-2005); Chief Operating Officer, US Equities Division of Deutsche Bank (2000-2002) |
John Millette (1962) Vice President and Secretary, 1999-present | Director3, Deutsche Asset Management |
Paul H. Schubert4 (1963) Chief Financial Officer, 2004-present Treasurer, 2005-present | Managing Director3, Deutsche Asset Management (since July 2004); formerly, Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family of Funds (1998-2004); Vice President and Director of Mutual Fund Finance at UBS Global Asset Management (1994-1998) |
Patricia DeFilippis4 (1963) Assistant Secretary, 2005-present | Vice President, Deutsche Asset Management (since June 2005); formerly, Counsel, New York Life Investment Management LLC (2003-2005); legal associate, Lord, Abbett & Co. LLC (1998-2003) |
Elisa D. Metzger4 (1962) Assistant Secretary 2005-present | Director3, Deutsche Asset Management (since September 2005); formerly, Counsel, Morrison and Foerster LLP (1999-2005) |
Caroline Pearson (1962) Assistant Secretary, 1997-present | Managing Director3, Deutsche Asset Management |
Scott M. McHugh (1971) Assistant Treasurer, 2005-present | Director3, Deutsche Asset Management |
Kathleen Sullivan D'Eramo (1957) Assistant Treasurer, 2003-present | Director3, Deutsche Asset Management |
John Robbins4 (1966) Anti-Money Laundering Compliance Officer, 2005-present | Managing Director3, Deutsche Asset Management (since 2005); formerly, Chief Compliance Officer and Anti-Money Laundering Compliance Officer for GE Asset Management (1999-2005) |
Philip Gallo4 (1962) Chief Compliance Officer, 2004-present | Managing Director3, Deutsche Asset Management (2003-present); formerly, Co-Head of Goldman Sachs Asset Management Legal (1994-2003) |
A. Thomas Smith4 (1956) Chief Legal Officer, 2005-present | Managing Director3, Deutsche Asset Management (2004-present); formerly, General Counsel, Morgan Stanley and Van Kampen and Investments (1999-2004); Vice President and Associate General Counsel, New York Life Insurance Company (1994-1999); senior attorney, The Dreyfus Corporation (1991-1993); senior attorney, Willkie Farr & Gallagher (1989-1991); staff attorney, US Securities & Exchange Commission and the Illinois Securities Department (1986-1989) |
1 Length of time served represents the date that each Trustee was first elected to the common board of Trustees which oversees a number of investment companies, including the fund, managed by the Advisor. For the Officers of the fund, the length of time served represents the date that each officer was first elected to serve as an officer of any fund overseen by the aforementioned common board of Trustees.
2 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the funds.
3 Executive title, not a board directorship.
4 Address: 345 Park Avenue, New York, New York 10154.
The fund's Statement of Additional Information ("SAI") includes additional information about the Trustees. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: 1-800-621-1048.
For shareholders of Classes A, B and C | |
Automated Information Lines | InvestorACCESS (800) 972-3060 Personalized account information, information on other DWS funds and services via touchtone telephone and for Classes A, B, and C only, the ability to exchange or redeem shares. |
Web Site | www.dws-scudder.com View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day. Obtain prospectuses and applications, blank forms, interactive worksheets, news about DWS funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) 621-1048 To speak with a DWS Scudder service representative. |
Written Correspondence | DWS Scudder PO Box 219356 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 is available on our Web site — www.dws-scudder.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at 1-800-621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: DWS Scudder Distributors, Inc. 222 South Riverside Plaza (800) 621-1148 |
| Class A | Class B | Class C |
Nasdaq Symbol | SQMAX | SQMBX | SQMCX |
CUSIP Number | 23337J 104 | 23337J 203 | 23337J 302 |
Fund Number | 412 | 612 | 712 |
For shareholders of Class AARP and Class S | |
Automated Information Lines | SAILTM (800) 343-2890 |
| Personalized account information, the ability to exchange or redeem shares, and information on other DWS funds and services via touchtone telephone. |
Web Site | www.dws-scudder.com |
| View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day. Obtain prospectuses and applications, blank forms, interactive worksheets, news about DWS funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) 728-3337 To speak with a DWS Scudder service representative. |
Written Correspondence | DWS Scudder PO Box 219669 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 is available on our Web site — www.dws-scudder.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at 1-800-621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: DWS Scudder Distributors, Inc. 222 South Riverside Plaza (800) 621-1148 |
| Class AARP | Class S |
Nasdaq Symbol | SMAFX | SCMAX |
Fund Number | 2112 | 2012 |
Notes
Notes
Notes
Notes
Notes
| ITEM 2. | CODE OF ETHICS. |
As of the end of the period, March 31, 2006, DWS State Tax-Free Trust has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Principal Executive Officer and Principal Financial Officer.
