SCUDDER TAX FREE TRUST, 485B24E, 1995-04-17

SCUDDER TAX FREE TRUST
485B24E, 1995-04-17

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Filed with the Securities and Exchange Commission on April 17, 1995.

File No. 2-81105
File No. 811-3632

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. ___
Post-Effective Amendment No. 21

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 21

Scudder Tax Free Trust
(Exact Name of Registrant as Specified in Charter)

Two International Place, Boston, MA 02110-4103
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (617) 295-2567

Thomas F. McDonough
Scudder, Stevens & Clark, Inc.
Two International Place, Boston, MA 02110
(Name and Address of Agent for Service)

It is proposed that this filing will become effective

------- immediately upon filing pursuant to paragraph (b)

X on May 1, 1995 pursuant to paragraph (b)

------- 60 days after filing pursuant to paragraph (a)(1)

------- on March 1, 1995 pursuant to paragraph (a)(1)

------- 75 days after filing pursuant to paragraph (a)(2)

on pursuant to paragraph (a)(2) of Rule 485
------- -----------------

If appropriate, check the following:

---- this post-effective amendment designates a new effective date for a
previously filed post-effective amendment

The Registrant has filed a declaration registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. The Registrant has filed the notice required by Rule 24f-2 for its most
recent fiscal year end on February 23, 1995.

<PAGE>
<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND

Calculation of Registration Fee under the Securities Act of 1933

Title of Securities Proposed Maximum Proposed Maximum
Being Amount Offering Price Per Aggregate Offering Amount of
Registered Being Registered Share (1) Price (1,2) Registration Fee (2)
------------------ ------------------ ------------------ ------------------- ---------------------

<C> <C> <C> <C> <C>
Shares of
Beneficial Interest,
$.01 Par Value
24,945,600 $10.79 $290,175 $100.06

</TABLE>
This Post-Effective Amendment No. 21 seeks to register 24,945,600 additional
shares of Scudder Medium Term Tax Free Fund under the Securities Act of 1933.

(1) Computed under Rule 457(d) on the basis of the net asset value per
share of registrant's shares of beneficial interest at the close of
business on March 30, 1995. The above calculation shall not be deemed
a representation as to the actual offering price.
<TABLE>
<CAPTION>
(2) Calculated pursuant to Rule 24e-2 under the Investment Company Act of
1940.

(a) Total number of shares redeemed during previous fiscal year 47,017,553

(b) Total number of shares included in (a) previously used under
Rule 24e-2 this fiscal year -0-

(d) Total number of shares included in (a) being used to reduce
maximum aggregate offering price in this Post-Effective
Amendment 24,918,707

</TABLE>

While no fee is required for the 24,918,707 shares, the Registrant has elected
to register for $100.06 an additional 26,893 shares.

<PAGE>

SCUDDER MEDIUM TERM TAX FREE FUND
CROSS-REFERENCE SHEET

Items Required By Form N-1A
<TABLE>
<CAPTION>
PART A

Item No. Item Caption Prospectus Caption
<S> <C> <C>

1. Cover Page COVER PAGE

2. Synopsis EXPENSE INFORMATION

3. Condensed Financial FINANCIAL HIGHLIGHTS
Information

4. General Description of SCUDDER MEDIUM TERM TAX FREE FUND--Investment objectives and
Registrant policies, investments
ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS
FUND ORGANIZATION

5. Management of the Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
FUND ORGANIZATION--Investment adviser; Transfer agent
SHAREHOLDER SERVICES--A team approach to investing

5A. Management's Discussion of NOT APPLICABLE
Fund Performance

6. Capital Stock and Other DISTRIBUTION AND PERFORMANCE INFORMATION--Dividends and capital
Securities gains distributions
TRANSACTION INFORMATION--Tax information
SHAREHOLDER BENEFITS--Toll-free Telephone Service and Information,
T.D.D. Service for the Hearing Impaired, Dividend
reinvestment plan
HOW TO CONTACT SCUDDER

7. Purchase of Securities PURCHASES
Being Offered TRANSACTION INFORMATION--Purchasing shares
INVESTMENT PRODUCTS AND SERVICES
FUND ORGANIZATION--Underwriter

8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares

9. Pending Legal Proceedings NOT APPLICABLE

</TABLE>

1
<PAGE>

SCUDDER MEDIUM TERM TAX FREE FUND
(continued)
<TABLE>
<CAPTION>

PART B

Caption in Statement of
Item No. Item Caption Additional Information

<S> <C> <C>
10. Cover Page COVER PAGE

11. Table of Contents TABLE OF CONTENTS

12. General Information and History ORGANIZATION OF THE FUNDS

13. Investment Objectives and THE FUNDS AND THEIR OBJECTIVES
Policies

14. Management of the Fund TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities

16. Investment Advisory and Other INVESTMENT ADVISER
Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other Information

17. Brokerage Allocation and Other PORTFOLIO TRANSACTIONS--Brokerage
Practices

18. Capital Stock and Other ORGANIZATION OF THE FUNDS
Securities

19. Purchase, Redemption and PURCHASES
Pricing of Securities Being EXCHANGES AND REDEMPTIONS
Offered FEATURES AND SERVICES OFFERED BY THE FUNDS--Distribution Plans
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE

20. Tax Status DIVIDENDS
TAXES

21. Underwriters DISTRIBUTOR

22. Calculation of Performance Data PERFORMANCE INFORMATION

23. Financial Statements FINANCIAL STATEMENTS

</TABLE>

2
<PAGE>

SCUDDER LIMITED TERM TAX FREE FUND
CROSS-REFERENCE SHEET

Items Required By Form N-1A
<TABLE>
<CAPTION>

PART A

Item No. Item Caption Prospectus Caption
<S> <C> <C>

1. Cover Page COVER PAGE

2. Synopsis EXPENSE INFORMATION

3. Condensed Financial FINANCIAL HIGHLIGHTS
Information

4. General Description of SCUDDER LIMITED TERM TAX FREE FUND--Investment objectives and
Registrant policies, investments
ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS
FUND ORGANIZATION

5. Management of the Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
FUND ORGANIZATION--Investment Adviser; Transfer agent
SHAREHOLDER SERVICES--A team approach to investing

5A. Management's Discussion NOT APPLICABLE
of Fund Performance

6. Capital Stock and Other DISTRIBUTION AND PERFORMANCE INFORMATION--Dividends and Capital
Securities Gains Distributions
TRANSACTION INFORMATION--Tax Information
SHAREHOLDER BENEFITS--Toll-free Telephone Service and Information,
T.D.D. Service for the Hearing Impaired, Dividend Reinvestment
Plan
HOW TO CONTACT SCUDDER

7. Purchase of Securities PURCHASES
Being Offered TRANSACTION INFORMATION--Purchasing Shares
INVESTMENT PRODUCTS AND SERVICES
FUND ORGANIZATION--Underwriter

8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming Shares

9. Pending Legal Proceedings NOT APPLICABLE

</TABLE>

3
<PAGE>

SCUDDER LIMITED TERM TAX FREE FUND
(continued)

PART B

Caption in Statement of
Item No. Item Caption Additional Information
<S> <C> <C>

10. Cover Page COVER PAGE

11. Table of Contents TABLE OF CONTENTS

12. General Information and History ORGANIZATION OF THE FUNDS

13. Investment Objectives and THE FUNDS AND THEIR OBJECTIVES
Policies

14. Management of the Fund TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities

16. Investment Advisory and Other INVESTMENT ADVISER
Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other Information

17. Brokerage Allocation and Other PORTFOLIO TRANSACTIONS--Brokerage
Practices

18. Capital Stock and Other ORGANIZATION OF THE FUNDS
Securities

20. Tax Status DIVIDENDS
TAXES

21. Underwriters DISTRIBUTOR

22. Calculation of Performance Data PERFORMANCE INFORMATION

23. Financial Statements FINANCIAL STATEMENTS

</TABLE>

4
<PAGE>

This combined prospectus sets forth concisely the information a prospective
investor should know before investing in the following funds: Scudder Tax Free
Money Fund; Scudder Limited Term Tax Free Fund and Scudder Medium Term Tax Free
Fund, each a series of Scudder Tax Free Trust; Scudder Managed Municipal Bonds
and Scudder High Yield Tax Free Fund, each a series of Scudder Municipal Trust.
All three Trusts are diversified open-end management investment
companies. Please retain this prospectus for future reference.

Shares of the Funds are not insured or guaranteed by the U.S. Government.
Scudder Tax Free Money Fund seeks to maintain a constant net asset value of
$1.00 per share but there can be no assurance that the stable net asset value
will be maintained.

If you require more detailed information, the Funds' Statement of Additional
Information dated May 1, 1995, as amended from time to time, may
be obtained without charge by writing Scudder Investor Services, Inc., Two
International Place, Boston, MA 02110-4103 or calling 1-800-225-2470. The
Statement , which is incorporated by reference into this
prospectus, has been filed with the Securities and Exchange Commission.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS COMBINED PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

Contents--see page 10.

Scudder Tax Free
Money Fund

- -------------------------------------
May 1, 1995

Scudder Limited Term
Tax Free Fund

- -------------------------------------
March 1, 1995

Scudder Medium Term
Tax Free Fund
Scudder Managed
Municipal Bonds
Scudder High Yield
Tax Free Fund

- -------------------------------------
May 1, 1995

Prospectus

Five pure no-load(TM) (no sales charges) mutual funds seeking tax-free income
through different investment objectives.

<PAGE>

Expense information

How to compare a Scudder pure no-load(TM) fund

This information is designed to help you understand the various costs and
expenses of investing in Scudder Tax Free Money Fund and Scudder Medium Term Tax
Free Fund. By reviewing this table and those in other mutual funds'
prospectuses, you can compare each Fund's fees and expenses with those of other
funds. With Scudder's pure no-load(TM) funds, you pay no commissions to purchase
or redeem shares, or to exchange from one fund to another. As a result, all of
your investment goes to work for you.

1) Shareholder transaction expenses: Expenses charged directly to your
individual account in either Fund for various transactions.

Scudder Tax Free Scudder Medium
Money Fund Term Tax Free Fund
---------- ------------------
<S> <C> <C>
Sales commissions to purchase shares (sales load) NONE NONE
Commissions to reinvest dividends NONE NONE
Redemption fees NONE* NONE*
Fees to exchange shares NONE NONE

2) Annual Fund operating expenses (after expense maintenance, if any): Expenses
paid by either Fund before it distributes its net investment income,
expressed as a percentage of its average daily net assets for the year ended
December 31, 1994 .

Investment management fees 0.50% 0.55 %
12b-1 fees NONE NONE
Other expenses 0.27 % 0.15 %
---- ----
Total Fund operating expenses 0.77 % 0.70 %**
==== ====

Example

Based on the levels of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by each Fund before it distributes its
net investment income to shareholders. (As noted above, the Funds have no
redemption fees of any kind.)

One year $ 8 $ 7
Three years 25 22
Five years 43 39
Ten years 95 87

See "Fund organization--Investment adviser" for further information about the
investment management fees. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.

* You may redeem by writing or calling the Funds or by Write-A-Check. If you
wish to receive redemption proceeds via wire, there is a $5 wire service
fee. For additional information, please refer to "Transaction
information--Redeeming shares."

** If the Adviser had not agreed to maintain the Fund's operating expenses at
0.25 % of average daily net assets on January 1, 1994 , and
maintain the Fund's total annualized expenses at 0.50 % from
January 2, 1994 to April 30, 1994 , and maintain the Fund's
total annualized expenses at 0.70% from May 1, 1994 to December 31,
1994, the total annualized expenses would have been 0.71 % (of
which 0.56% would have consisted of investment management fees) for the
fiscal year ended December 31, 199 4. Actual expenses charged for
the fiscal year ended December 31, 1994 equaled 0.63% of average daily net
assets. Effective May 1, 1994, the Adviser ha d agreed to maintain
the total annualized expenses of the Fund at 0.70% of the average daily net
assets of the Fund until April 30, 1995. </TABLE>

2
<PAGE>

Expense information

How to compare a Scudder pure no-load(TM) fund

This information is designed to help you understand the various costs and
expenses of investing in Scudder Managed Municipal Bonds and Scudder High Yield
Tax Free Fund. By reviewing this table and those in other mutual funds'
prospectuses, you can compare each Fund's fees and expenses with those of other
funds. With Scudder's pure no-load(TM) funds, you pay no commissions to purchase
or redeem shares, or to exchange from one fund to another. As a result, all of
your investment goes to work for you.

1) Shareholder transaction expenses: Expenses charged directly to your
individual account in either Fund for various transactions.

Scudder Managed Scudder High Yield
Municipal Bonds Tax Free Fund
--------------- -------------
<S> <C> <C>
Sales commissions to purchase shares (sales load) NONE NONE
Commissions to reinvest dividends NONE NONE
Redemption fees NONE* NONE*
Fees to exchange shares NONE NONE

Investment management fees 0.51 % 0.52 %
12b-1 fees NONE NONE
Other expenses 0.12 % 0.28 %
---- ----
Total Fund operating expenses 0.63 % 0.80 %**
==== ====

Example

One year $ 6 $ 8
Three years 20 26
Five years 35 44
Ten years 79 99

* You may redeem by writing or calling the Funds. If you wish to receive
redemption proceeds via wire, there is a $5 wire service fee. For additional
information, please refer to "Transaction information--Redeeming shares."

** From the period January 1, 1994 to December 31, 1994 the
Adviser did not impose a portion of its management fee and maintained the
annualized expenses of the Fund at 0.80% of average daily net assets. If the
Adviser had not agreed to maintain the Fund's expenses, the total annualized
expenses would have been 0.97 % (of which 0.69% would have consisted
of investment management fees) for the fiscal year ended December 31,
1994 . The Adviser has agreed to maintain the total annualized
expenses of the Fund at 0.80% of average daily net assets of the Fund until
April 30, 1995. </TABLE>

3
<PAGE>

Expense information

How to compare a Scudder pure no-load(TM) fund

This information is designed to help you understand the various costs and
expenses of investing in Scudder Limited Term Tax Free Fund (the "Fund"). By
reviewing this table and those in other mutual funds' prospectuses, you can
compare the Fund's fees and expenses with those of other funds. With Scudder's
pure no-load(TM) funds, you pay no commissions to purchase or redeem shares, or
to exchange from one fund to another. As a result, all of your investment goes
to work for you.

1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.

Scudder Limited Term
Tax Free Fund
-------------
<S> <C>
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE

2) Annual Fund operating expenses (after expense maintenance): Expenses paid by
the Fund before it distributes its net investment income, expressed as a
percentage of the Fund's average daily net assets for the fiscal year ended
October 31, 1994.

Investment management fee 0.0%**
12b-1 fees NONE
Other expenses 0.25%
----
Total Fund operating expenses 0.25%**
====

Example

Based on the level of Fund operating expenses listed above, the total expenses
relating to a $1,000 investment, assuming a 5% annual return and redemption at
the end of each period, are listed below. Investors do not pay these expenses
directly; they are paid by the Fund before it distributes its net investment
income to shareholders. (As noted above, the Fund has no redemption fees of any
kind.)

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$3 $8 $14 $32

See "Fund organization--Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.

* You may redeem by writing or calling the Fund or by Write-A-Check. If you
wish to receive your redemption proceeds via wire, there is a $5 wire
service fee. For additional information, please refer to "Transaction
information--Redeeming shares."

** If the Adviser had not agreed to maintain the Fund's operating expenses at
0% of average daily net assets until February 28, 1995, the total annualized
expenses would have been 1.10% (of which 0.60% would have consisted of
investment management fees) for the fiscal period ended October 31, 1994.
The Adviser has agreed to maintain the total annualized expenses of the Fund
at 0.25% of average daily net assets of the Fund until August 31, 1995.

</TABLE>

4
<PAGE>

Financial highlights

Scudder Tax Free Money Fund

The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.

If you would like more detailed information concerning the Fund's performance, a
complete portfolio listing and audited financial statements are available in the
Fund's Annual Report dated December 31, 1994 and may be obtained without charge
by writing or calling Scudder Investor Services, Inc.

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period . . . . . . . $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment
income . . . . . . . .022 .018 .025 .041 .053 .057 .046 .040 .041 .045
Less distributions
from net investment
income . . . . . . . (.022) (.018) (.025) (.041) (.053) (.057) (.046) (.040) (.041) (.045)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period . . . . $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) . . . 2.26 1.86 2.54 4.20 5.44 5.83 4.73 4.03 4.19 4.62
RATIOS AND
SUPPLEMENTAL DATA

Net assets, end of
period ($ millions). . 257 222 267 279 303 279 358 390 383 265
Ratio of operating
expenses to
average daily net
assets (%) . . . . . .77 .75 .73 .70 .72 .70 .67 .66 .63 .63
Ratio of net
investment income
to average daily
net assets (%) . . . 2.24 1.84 2.53 4.12 5.30 5.67 4.61 4.03 4.01 4.54

</TABLE>

5
<PAGE>

Financial highlights

Scudder Medium Term Tax Free Fund

The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period. . . . $11.36 $10.86 $10.62 $10.11 $10.04 $10.02 $10.07 $10.34 $10.03 $ 9.67
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income (a) .53 .60 .65 .67 .54 .56 .54 .54 .62 .68
Net realized and
unrealized gain
(loss) on investments. . (.92) .56 .27 .52 .07 .02 (.05) (.22) .41 .36
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations . . . . . . . (.39) 1.16 .92 1.19 .61 .58 .49 .32 1.03 1.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
From net investment
income . . . . . . . . . (.53) (.60) (.65) (.67) (.54) (.56) (.54) (.54) (.62) (.68)
From net realized
gains on investments . . (.05) (.06) (.03) (.01) -- -- -- (.05) (.10) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions. . . . (.58) (.66) (.68) (.68) (.54) (.56) (.54) (.59) (.72) (.68)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period. . . . . . $10.39 $11.36 $10.86 $10.62 $10.11 $10.04 $10.02 $10.07 $10.34 $10.03
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL RETURN (%) (B). . . . (3.50) 10.94 8.93 12.13 6.29 6.00 4.92 3.23 10.54 11.02
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions). . . . 701 1,017 661 268 27 54 99 125 104 59
Ratio of operating expenses
net, to average daily net
assets (%) (a) . . . . . . .63 .14 -- -- .97 .91 .79 .80 .82 .85
Ratio of net investment
income to average
net assets (%) . . . . . . 4.94 5.35 6.07 6.44 5.37 5.62 5.05 5.37 6.00 6.76
Portfolio turnover rate (%) 33.8 37.3 22.4 14.0 116.9 15.7 31.2 32.6 44.3 132.2
(a) Portion of expenses
reimbursed by the
Adviser. . . . . . . . $ -- $ .005 $ .014 $ .020 $ .001 $ -- $ -- $ -- $ -- $ --
Management fee and
other fees not
imposed. . . . . . . . $ .01 $ .063 $ .064 $ .062 $ .002 $ -- $ -- $ -- $ -- $ .001
Annualized ratio of operating expenses, including expenses reimbursed, management fee and other expenses not imposed, to average
daily net assets aggregated 0.71%, 0.75%, 0.80%, 0.88% and 1.00% for the years ended December 31, 1994, 1993, 1992, 1991 and
1990, respectively.
(b) Total returns may have been higher due to maintenance of the Fund's expenses.
On November 1, 1990, the Fund adopted its present name and objective. Prior to that date, the Fund was known as the 1990
Portfolio of the Scudder Tax Free Target Fund and its objective was to provide high tax-free income and current liquidity.
Financial information for each of the six years in the period ended December 31, 1990 should not be considered representative
of the present Fund.
</TABLE>

6
<PAGE>

Financial highlights

Scudder Managed Municipal Bonds

The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period. . . . . $ 9.09 $ 8.72 $8.80 $ 8.45 $8.54 $ 8.60 $ 8.24 $8.93 $ 8.40 $ 7.69
------ ------ ----- ------ ----- ------ ------ ----- ------ ------
Income from investment
operations:
Net investment
income . . . . . . . . . . .46 .47 .51 .53 .55 .59 .60 .61 .61 .59
Net realized and
unrealized gain
(loss) on
investment
transactions . . . . . . . (1.00) .66 .25 .47 -- .33 .38 (.58) .77 .71
------ ------ ----- ------ ----- ------ ------ ----- ------ ------
Total from investment
operations . . . . . . . . (.54) 1.13 .76 1.00 .55 .92 .98 .03 1.38 1.30
------ ------ ----- ------ ----- ------ ------ ----- ------ ------
Less distributions:
From net investment
income . . . . . . . . . . (.46) (.47) (.51) (.53) (.55) (.59) (.60) (.61) (.61) (.59)
From net realized
gains on investment
transactions . . . . . . . -- (.29) (.33) (.12) (.09) (.39) (.02) (.11) (.24) --
In excess of net
realized gains . . . . . . (.02) -- -- -- -- -- -- -- -- --
------ ------ ----- ------ ----- ------ ------ ----- ------ ------
Total distributions . . . . . (.48) (.76) (.84) (.65) (.64) (.98) (.62) (.72) (.85) (.59)
------ ------ ----- ------ ----- ------ ------ ----- ------ ------
Net asset value,
end of period . . . . . . . $ 8.07 $ 9.09 $8.72 $ 8.80 $8.45 $ 8.54 $ 8.60 $8.24 $ 8.93 $ 8.40
====== ====== ===== ====== ===== ====== ====== ===== ====== ======
TOTAL RETURN (%) . . . . . . (6.04) 13.32 8.98 12.23 6.77 11.19 12.27 .34 16.84 17.37
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions). . . . . 709 910 830 796 719 691 635 592 663 574
Ratio of operating
expenses to average
daily net assets (%) . . . . .63 .63 .63 .64 .61 .62 .61 .63 .58 .58
Ratio of net investment
income to average
daily net assets (%) . . . . 5.41 5.21 5.76 6.16 6.61 6.78 7.13 7.20 6.88 7.27
Portfolio turnover
rate (%) . . . . . . . . . 33.7 52.8 59.6 32.4 72.1 89.8 75.5 73.5 78.0 98.2
</TABLE>

7
<PAGE>

Financial highlights

Scudder High Yield Tax Free Fund

The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.