There have been no amendments to, or waivers from, a provision of the code of ethics during the period covered by this report that would require disclosure under Item 2.
A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
The Funds’ audit committee is comprised solely of trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Funds’ Board of Trustees has determined that there are several “audit committee financial experts” serving on the Funds’ audit committee. The Board has determined that Keith R. Fox, the chair of the Funds’ audit committee, qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on its review of Mr. Fox’s pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification. In accordance with New York Stock Exchange requirements, the Board believes that all members of the Funds’ audit committee are financially literate, as such qualification is interpreted by the Board in its business judgment, and that at least one member of the audit committee has accounting or related financial management expertise.
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
DWS MASSACHUSETTS TAX-FREE FUND
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that PricewaterhouseCoopers, LLP (“PWC”), the Fund’s independent registered public accounting firm, billed to the Fund during the Fund’s last two fiscal years. The Audit Committee approved in advance all audit services and non-audit services that PWC provided to the Fund.
The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee).
Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Fund
Fiscal Year | Audit Fees Billed to Fund | Audit-Related | Tax Fees Billed to Fund | All |
2006 | $64,800 | $0 | $0 | $0 |
2005 | $58,500 | $225 | $7,300 | $0 |
The above “Audit- Related Fees” were billed for agreed upon procedures performed and the above "Tax Fees" were billed for professional services rendered for tax compliance and tax return preparation.
Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Adviser and Affiliated Fund Service Providers
The following table shows the amount of fees billed by PWC to Deutsche Investment Management Americas, Inc. (“DeIM” or the “Adviser”), and any entity controlling, controlled by or under common control with DeIM (“Control Affiliate”) that provides ongoing services to the Fund (“Affiliated Fund Service Provider”), for engagements directly related to the Fund’s operations and financial reporting, during the Fund’s last two fiscal years.
Fiscal Year | Audit-Related | Tax Fees Billed to Adviser and Affiliated Fund Service Providers | All |
2006 | $136,700 | $197,605 | $0 |
2005 | $490,322 | $0 | $0 |
The “Audit-Related Fees” were billed for services in connection with the assessment of internal controls, agreed-upon procedures and additional related procedures and the above “Tax Fees” were billed in connection with consultation services and agreed-upon procedures.
Non-Audit Services
The following table shows the amount of fees that PWC billed during the Fund’s last two fiscal years for non-audit services. The Audit Committee pre-approved all non-audit services that PWC provided to the Adviser and any Affiliated Fund Service Provider that related directly to the Fund’s operations and financial reporting. The Audit Committee requested and received information from PWC about any non-audit services that PWC rendered during the Fund’s last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating PWC’s independence.
Fiscal Year | Total (A) | Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (engagements related directly to the operations and financial reporting of the Fund) (B) | Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (all other engagements) (C) | Total of (A), (B) |
2006 | $0 | $197,605 | $30,654 | $228,259 |
2005 | $7,300 | $0 | $236,994 | $244,294 |
All other engagement fees were billed for services in connection with risk management, tax services and process improvement/integration initiatives for DeIM and other related entities that provide support for the operations of the fund.
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS |
| Not Applicable |
| ITEM 6. | SCHEDULE OF INVESTMENTS |
| Not Applicable |
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
| Not Applicable |
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
| Not applicable. |
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
| Not Applicable. |
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
The Committee on Independent Trustees/Directors selects and nominates Independent Trustees/Directors. Fund shareholders may also submit nominees that will be considered by the committee when a Board vacancy occurs. Submissions should be mailed to: c/o Dawn-Marie Driscoll, PO Box 100176, Cape Coral, FL 33910.
| ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | The Chief Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. |
(b) | There have been no changes in the registrant’s internal control over financial reporting that occurred during the registrant’s last half-year (the registrant’s second fiscal half-year in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting. |
| ITEM 12. | EXHIBITS. |
(a)(1) | Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH. |
(a)(2) | Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. |
(b) | Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT. |
Form N-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: | DWS Massachusetts Tax-Free Fund, a series of DWS State Tax Free Trust |
By: | /s/Michael Colon | |
| Michael Colon |
|
President
Date: | May 30, 2006 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Registrant: | DWS Massachusetts Tax-Free Fund, a series of DWS State Tax Free Trust |
By: | /s/Michael Colon | |
| Michael Colon |
|
President
Date: | May 30, 2006 |
By: | /s/Paul Schubert | |
| Paul Schubert |
|
Chief Financial Officer and Treasurer
Date: | May 30, 2006 |