<TABLE>
<CAPTION>
For the Period
January 22, 1987
(commencement
Years Ended December 31, of operations) to
-------------------------------------------------------- December 31,
1994 1993 1992 1991 1990 1989 1988 1987
-------------------------------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period . . . $12.55 $11.90 $11.67 $11.19 $11.35 $11.06 $10.52 $12.00
------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (a) . . . . . . . . .70 .67 .72 .76 .77 .76 .83 .78
Net realized and unrealized gain
(loss) on investments . . . . . . . . . (1.73) .93 .50 .69 (.11) .35 .54 (1.48)
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations . . . . . (1.03) 1.60 1.22 1.45 .66 1.11 1.37 (.70)
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment income . . . . . . . (.66) (.67) (.72) (.76) (.77) (.76) (.83) (.78)
From net realized gains on
investment transactions . . . . . . . . -- (.21) (.27) (.21) (.05) (.06) -- --
In excess of net realized gains
on investment transactions . . . . . . . -- (.07) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions . . . . . . . . . . . . (.66) (.95) (.99) (.97) (.82) (.82) (.83) (.78)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period . . . . . . $10.86 $12.55 $11.90 $11.67 $11.19 $11.35 $11.06 $10.52
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) . . . . . . . . . . . . . (8.38) 13.85 10.88 13.36 6.02 10.32 13.48 (5.81)**

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . 260 317 204 160 129 114 74 36
Ratio of operating expenses net, to
average daily net assets (%) (a) . . . . . .80 .92 .98 1.00 1.00 1.00 .67 .40*
Ratio of net investment income to average
daily net assets (%) . . . . . . . . . . 6.01 5.38 6.10 6.65 6.88 6.72 7.65 8.45*
Portfolio turnover rate (%) . . . . . . . . 34.3 56.4 56.6 45.5 33.4 75.8 36.7 131.8*
<FN>
(a) Reflects a per share amount of
expenses, exclusive of management
fees, reimbursed by the Adviser of. . . $ -- $ -- $ -- $ -- $ -- $ -- $ .010 $ .066
Reflects a per share amount of
management fee not imposed by
the Adviser of . . . . . . . . . . . . $ .02 $ .01 $ -- $ -- $ .01 $ .01 $ .05 $ .06
Operating expense ratio, including
expenses reimbursed, management
fee and other expenses
not imposed (%) . . . . . . . . . . . .97 .98 .99 1.04 1.09 1.15 1.25 1.80*
* Annualized
** Not annualized
</TABLE>

8
<PAGE>

Financial highlights

Scudder Limited Term Tax Free Fund

The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.

If you would like more detailed information concerning the Fund's performance, a
complete portfolio listing and audited financial statements are available in the
Fund's Annual Report dated October 31, 1994 and may be obtained without charge
by writing or calling Scudder Investor Services, Inc.

For the Period
February 15, 1994
(commencement
of operations)
to October 31, 1994
-------------------
<S> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . $12.00
------
Income from investment operations:
Net investment income (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Net realized and unrealized loss on investments . . . . . . . . . . . . . . . . . . (.33)
------
Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . .05
------
Less distributions from net investment income . . . . . . . . . . . . . . . . . . . (.38)
------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.67
======
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . . . . . . . . . . . . . . . . . . . . . . 68
Ratio of operating expenses, net to average daily net assets (%) (a) . . . . . . . . --
Ratio of net investment income to average daily net assets (%) . . . . . . . . . . . 4.84*
Portfolio turnover rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.3*
(a) Reflects a per share amount of expenses, exclusive of management fees,
reimbursed by the Adviser of . . . . . . . . . . . . . . . . . . . . . . . . . . $ .04
Reflects a per share amount of management fee and other fees not imposed by the
Adviser of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .06
Operating expense ratio including expenses reimbursed, management fee and
other expenses not imposed (%) . . . . . . . . . . . . . . . . . . . . . . . . . 1.29*
<FN>
* Annualized
** Not annualized
</TABLE>

9
<PAGE>

A message from Scudder's chairman

Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. Today, we manage in excess of $90 billion for many private accounts and
over 50 mutual fund portfolios. We manage the mutual funds in a special program
for the American Association of Retired Persons, as well as the fund options
available through Scudder Horizon Plan, a tax-advantaged variable annuity. We
also advise The Japan Fund and nine closed-end funds that invest in countries
around the world.

The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.

Services available to all shareholders include toll-free access to the
professional service representatives of Scudder Investor Relations, easy
exchange among funds, shareholder reports, informative newsletters and the
walk-in convenience of Scudder Funds Centers.

All Scudder mutual funds are pure no-load(TM). This means you pay no commissions
to purchase or redeem your shares or to exchange from one fund to another. There
are no "12b-1" fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.

/s/Daniel Pierce

Scudder tax free funds

Five pure no-load(TM) (no sales charges) mutual funds seeking tax-free income
through different investment objectives:

o Scudder Tax Free Money Fund

o Scudder Limited Term Tax Free Fund

o Scudder Medium Term Tax Free Fund

o Scudder Managed Municipal Bonds

o Scudder High Yield Tax Free Fund

Contents

Investment characteristics 11
Scudder Tax Free Money Fund 12
Scudder Limited Term Tax Free Fund 13
Scudder Medium Term Tax Free Fund 15
Scudder Managed Municipal Bonds 16
Scudder High Yield Tax Free Fund 17
Purchases 18
Exchanges and redemptions 19
Selecting among the Funds 20
Additional information about policies
and investments 22
Distribution and performance information 25
Fund organization 26
Summary of important features 27
Transaction information 29
Shareholder benefits 32
Trustees and Officers 35
Investment products and services 36
How to contact Scudder 37

10
<PAGE>

Investment characteristics

Scudder Tax Free Money Fund, Scudder Limited Term Tax Free Fund, Scudder Medium
Term Tax Free Fund, Scudder Managed Municipal Bonds and Scudder High Yield Tax
Free Fund (the "Funds") are tax-free income funds advised by Scudder, Stevens &
Clark, Inc. (the "Adviser"). The five Funds' prospectuses are presented together
so you can understand their important differences and decide which Fund or
combination of Funds is most suitable for your investment needs.

Tax-free income

The five Funds have different investment objectives and characteristics, yet
they all seek to provide income that is, in the opinion of bond counsel, free
from regular federal income tax, by investing in municipal securities. Municipal
securities include notes and bonds issued by states, cities and towns to raise
revenue for various public purposes.

Depending on your tax bracket, your return from these Funds may be substantially
higher than the after-tax return you would earn from comparable taxable
investments. The chart below shows what an investor would have to earn from a
comparable taxable investment to equal the tax-free yield provided by the Funds
for the period ended December 31, 1994.

Maturity of investments

A significant difference among these five Scudder tax-free funds is the average
maturity of their investments.

Scudder Tax Free Money Fund invests primarily in short-term municipal notes and
maintains a dollar-weighted average portfolio maturity of 90 days or less.
Scudder Limited Term Tax Free Fund invests primarily in shorter-term, high-grade
municipal debt securities and maintains a dollar-weighted average effective
maturity of between one and five years. Scudder Medium Term Tax Free Fund
invests primarily in high-grade intermediate-term municipal bonds. Scudder
Managed Municipal Bonds and Scudder High Yield Tax Free Fund each have flexible
investment policies regarding maturity, but both normally invest in long-term
municipal securities (i.e., more than 10 years). The yield and the potential for
price fluctuation are generally greater, the longer the maturity of the
municipal security.

TAX-FREE YIELDS and CORRESPONDING TAXABLE EQUIVALENTS
Tax-Free Yield Taxable
for the 30-day period Equivalent Yield**
--------------------- ------------------
ended
-----
28% Tax 31% Tax 36% Tax 39.6% Tax
December 31, 1994 Bracket Bracket Bracket Bracket
----------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Scudder Tax Free Money Fund* 4.22% 5.86% 6.12% 6.59% 6.99%
Scudder Medium Term Tax Free Fund 5.29% 7.35% 7.67% 8.27% 8.76%
Scudder Managed Municipal Bonds 5.79% 8.04% 8.39% 9.05% 9.59%
Scudder High Yield Tax Free Fund 6.52% 9.06% 9.45% 10.19% 10.79%
Scudder Limited Term Tax Free Fund 5.40% 7.50% 7.83% 8.44% 8.94%

* The tax-free yield for Scudder Tax Free Money Fund is for the seven-day
period December 31, 1994.

** Based on federal income tax rates in effect for the 1994 taxable year.

The yield levels of tax-free and taxable investments continuously change.
Before investing in a Scudder tax-free fund, you may want to compare its
yield to the after-tax yield of an investment paying taxable income. For
up-to-date yield information on these Scudder tax-free funds, shareholders
can call SAIL, Scudder Automated Information Line, toll-free, at any time:
1-800-343-2890.

</TABLE>

11
<PAGE>

Investment characteristics (cont'd)

Scudder Managed Municipal Bonds and Scudder High Yield Tax Free Fund have
historically had the highest yields of the five Funds since these Funds usually
have the longest average maturities. Scudder Tax Free Money Fund, which seeks to
maintain a share price of $1.00 and invests in shorter-term securities, offers
the greatest capital protection of these five Funds.

Scudder Limited Term Tax Free Fund, Scudder Medium Term Tax Free Fund, Scudder
Managed Municipal Bonds and Scudder High Yield Tax Free Fund are designed to
offer, on average, more income than Scudder Tax Free Money Fund. Scudder Limited
Term Tax Free Fund and Scudder Medium Term Tax Free Fund offer greater
protection from bond market risk (i.e., price volatility, not credit risk) but
lower yield potential than Scudder Managed Municipal Bonds and Scudder High
Yield Tax Free Fund. This protection reduces the risk of capital loss, but does
not eliminate credit risk.

Other factors in addition to maturity affect the yield and price fluctuation of
each Fund, including the absolute level of interest rates, the relationship
among short-, medium- and long-term interest rates, the quality of the Fund's
investments and the Fund's expenses. The share prices of Scudder Limited Term
Tax Free Fund, Scudder Medium Term Tax Free Fund, Scudder Managed Municipal
Bonds and Scudder High Yield Tax Free Fund tend to rise as interest rates
decline and decline as interest rates rise.

Except as otherwise indicated, each Fund's investment objectives and policies
are not fundamental and may be changed without a vote of shareholders.
Shareholders will receive written notice of any changes in a Fund's objective.
If there is a change in investment objective, shareholders should consider
whether that Fund remains an appropriate investment in light of their then
current financial position and needs. There can be no assurance that each Fund's
objectives will be met.

Scudder Tax Free Money Fund

Investment objectives and policies

Scudder Tax Free Money Fund , a diversified open-end management investment
company, seeks to provide income exempt from regular federal income tax and
stability of principal through investments in municipal securities. All of the
Fund's investments are high quality, have a remaining maturity of 397 calendar
days or less and have minimal credit risk as determined by the Fund's Adviser.
The dollar-weighted average maturity of the Fund's portfolio is 90 days or less.
The Fund seeks to maintain a constant net asset value of $1.00 per share,
although in extreme circumstances this may not be possible. A small portion of
the income may be subject to regular federal, alternative minimum, state and
local income taxes.

Investments

All of the Fund's municipal securities must meet certain quality criteria at the
time of purchase. Generally, the Fund may purchase only securities which are
rated, or issued by an issuer rated, within the two highest quality ratings
categories of two or more of the following rating agencies: Moody's
Investors Service, Inc. ("Moody's") (Aaa and Aa, MIG 1 and MIG 2, and P1),
Standard & Poor's ("S&P") (AAA and AA, SP1+ and SP1, A1+ and A1) and Fitch
Investors Service, Inc. ("Fitch") (AAA and AA, F1 and F2). Where only one rating
agency has rated a security (or its issuer), the Fund generally may purchase
that security as long as the rating falls within the categories described above.
Where a security (or its issuer) is unrated, the Fund may purchase that security
if, in the judgment of the Adviser, it is comparable in quality to securities
described above. All of the securities in which the Fund may invest are
dollar-denominated and must meet credit standards applied by the Adviser

12
<PAGE>

pursuant to procedures established by the Trustees. Should an issue of municipal
securities cease to be rated or if its rating is reduced below the minimum
required for purchase by the Fund, the Adviser will dispose of any such security
unless the Trustees of the Fund determine that such disposal would not be in the
best interests of the Fund.

Municipal securities in which the Fund may invest include municipal notes,
short-term municipal bonds, variable rate demand instruments and tax-exempt
commercial paper. Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less. Examples
include tax anticipation and revenue anticipation notes, which are generally
issued in anticipation of various seasonal revenues, bond anticipation notes,
and construction loan notes. Short-term municipal bonds may include general
obligation bonds, which are secured by the issuer's pledge of its faith, credit
and taxing power for payment of principal and interest, and revenue bonds, which
are generally paid from the revenues of a particular facility or a specific
excise tax or other source. The Fund does not invest more than 25% of its assets
in private activity bonds or securities which are taxable investments of private
sector companies in the same industry. For federal income tax purposes, the
income earned from municipal securities may be entirely tax-free, taxable or
subject to only the alternative minimum tax ("AMT" bonds). However, the Fund has
no current intention of investing in municipal securities whose interest income
is taxable or AMT bonds. Examples of taxable investments in which the Fund may
invest include obligations of corporate issuers, U.S. Treasury obligations, U.S.
Government obligations, money market instruments and repurchase agreements.

It is a fundamental policy, which may not be changed without a vote of
shareholders, that at least 80% of the Fund's assets will normally be invested
in short-term municipal securities. Under normal market conditions the Fund
expects to invest 100% of its portfolio securities in municipal securities. The
Fund may, on a temporary basis, hold and invest up to 20% of its assets in cash
and cash equivalents and in temporary investments of taxable securities with
remaining maturities of 397 calendar days or less. For temporary defensive
purposes the Fund may invest more than 20% in such investments. In 1993, all of
the Fund's investments were 100% federally tax-exempt. The Fund may also invest
in stand-by commitments and other puts, repurchase agreements, reverse
repurchase agreements, participation interests and when-issued or forward
delivery securities. See "Additional information about policies and investments"
for more information about these investment techniques.

Scudder Limited Term Tax Free Fund

Investment objectives and policies

Scudder Limited Term Tax Free Fund , a diversified series of Scudder Tax Free
Trust, seeks to provide as high a level of income exempt from regular
federal income tax as is consistent with a high degree of principal stability.
In pursuing this goal, the Fund maintains a diversified portfolio of
shorter-term, high-grade municipal debt securities with a dollar-weighted
average effective maturity of between one and five years. Within this
limitation, the Fund may not purchase individual securities with effective
maturities greater than 10 years at the time of purchase or issuance, whichever
is later. To the extent the Fund invests in higher-grade securities, it will be
unable to avail itself of opportunities for higher income which may be available

13
<PAGE>

Scudder Limited Term Tax Free Fund (cont'd)

with lower-grade investments. The Fund's price and yield can fluctuate daily in
response to changing bond market conditions.

Investments

The Fund invests in municipal securities that are debt obligations issued by or
on behalf of states, territories and possessions of the United States, the
District of Columbia and their subdivisions, agencies and instrumentalities, the
interest on which is, in the opinion of bond counsel, exempt from regular
federal income tax. These securities include municipal notes, which are
generally used to provide short-term capital needs and have maturities of one
year or less. Municipal notes include tax anticipation notes, revenue
anticipation notes, bond anticipation notes and construction loan notes.

The Fund may also invest in municipal bonds, which meet longer-term capital
needs and generally have maturities of more than one year when issued. Municipal
bonds include general obligation bonds which are secured by the issuer's pledge
of its faith, credit and taxing power for payment of principal and interest,
revenue bonds, industrial development and other private activity bonds.

The Fund purchases securities that it believes are attractive and competitive
values in terms of quality, yield and the relationship of current price to
maturity value. However, recognizing the dynamics of municipal obligation prices
in response to changes in general economic conditions, fiscal and monetary
policies, interest rate levels and market forces such as supply and demand for
various issues, the Adviser, subject to the Trustees' supervision, performs
credit analysis and manages the Fund's portfolio continuously, attempting to
take advantage of opportunities to improve total return, which is a combination
of income and principal performance over the long term.

For federal income tax purposes, the income earned from municipal securities may
be entirely tax-free, taxable or subject to only the alternative minimum tax.
However, the Fund has no current intention of investing in municipal securities
whose interest income is taxable or AMT bonds.

Normally at least 80% of the Fund's net assets are invested in municipal
securities which are rated within the three highest quality ratings of Moody's
(Aaa, Aa and A), S&P or Fitch (AAA, AA and A) or their equivalents, or if
unrated, judged by the Adviser to be of comparable quality, at the time of
purchase. The Fund may invest in a debt security so rated by one rating agency
although the security may be rated lower by one or more of the other agencies.
However, the Fund will not invest in any debt security rated lower than Baa by
Moody's, BBB by S&P or Fitch or of equivalent quality as determined by the
Adviser.

Securities must also meet credit standards applied by the Adviser. Should the
rating of a portfolio security be downgraded after being purchased by the Fund,
the Adviser will determine whether it is in the best interest of the Fund to
retain or dispose of the security.

It is a fundamental policy, which may not be changed without a vote of
shareholders, that at least 80% of the Fund's total assets will normally be
invested in municipal securities and, under normal market conditions, the Fund
expects to invest 100% of its portfolio in municipal securities. However, if
defensive considerations or an unusual disparity between after-tax income on
taxable and municipal securities makes it advisable, up to 20% of the Fund's
assets may be held in cash or invested in short-term taxable investments,
including U.S. Government obligations and money market instruments. The Fund may
temporarily invest more than 20% of its assets in taxable securities during
periods which, in the Adviser's opinion, require a defensive position. A portion

14
<PAGE>

of the Fund's income may be subject to regular federal, state and local income
taxes.

The Fund may also invest in third party puts, and when-issued or forward
delivery securities, and may purchase warrants to purchase debt securities, and
may also utilize various other strategic transactions. See "Additional
information about policies and investments" for more information about these
investment techniques.

Scudder Medium Term Tax Free Fund

Investment objectives and policies

Scudder Medium Term Tax Free Fund , a diversified series of Scudder Tax Free
Trust, seeks to provide a high level of income free from regular federal
income taxes and to limit principal fluctuation. The Fund is designed for
investors seeking a higher level of federally tax-free income than normally
provided by tax-free money market or other short-term investments, and more
price stability than investments in long-term municipal bonds.

The Fund will invest primarily in high-grade, intermediate-term municipal bonds.
The dollar-weighted average effective maturity of the Fund's portfolio will
range between five and ten years. Within this limitation, the Fund may not
purchase individual securities with effective maturities greater than fifteen
years. To the extent the Fund invests in high-grade securities, it will be
unable to avail itself of opportunities for higher income which may be available
with lower-grade investments.

Investments

The municipal securities in which the Fund may invest are debt obligations
issued by or on behalf of states, territories and possessions of the United
States, the District of Columbia and their subdivisions, agencies and
instrumentalities, the interest on which is exempt from federal income tax. Such
municipal securities include municipal notes, which are generally used to
provide short-term capital needs and have maturities of one year or less.
Municipal notes include tax anticipation notes, revenue anticipation notes, bond
anticipation notes and construction loan notes.

The Fund may also invest in municipal bonds, which meet longer-term capital
needs and generally have maturities of more than one year when issued. Municipal
bonds include general obligation bonds which are secured by the issuer's pledge
of its faith, credit and taxing power for payment of principal and interest,
revenue bonds, prerefunded bonds, industrial development and other private
activity bonds. The Fund does not invest more than 25% of its assets in
pollution control and industrial revenue bonds or taxable investments of private
sector companies in the same industry. The Fund may also invest in variable rate
demand instruments.

Normally at least 80% of the Fund's net assets are invested in municipal bonds
which are rated within the three highest quality ratings of Moody's (Aaa, Aa and
A), S&P or Fitch (AAA, AA and A) or their equivalents, or if unrated, judged by
the Adviser to be of comparable quality, at the time of purchase. The Fund may
invest in a debt security so rated by one rating agency although the security
may be rated lower by one or more of the other agencies. However, the Fund will
not invest in any debt security rated lower than Baa by Moody's, BBB by S&P or
Fitch or of equivalent quality as determined by the Adviser. Securities must
also meet credit standards applied by the Adviser. Should the rating of a
portfolio security be downgraded the Adviser will determine whether it is in the
best interest of the Fund to retain or dispose of the security.

15
<PAGE>

Scudder Medium Term Tax Free Fund (cont'd)

At least 80% of the Fund's total assets will normally be invested in municipal
bonds and under normal market conditions, the Fund expects to invest 100% of its
portfolio securities in municipal securities. However, if defensive
considerations or an unusual disparity between after-tax income on taxable and
municipal securities makes it advisable, up to 20% of the Fund's assets may be
held in cash or invested in short-term taxable investments, including U.S.
Government obligations and money market instruments. The Fund may temporarily
invest more than 20% of its assets in taxable securities during periods which,
in the Adviser's opinion, require a defensive position. A portion of the Fund's
income may be subject to regular federal, state and local income taxes.

The Fund may also invest in stand-by commitments and other puts, repurchase
agreements, reverse repurchase agreements and when-issued or forward delivery
securities, and may purchase warrants to purchase debt securities, and may also
utilize various other strategic transactions. See "Additional information about
policies and investments" for more information about these investment
techniques.

Scudder Managed Municipal Bonds

Investment objectives and policies

Scudder Managed Municipal Bonds , a diversified series of Scudder Municipal
Trust, seeks to provide income exempt from regular federal income tax
primarily through investments in high-grade, long-term municipal securities.

The Fund attempts to take advantage of opportunities in the market caused by
such factors as temporary yield disparities among individual issues or classes
of securities in an effort to achieve better capital performance than that of an
unmanaged portfolio of municipal bonds.

A small portion of its income may be subject to regular federal, alternative
minimum, state and local income taxes.

Investments

It is a fundamental policy, which may not be changed without a vote of
shareholders, that at least 80% of the Fund's net assets will normally be
invested in municipal bonds. Under normal market conditions, the Fund expects to
invest 100% of its portfolio in municipal securities. The Fund has the
flexibility to invest in municipal securities with short-, medium- and long-term
maturities. During recent years, its portfolio has been invested primarily in
long-term municipal bonds.

The municipal securities in which the Fund may invest are issued by or on behalf
of states, territories and possessions of the United States and the District of
Columbia and their subdivisions, agencies and instrumentalities. The interest on
these securities is exempt from regular federal income tax. These municipal
securities include municipal notes, which are generally used to provide
short-term capital needs and have maturities of one year or less. Municipal
notes include tax anticipation notes, revenue anticipation notes, bond
anticipation notes and construction loan notes. The Fund may also invest in
municipal bonds, which meet longer-term capital needs and generally have
maturities of more than one year when issued. The Fund does not invest more than
25% of its assets in private activity bonds or securities which are taxable
investments of private sector companies in the same industry.

Municipal bonds include: general obligation bonds, which are secured by the
issuer's pledge of its faith, credit and taxing power for payment of principal
and interest; revenue bonds; prerefunded bonds; industrial development and
pollution control bonds. The Fund may also invest in other municipal securities
such as variable rate demand instruments.

16
<PAGE>

Under normal market conditions, 100% of the Fund's investments in municipal
securities will consist of municipal securities rated at the time of purchase
within the four highest ratings by Moody's (Aaa, Aa, A and Baa), S&P or Fitch
(AAA, AA, A and BBB) or their equivalents. Additionally, at least 75% of the
Fund's total assets will be invested in municipal securities rated at the time
of purchase by any of these rating services within the three highest ratings or
their equivalents. Unrated obligations will be purchased only if they are
considered to be of a quality comparable to obligations rated within the four
highest ratings described above and are readily marketable. Securities must also
meet credit standards applied by the Adviser. Should the rating of a portfolio
security be downgraded the Adviser will determine whether it is in the best
interest of the Fund to retain or dispose of the security.

If defensive considerations or an unusual disparity between after-tax income on
taxable and municipal securities makes it advisable, up to 20% of the Fund's
assets may be held in cash or invested in short-term taxable investments,
including U.S. Government obligations and money market instruments. The Fund may
invest more than 20% of its assets in taxable securities to meet temporary
liquidity requirements.

The Fund may also invest in stand-by commitments and other puts, repurchase
agreements and when-issued or forward delivery securities, and may purchase
warrants to purchase debt securities, and may also utilize various other
strategic transactions. See "Additional information about policies and
investments" for more information about these investment techniques.

Scudder High Yield Tax Free Fund

Investment objectives and policies

Scudder High Yield Tax Free Fund , a diversified series of Scudder Municipal
Trust, seeks to provide a high level of income, exempt from regular federal
income tax, from an actively managed portfolio consisting primarily of
investment-grade municipal securities.

The Fund will invest at least 65% of its assets at the time of purchase in
municipal bonds rated in the top four categories by Moody's (Aaa, Aa, A or Baa),
S&P or Fitch (AAA, AA, A or BBB), or their equivalents as determined by the
Adviser. The Fund may invest, however, up to 35% of its total assets in bonds
rated below Baa by Moody's or below BBB by S&P or Fitch, or unrated securities
considered to be of equivalent quality. The Fund may not invest in bonds rated
below B by Moody's, S&P or Fitch, or their equivalent. Should the rating of a
portfolio security be downgraded the Adviser will determine whether it is in the
best interest of the Fund to retain or dispose of the security.

High quality bonds, those within the two highest of the quality-rating
categories, characteristically have a strong capacity to pay interest and repay
principal. Medium-grade bonds, those within the next two such categories, are
defined as having adequate capacity to pay interest and repay principal.
Lower-grade bonds (so-called "junk bonds"), those rated below Baa by Moody's or
BBB by S&P or Fitch, involve greater price variability and a higher degree of
speculation with respect to the payment of principal and interest. Although some
have produced higher yields in the past than the investment-grade bonds in which
the Fund primarily invests, lower-grade bonds are considered to be predominantly
speculative and, therefore, carry greater risk.

(Continued on page 20)

17
<PAGE>

Purchases
<TABLE>
<S> <C>
Opening Minimum initial investment: $1,000; IRAs $500
an account Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums. See appropriate
plan literature.

Make checks payable o By Mail Send your completed and signed application and check
to "The Scudder
Funds."

by regular mail to: or by express, registered,
or certified mail to:

The Scudder Funds The Scudder Funds
P.O. Box 2291 1099 Hingham Street
Boston, MA Rockland, MA
02107-2291 02370-1052

o By Wire Please see Transaction information--Purchasing shares--
By wire following these tables for details, including the ABA wire
transfer number. Then call 1-800-225-5163 for instructions.

o In Person Visit one of our Funds Centers to complete your application with the help
of a Scudder representative. Funds Center locations are listed under
Shareholder benefits.

- ------------------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional shares Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums. See appropriate
plan literature.

Make checks payable o By Mail Send a check with a Scudder investment slip, or with a letter of
to "The Scudder instruction including your account number and the complete Fund name, to
Funds." the appropriate address listed above.

o By Wire Please see Transaction information--Purchasing shares--
By wire following these tables for details, including the ABA wire
transfer number.

o In Person Visit one of our Funds Centers to make an additional investment in your
Scudder fund account. Funds Center locations are listed under Shareholder
benefits.

o By Automatic You may arrange to make investments on a regular basis through automatic
Investment Plan deductions from your bank checking account. Please call 1-800-225-5163
($50 minimum) for more information and an enrollment form.

18
<PAGE>

Exchanges and redemptions

Exchanging shares Minimum investments: $1,000 to establish a new account; $100 to exchange among existing accounts
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).
o By Mail Print or type your instructions and include:
or Fax - the name of the Fund and the account number you are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into; and
- your signature(s) as it appears on your account and a daytime telephone
number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 1099 Hingham Street
Boston, MA 02107-2291 Rockland, MA 02370-1052

- ------------------------------------------------------------------------------------------------------------------------
Redeeming shares o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may have redemption
proceeds sent to your predesignated bank account, or redemption proceeds of up
to $50,000 sent to your address of record.
o By "Write- For Scudder Tax Free Money Fund, Scudder Limited Term Tax Free Fund and Scudder
A-Check" Medium Term Tax Free Fund, you may redeem shares by writing checks against your
account balance as often as you like for at least $100, but not more than
$5,000,000.
o By Mail Send your instructions for redemption to the appropriate address or fax number
or Fax above and include:
- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem; and
- your signature(s) as it appears on your account and a daytime telephone
number.

A signature guarantee is required for redemptions over $50,000. See Transaction
information--Redeeming shares following these tables.
o By Automatic You may arrange to receive automatic cash payments periodically if the value of
Withdrawal Plan your account is $10,000 or more. Call 1-800-225-5163 for more information and
an enrollment form.
</TABLE>

19
<PAGE>

Scudder High Yield Tax Free Fund (cont'd)
(Continued from page 17)

The Fund expects to invest primarily in medium-grade bonds. During periods
which, in the Adviser's opinion, require defensive investing, the Fund may
temporarily invest up to 100% of its assets in high-quality municipal securities
and high-quality short-term tax-exempt or taxable instruments.

Investments

Under normal market conditions, the Fund expects to invest 100% of its portfolio
assets in municipal securities, the interest income from which is, in the
opinion of bond counsel, free from regular federal income tax. These municipal
securities are debt obligations issued by or on behalf of states, territories
and possessions of the United States and the District of Columbia and their
subdivisions, agencies and instrumentalities. Such municipal securities include
municipal notes, which are generally used to provide short-term capital needs,
and have maturities of one year or less. Municipal notes include tax
anticipation notes, revenue anticipation notes and construction loan notes.

The Fund may also invest in municipal bonds, which meet longer-term capital
needs and generally have maturities of more than one year when issued. Municipal
bonds include general obligation bonds, revenue bonds, prerefunded bonds,
industrial development and pollution control bonds. General obligation bonds and
notes are secured by the issuer's pledge of its full faith, credit and taxing
power for payment of principal and interest. Revenue bonds and notes are
generally paid from the revenues of a particular facility or a specific excise
tax or other revenue source. The Fund may also invest in other municipal
securities such as variable rate demand instruments. The Fund does not invest
more than 25% of its assets in private activity bonds or taxable investments of
private sector companies in the same industry.

Under normal market conditions, the Fund expects to invest principally in
municipal securities with long-term maturities (i.e., more than 10 years). The
Fund has the flexibility, however, to invest in municipal securities with short-
and medium-term maturities as well. The Fund may invest more than 20% of its
total assets in taxable securities to meet temporary liquidity requirements.

The Fund may also invest in stand-by commitments and when-issued or forward
delivery securities and may also utilize various other strategic transactions.
See "Additional information about policies and investments" for more information
about these investment techniques.

The Fund's distributions from interest on certain municipal securities may be
subject to the alternative minimum tax depending upon investors' particular
situations. However, no more than 20% of the Fund's net assets will normally be
invested in municipal securities whose interest income, when distributed to
shareholders, is subject to the individual alternative minimum tax. In addition,
state and local taxes may apply, depending on your state tax laws.

Selecting among the Funds

The five tax-free Funds discussed in this prospectus have been presented in the
order of their place on the risk/return spectrum--from the least-risk Scudder
Tax Free Money Fund to Scudder High Yield Tax Free Fund, which has the highest
risk but also the highest return potential of the five. Investors should choose
the Fund or Funds that best match their own tolerance for risk and requirements
for tax-free income.

Scudder Tax Free Money Fund can be appropriate for investors looking for income
at today's tax-free money market rates while enjoying stability of principal.

20
<PAGE>

For many investors what is most appealing about this Fund is that it seeks to
maintain its share price at a constant net asset value of $1.00 per share. And
since it pays income that is normally 100% free from regular federal income tax,
investors normally retain the value of their initial investment, tax-free
earnings on that investment, plus earnings on those earnings, if dividends are
reinvested.

Scudder Limited Term Tax Free Fund is designed for investors seeking high
tax-free income consistent with a high degree of price stability. While price
and yield can fluctuate, the Fund may be appropriate for investors needing a
secondary cash reserve, monthly income or a long-term savings vehicle.

Investors may choose this Fund as an alternative to a tax-free money market
fund. While a tax-free money fund is managed for total price stability, it
generally offers lower and less stable yields than a short-term municipal bond
fund. Further, the Fund may appeal to investors concerned about market
volatility or the possibility of rising interest rates, who are willing to
accept somewhat lower yields than normally provided by a longer-term bond fund
in exchange for greater price stability.

Scudder Medium Term Tax Free Fund is designed for individual and institutional
investors who are looking for higher after-tax income than comparable taxable
investments can provide. The Fund seeks a higher level of income than tax-free
money market instruments normally offer, and greater price stability than is
generally available from longer-term municipal bonds. Over time, the Fund's
share price will fluctuate with changing market conditions. When interest rates
rise, the value of the securities held by this Fund will generally decline. A
fall in interest rates will usually lead to an increase in the value of those
securities. A fund with a maturity longer than Scudder Medium Term Tax Free Fund
will tend to have a higher yield but will exhibit greater share price
volatility; a fund with a shorter maturity will have a lower yield but offers
more price stability.

Scudder Medium Term Tax Free Fund's emphasis on high-grade securities is also
expected to limit share price volatility. The Fund's professional managers will
attempt to take advantage of market opportunities to achieve a higher total
return than would be available from an unmanaged portfolio of intermediate-term
municipal bonds.

Scudder Managed Municipal Bonds provides income exempt from regular federal
income tax so investors will normally be able to keep 100% of their investment
income. Investors also benefit from ongoing analysis and professional management
by Scudder, Stevens & Clark, Inc. Again, the Fund's professional managers
attempt to take advantage of market opportunities to achieve a higher total
return than unmanaged portfolios of municipal bonds. Typically, the Fund expects
to have a higher yield than the three tax-free funds described above because its
portfolio is usually invested in securities with longer maturities.

With its emphasis on investment-grade bonds, Scudder High Yield Tax Free Fund
offers a sensible approach to high tax-free yields. It is designed for investors
seeking the opportunity for yields higher than those normally offered by a fund
emphasizing investment in only highest-quality bonds, but unwilling to assume
the risk often associated with a fund emphasizing investment primarily in
non-investment-grade bonds. Depending on your tax bracket, you may earn a
substantially higher after-tax return from this Fund than from comparable
investments whose income is subject to federal taxes. For example, if you are a
high income taxpayer with a top federal income tax rate of 39.6% in 1993, you
would need to earn a taxable yield of 9.64% to receive after-tax income equal to
the 5.82% tax-free yield provided by Scudder High Yield Tax Free Fund for the
30-day period ended March 31, 1994.

21
<PAGE>

Selecting among the Funds (cont'd)

The yield levels of tax-free and taxable investments continually change. Before
investing in any of these Funds, you should compare their yields to the
after-tax yields you would receive from comparable investments paying taxable
income.

The Adviser maintains a large fixed-income research staff, has a long tradition
of independent municipal bond credit analysis and has over $9 billion in
municipal bond assets under management. In addition, each Fund offers all the
benefits of the Scudder Family of Funds including free checkwriting for Scudder
Tax Free Money Fund, Scudder Limited Term Tax Free Fund and Scudder Medium Term
Tax Free Fund. Scudder, Stevens & Clark, Inc. manages a diverse family of pure
no-load(TM) funds and provides a wide range of services to help investors meet
their investment needs. Please refer to "Investment products and services" for
additional information.

Additional information about policies and investments

Investment restrictions

Each of the five Funds has adopted certain fundamental policies which may not be
changed without a vote of shareholders and which are designed to reduce the
Funds' investment risk.

Each of the Funds may not borrow money except as a temporary measure for
extraordinary or emergency purposes. Each of the Funds, with the exception of
Scudder Medium Term Tax Free Fund, may not make loans except through the lending
of portfolio securities, the purchase of debt securities or through repurchase
agreements. Scudder Medium Term Tax Free Fund may not make loans except through
the purchase of debt securities or through repurchase agreements.

In addition, each Fund has adopted the following nonfundamental policies: each
Fund may not invest more than 10% of its net assets in securities which
are not readily marketable, restricted securities and repurchase
agreements maturing in more than seven days. Each Fund may not invest more than
5% of its net assets in restricted securities. Scudder Limited Term Tax Free
Fund may not make loans if the market value of securities loaned exceeds 30% of
the value of the Fund's total assets. A complete description of these and other
policies and restrictions is contained under "Investment Restrictions" in the
Funds' Statements of Additional Information.

When-issued securities

Each of the Funds may purchase securities on a when-issued or forward delivery
basis, for payment and delivery at a later date. The price and yield are
generally fixed on the date of commitment to purchase. During the period between
purchase and settlement, no interest accrues to the Fund. At the time of
settlement, the market value of the security may be more or less than the
purchase price.

Repurchase agreements

As a means of earning taxable income for periods as short as overnight, each of
the Funds, with the exception of Scudder Limited Term Tax Free Fund, may enter
into repurchase agreements with selected banks and broker/dealers. Under a
repurchase agreement, the Fund acquires securities, subject to the seller's
agreement to repurchase them at a specified time and price. Income from
repurchase agreements will be taxable when distributed to shareholders. See
"Risk factors."

Municipal lease obligations

Each of the Funds, with the exception of Scudder Tax Free Money Fund, may invest
in municipal lease obligations and participation interests in such obligations.
These obligations, which may take the form of a lease, an installment purchase
contract or a conditional sales contract, are issued by state and local

22
<PAGE>

governments and authorities to acquire land and a wide variety of equipment and
facilities. Generally, the Funds will not hold such obligations directly, but
will purchase a certificate of participation or other participation interest in
a municipal obligation from a bank or other financial intermediary. A
participation interest gives each Fund a proportionate interest in the
underlying obligation.

Stand-by commitments and other puts

To facilitate liquidity, each of the Funds, with the exception of Scudder
Limited Term Tax Free Fund, may enter into "stand-by commitments" permitting
them to resell municipal securities to the original seller at a specified price.
Stand-by commitments generally involve no cost, and any costs would be, in any
event, limited to no more than 0.5% of the value of the assets of each Fund. Any
such costs may, however, reduce yield.

Third party puts

Each of the Funds may purchase long-term fixed-rate bonds that have been coupled
with an option granted by a third party financial institution allowing a Fund at
specified intervals (not exceeding 397 calendar days in the case of Scudder Tax
Free Money Fund) to tender (or "put") its bonds to the institution and receive
the face value thereof. These third party puts are available in several
different forms, may be represented by custodial receipts or trust certificates
and may be combined with other features such as interest rate swaps. See "Risk
factors."

Variable rate demand instruments

Each of the Funds may also invest in variable rate demand instruments. Variable
rate demand instruments are securities with long-stated maturities but demand
features that allow the holder to demand 100% of the principal plus interest
within one to seven days. The coupon varies daily, weekly or monthly with the
market. The price remains at par and this provides a great deal of stability to
the portfolio at market yields.

Strategic Transactions and derivatives

Each of the Funds, with the exception of Scudder Tax Free Money Fund, may, but
is not required to, utilize various other investment strategies as described
below to hedge various market risks (such as interest rates and broad or
specific market movements), to manage the effective maturity or duration of a
Fund's portfolio, or to enhance potential gain. These strategies may be executed
through the use of derivative contracts. Such strategies are generally accepted
as a part of modern portfolio management and are regularly utilized by many
mutual funds and other institutional investors. Techniques and instruments may
change over time as new instruments and strategies are developed or regulatory
changes occur.

In the course of pursuing these investment strategies, a Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
fixed-income indices and other financial instruments, purchase and sell
financial futures contracts and options thereon, and enter into various interest
rate transactions such as swaps, caps, floors or collars (collectively, all the
above are called "Strategic Transactions"). Strategic Transactions may be used
without limit (except to the extent that 80% of each Fund's net assets are
required to be invested in tax-exempt municipal securities, and as limited by
each Fund's other investment restrictions) to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for a Fund's portfolio resulting from securities markets fluctuations, to
protect a Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of fixed-income securities in a Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Some Strategic Transactions may

23
<PAGE>

Additional information about policies and investments (cont'd)

also be used to enhance potential gain although no more than 5% of a Fund's
assets will be committed to Strategic Transactions entered into for non-hedging
purposes. Any or all of these investment techniques may be used at any time and
in any combination, and there is no particular strategy that dictates the use of
one technique rather than another, as use of any Strategic Transaction is a
function of numerous variables including market conditions. The ability of a
Fund to utilize these Strategic Transactions successfully will depend on the
Adviser's ability to predict pertinent market movements, which cannot be
assured. The Funds will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes. Please refer to "Risk
factors--Strategic Transactions and derivatives" for more information.

Risk factors

The Funds' risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that
certain Funds may use from time to time.

Debt securities. Securities rated Baa by Moody's or BBB by S&P or Fitch are
neither highly protected nor poorly secured. These securities normally pay
higher yields but involve potentially greater price variability than
high-quality securities. These securities are regarded as having adequate
capacity to repay principal and pay interest, although adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to do so. Moody's considers bonds it rates Baa to have speculative
elements as well as investment-grade characteristics.

Securities rated below Baa by Moody's or BBB by S&P or Fitch involve greater
price volatility and higher degrees of speculation with respect to the payment
of principal and interest. These securities involve greater risk of loss or
price changes due to changes in the issuer's capacity to pay. The market prices
of such lower-rated debt securities may decline significantly in periods of
general economic difficulty. In addition, the trading market for those
securities is generally less liquid than for higher-rated securities and a Fund
may have difficulty disposing of these securities at the time it may wish to do
so. The lack of a liquid secondary market for certain securities may also make
it more difficult for a Fund to obtain accurate market quotations for purposes
of valuing its portfolio and calculating its net asset value.

Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted ,
or the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the securities before
repurchase of the securities under a repurchase agreement, the Fund may
encounter delay and incur costs, including a decline in the value of the
securities, before being able to sell the securities.

Third party puts. In connection with third party puts, the financial institution
granting the option does not provide credit enhancement, and typically if there
is a default on or significant downgrading of the bond or a loss of its
tax-exempt status, the put option will terminate automatically, the risk to the
Fund will be that of holding a long-term bond and, in the case of Scudder Tax
Free Money Fund, the weighted average maturity of the Fund's portfolio would be
adversely affected.

24
<PAGE>

Municipal lease obligations. Municipal lease obligations and participation
interests in such obligations frequently have risks distinct from those
associated with general obligation or revenue bonds. Municipal lease obligations
are not secured by the governmental issuer's credit, and if funds are not
appropriated for lease payments, the lease may terminate, with the possibility
of default on the lease obligation and significant loss to the Funds. Although
"non-appropriation" obligations are secured by the leased property, disposition
of that property in the event of foreclosure might prove difficult, time
consuming and costly. In addition, the tax treatment of such obligations in the
event of non-appropriation is unclear. In evaluating the credit quality of a
municipal lease obligation that is unrated, the Adviser will consider a number
of factors including the likelihood that the governmental issuer will
discontinue appropriating funding for the leased property. For more information
please refer to the Funds' Statements of Additional Information.

Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to a Fund,
force the purchase or sale of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation a Fund can
realize on its investments or cause a Fund to hold a security it might otherwise
sell. The use of options and futures transactions entails certain other risks.
In particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures contracts and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that a Fund may
use and some of their risks are described more fully in each Fund's Statement of
Additional Information.

Distribution and performance information

Dividends and capital gains distributions

The Funds' dividends from net investment income are declared daily and
distributed monthly. The Funds intend to distribute net realized capital gains
after utilization of capital loss carryforwards, if any, in November or December
to avoid incurring federal excise tax. Any dividends or capital gains
distributions declared in October, November or December with a record date in
such a month and paid the following January will be treated by shareholders for
federal income tax purposes as if received on December 31 of the calendar year
declared.

25
<PAGE>

Distribution and performance information (cont'd)

According to preference, shareholders may receive distributions in cash or have
them reinvested in additional shares of the Fund.

Distributions of tax-exempt income are not subject to federal income taxes,
except for the possible applicability of the alternative minimum tax. However,
distributions may be subject to state and local income taxes. A portion of each
Fund's income, including income from repurchase agreements, gains from options,
and market discount bonds, may be taxable to shareholders as ordinary income.
Long-term capital gains distributions, if any, are taxable as long-term capital
gains regardless of the length of time shareholders have owned shares.
Short-term capital gains and any other taxable income distributions are taxable
as ordinary income. Distributions of tax-exempt income are taken into
consideration in computing the portion, if any, of Social Security and railroad
retirement benefits subject to federal and, in some cases, state taxes.

Each Fund sends detailed tax information about the amount and type of its
distributions to its shareholders by January 31 of the following year.

Performance information

From time to time, quotations of the Funds' performance may be included in
advertisements, sales literature, or shareholder reports. All performance
figures are historical, show the performance of a hypothetical investment and
are not intended to indicate future performance. "Total return" is the change in
value of an investment in a Fund for a specified period. The "average annual
total return" is the average annual compound rate of return of an investment in
a Fund assuming the investment has been held for one year, five years and ten
years as of a stated ending date. (If the Fund has not been in operation for at
least ten years, the life of the Fund will be used where applicable.)
"Cumulative total return" represents the cumulative change in value of an
investment in any of the Funds for various periods. These calculations assume
that all dividends and capital gains distributions during the period were
reinvested in shares of the Funds. The yield of Scudder Limited Term Tax Free
Fund, Scudder Medium Term Tax Free Fund, Scudder Managed Municipal Bonds and
Scudder High Yield Tax Free Fund refers to income generated by an investment in
the Fund over a specified 30-day (one month) period. The yield of Scudder Tax
Free Money Fund refers to the income generated by an investment in the Fund over
a specified seven-day period. Each Fund's tax-equivalent yield is calculated by
determining the rate of return that would have to be achieved on a fully taxable
investment to produce the after-tax equivalent of the Fund's yield, assuming
certain tax brackets for a Fund shareholder. Yields for all five Funds are
expressed as annualized percentages. The effective yield of Scudder Tax Free
Money Fund is expressed similarly but, when annualized, the income earned by an
investment in that Fund is assumed to be reinvested and will reflect the effects
of compounding.

Performance for any of the five Funds will vary based upon, among other things,
changes in market conditions and the level of the Funds' expenses.

Fund organization

Scudder Tax Free Money Fund, Scudder Tax Free Trust and Scudder Municipal Trust
(the "Trusts") are diversified, open-end management investment companies
registered under the Investment Company Act of 1940 (the "1940 Act"). The Trusts
were organized as Massachusetts business trusts in October 1979, December 1982
and September 1976, respectively. Scudder Limited Term Tax Free Fund and Scudder

26
<PAGE>

Summary of important features
<TABLE>
<CAPTION>
Scudder Scudder Scudder Scudder
Scudder Limited Term Medium Term Managed Municipal High Yield
Tax Free Money Fund Tax Free Fund Tax Free Fund Bonds Tax Free Fund
------------------- ------------- ------------- ----- -------------
<S> <C> <C> <C> <C> <C>
Investment o money market o higher and more o higher o income exempt o high tax-free
objectives and fund income stable level of tax-free from regular income
characteristics exempt from federally income than federal income
regular federal tax-free income generally tax
income tax than normally available from
provided by tax-free money
tax-free money market funds
market
investments

o stability of o more price o more price o net asset value o potentially
principal stability than stability than fluctuates with greater price
investments in investments in level of variability
intermediate- long-term interest rates
and long-term municipal bonds
municipal bonds

Investments o short-term o shorter-term, o intermediate- o primarily o primarily
municipal high-grade term municipal long-term long-term
securities municipal securities municipal municipal
securities securities securities

o dollar-weighted o dollar-weighted
average average
maturity of 90 effective
days or less maturity of
between one and
five years

Quality o 100% of o normally at o normally at o at least 75% of o at least 65% of
investments least 80% of least 80% of investments investments
rated within investments investments rated within rated within top
top two quality rated within rated within top three four quality
ratings, or top three top three quality ratings, or
judged to be of quality quality ratings, or equivalent
comparable ratings, or ratings, or equivalent
quality equivalent equivalent

o 100% of
municipal
securities
rated within
top four
quality
ratings, or
equivalent

Dividends Dividends for all five funds are declared daily and paid monthly.
Shareholders may choose to reinvest their dividends or receive them in cash.

</TABLE>

27
<PAGE>

Fund organization (cont'd)

Medium Term Tax Free Fund are series of Scudder Tax Free Trust. Scudder High
Yield Tax Free Fund and Scudder Managed Municipal Bonds are series of Scudder
Municipal Trust.

The activities of the Funds are supervised by their respective Boards of
Trustees. Shareholders have one vote for each share held on matters on which
they are entitled to vote. The Trusts are not required and have no current
intention of holding annual shareholder meetings, although special meetings may
be called for purposes such as electing or removing Trustees, changing
fundamental investment policies or approving an investment advisory contract.
Shareholders will be assisted in communicating with other shareholders in
connection with removing a Trustee as if Section 16(c) of the 1940 Act were
applicable.

The prospectuses of each of the five Funds are combined in this prospectus. Each
Fund offers only its own shares, yet it is possible that a Fund might become
liable for a misstatement or omission regarding another Fund. The Trustees of
each Trust have considered this and approved the use of a combined prospectus.

Investment adviser

The Funds retain the investment management firm of Scudder, Stevens & Clark,
Inc., a Delaware corporation, to manage the Funds' daily investment and business
affairs subject to the policies established by their respective Boards of
Trustees. The Trustees have overall responsibility for the management of their
respective funds under Massachusetts law.

The management fee payable under the current Investment Management Agreement
with Scudder Limited Term Tax Free Fund is 0.60% of the Fund's average daily net
assets on an annual basis.

The management fees for Scudder Tax Free Money Fund, Scudder Medium Term Tax
Free Fund, Scudder Managed Municipal Bonds and Scudder High Yield Tax Free Fund
are graduated so that increases in a Fund's net assets may result in a lower fee
and decreases in a Fund's net assets may result in a higher fee.

The management fees are payable monthly, provided that each Fund will make such
interim payments as may be requested by the Adviser not to exceed 75% of the
amount of the fee then accrued on the books of the Fund and unpaid.

For Scudder Medium Term Tax Free Fund, Scudder Limited Term Tax Free Fund and
Scudder High Yield Tax Free Fund, the Adviser has agreed not to impose all or a
portion of its investment management fee and to take other action, to the extent
necessary, to maintain the annualized expenses of Scudder Medium Term Tax Free
Fund at 0.70% of average daily net assets of the Fund until April 30, 1995, for
Scudder Limited Term Tax Free Fund at 0.25% of average daily net assets until
August 31, 1995, and for Scudder High Yield Tax Free Fund at 0.80% of average
daily net assets until April 30, 1995.

For the fiscal year ended December 31, 1994, the Adviser received
investment management fees of 0.50%, 0.51%, 0.47 % and 0.52 % of the
average daily net assets on an annualized basis of Scudder Tax Free Money Fund,
Scudder Managed Municipal Bonds, Scudder Medium Term Tax Free Fund and
Scudder High Yield Tax Free Fund, respectively. For the fiscal period
ended October 31, 1994 the Adviser did not receive an investment management fee
from Scudder Limited Term Tax Free Fund.

All of a Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.

Scudder, Stevens & Clark, Inc. is located at Two International Place, Boston,
Massachusetts.

28
<PAGE>

Transfer agent

Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
wholly-owned subsidiary of the Adviser, is the transfer, shareholder servicing
and dividend-paying agent for the Funds.

Underwriter

Scudder Investor Services, Inc., a wholly-owned subsidiary of the Adviser, is
the Fund's principal underwriter. Scudder Investor Services, Inc. confirms, as
agent, all purchases of shares of the Fund. Scudder Investor Relations is a
telephone information service provided by Scudder Investor Services, Inc.

Custodian

State Street Bank and Trust Company is the custodian for the Funds.

Transaction information

Purchasing shares

Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent in Boston receives the purchase request in good order.
Purchases are made in full and fractional shares. (See "Share price.")

By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared,
which may take up to seven business days. If you purchase shares by federal
funds wire, you may avoid this delay. Redemption or exchange requests by
telephone, or by "Write-A-Check" in the case of Scudder Tax Free Money Fund,
Scudder Limited Term Tax Free Fund and Scudder Medium Term Tax Free Fund, prior
to the expiration of the seven-day period will not be accepted.

By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent in Boston. Accounts cannot
be opened without a completed, signed application and a Scudder fund account
number. Contact your bank to arrange a wire transfer to:

The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552

Your wire instructions must also include:

- -- the name of the fund in which the money is to be invested,

- -- the account number of the fund, and

- -- the name(s) of the account holder(s).

The account will be established once the application and money order are
received in good order.

You may also make additional investments of $100 or more to your existing
account by wire.

By exchange. Your new account will have the same registration and address as
your existing account.

The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.

You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.

Redeeming shares

The Funds allow you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.

By telephone. This is the quickest and easiest way to sell Fund shares. If you
elected telephone redemption to your bank on your application, you can call to
request that federal funds be sent to your authorized bank account. If you did

29
<PAGE>

Transaction information (cont'd)

not elect telephone redemption to your bank on your application, call
1-800-225-5163 for more information.

Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.

You can also make redemptions from your Scudder fund account on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.

If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.

In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.

Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $50,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (Each Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations, or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.

By "Write-A-Check." You may redeem shares of Scudder Tax Free Money Fund,
Scudder Limited Term Tax Free Fund and Scudder Medium Term Tax Free Fund by
writing checks against your account balance for at least $100. Your Fund
investments will continue to earn dividends until your check is presented to the
Fund for payment.

Checks will be returned by the Fund's transfer agent if there are insufficient
shares to meet the withdrawal amount. You should not attempt to close an account
by check, because the exact balance at the time the check clears will not be
known when the check is written.

Telephone transactions

Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $50,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. Each Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If a Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. Each Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.

Share price

Purchases and redemptions, including exchanges, are made at net asset value. For
each of the Funds, Scudder Fund Accounting Corporation, a wholly-owned
subsidiary of the Adviser, determines net asset value per share as of the close
of regular trading on the New York Stock Exchange (the "Exchange"), normally 4
p.m. eastern time, on each day the Exchange is open for trading. For Scudder Tax
Free Money Fund, Scudder Fund Accounting Corporation also determines net asset

30
<PAGE>

value per share as of noon, eastern time, on each day the Exchange is open for
trading. Net asset value per share is calculated for purchases and redemptions
by dividing the value of total Fund assets, less all liabilities, by the total
number of shares outstanding. In calculating the net asset value per share, each
Fund uses the current market value of the securities, except that Scudder Tax
Free Money Fund uses the amortized cost value.

Processing time

For Scudder Limited Term Tax Free Fund, Scudder Medium Term Tax Free Fund,
Scudder Managed Municipal Bonds and Scudder High Yield Tax Free Fund all
purchase and redemption requests must be received in good order by the Funds'
transfer agent in Boston. Requests received by the close of regular trading on
the Exchange are executed at the net asset value per share calculated at the
close of trading that day. Purchase and redemption requests received after the
close of regular trading on the Exchange will be executed the following business
day. Purchases made by federal funds wire before noon eastern time will begin
earning income that day; all other purchases received before the close of
regular trading on the Exchange will begin earning income the next business day.
Redeemed shares will earn income on the day on which the redemption request is
executed.

If you wish to make a purchase of $500,000 or more you should notify the Funds'
transfer agent of such a purchase by calling 1-800-225-5163.

For Scudder Tax Free Money Fund, purchases made by wire and received by the
Fund's transfer agent before noon on any business day are executed at noon on
that day and begin earning income the same day. Those made by wire between noon
and the close of regular trading on the Exchange on any business day are
executed at the close of trading the same day and begin earning income the next
business day. Purchases made by check are executed on the day the check is
received in good order by the Fund's transfer agent in Boston and begin earning
income on the next business day. Redemption requests received in good order by
the Fund's transfer agent between noon and the close of regular trading on the
Exchange are executed at the net asset value calculated at the close of regular
trading on that day and will earn a dividend on the redeemed shares that day. If
a redemption request is received by noon, proceeds will normally be wired that
day, if requested by the shareholder, but no dividend will be earned on the
redeemed shares on that day.

The Trusts will normally send redemption proceeds within one business day
following the redemption request, but may take up to seven days (or longer in
the case of shares recently purchased by check).

Short-term trading

Purchases and sales should be made for long-term investment purposes only.
Scudder Limited Term Tax Free Fund, Scudder Medium Term Tax Free Fund, Scudder
Managed Municipal Bonds, Scudder High Yield Tax Free Fund and Scudder Investor
Services, Inc. each reserves the right to restrict purchases of a Fund's shares
(including exchanges) when a pattern of frequent purchases and sales made in
response to short-term fluctuations in a Fund's share price appears evident.

Tax information

A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes
(although no gain or loss will be realized in the case of a redemption or
exchange of shares of Scudder Tax Free Money Fund if it maintains a constant net
asset value per share).

Tax identification number

Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires these Funds to
withhold 31% of taxable dividends, capital gains distributions and, except in
the case of Scudder Tax Free Money Fund, redemption and exchange proceeds from

31
<PAGE>

Transaction information (cont'd)

accounts (other than those of certain exempt payees) without a certified Social
Security or tax identification number and certain other certified information or
upon notification from the IRS or a broker that withholding is required. The
Funds reserve the right to reject new account applications without a certified
Social Security or tax identification number. The Funds also reserve the right,
following 30 days' notice to shareholders, to redeem all shares in accounts
without a certified Social Security or tax identification number. A shareholder
may avoid involuntary redemption by providing the Fund with a tax identification
number during the 30-day notice period.

Minimum balances

Shareholders should maintain a share balance worth at least $1,000, which amount
may be changed by the Board of Trustees of Scudder Tax Free Money Fund and
Scudder Municipal Trust. The Funds reserve the right, following 60 days' written
notice to shareholders, to redeem all shares in sub-minimum accounts, including
accounts of new investors, where a reduction in value has occurred due to a
redemption or exchange out of the account. Reductions in value that result
solely from market activity will not trigger an involuntary redemption. The
Funds will mail the proceeds of the redeemed account to the shareholder. The
shareholder may restore the share balance to $1,000 or more during the 60-day
notice period and must maintain it at no lower than that minimum to avoid
involuntary redemption.

Third party transactions

If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.

Shareholder benefits

Experienced professional management

Scudder, Stevens & Clark, Inc., one of the nation's most experienced investment
management firms, actively manages your Scudder fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.

A team approach to investing

Each of the Funds is managed by a team of Scudder investment professionals who
each play an important role in the Fund's management process. Team members work
together to develop investment strategies and select securities for the Fund's
portfolio. They are supported by Scudder's large staff of economists, research
analysts, traders and other investment specialists who work in Scudder's offices
across the United States and abroad. Scudder believes its team approach benefits
Fund investors by bringing together many disciplines and leveraging Scudder's
extensive resources.

Donald C. Carleton is Lead Portfolio Manager for Scudder Medium Term Tax Free
Fund and Scudder Managed Municipal Bonds and also serves as Portfolio Manager
for Scudder Tax Free Money Fund and Scudder Limited Term Tax Free Fund. Mr.
Carleton has been a portfolio manager at Scudder since he joined the firm in
1983.

M. Ashton Patton, Lead Portfolio Manager for Scudder Limited Term Tax Free Fund,
has overseen the Fund's investment strategy and daily operations since the Fund
was introduced in 1994. Ms. Patton , who joined Scudder in 1986 and has been a
portfolio manager since 1990, is also a Portfolio Manager for the Scudder
Medium Term Tax Free Fund.

32
<PAGE>

Philip Condon, Lead Portfolio Manager for Scudder High Yield Tax Free Fund, has
had responsibility for the Fund's daily operation since its inception in 1987.
Mr. Condon joined Scudder in 1983 and also serves as Portfolio Manager for
Scudder Managed Municipal Bonds.

K. Sue Cote, Lead Portfolio Manager for Scudder Tax Free Money Fund, joined
Scudder in 1983 as a research assistant and assumed responsibility for the
Fund's investment strategy and operations in 1986.

Kimberley R. Manning, Portfolio Manager for Scudder High Yield Tax Free Fund,
became a member of the team as a municipal bond trader in 1987 when she joined
Scudder. In 1991, she assumed responsibilities of portfolio manager.

SAIL(TM)--Scudder Automated Information Line

For touchtone access to account information, prices and yields, or to perform
transactions in existing Scudder fund accounts, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890. During periods of extreme
economic or market changes, or other conditions, it may be difficult for you to
effect telephone transactions in your account. In such an event you should write
to the Fund; please see "How to contact Scudder" for the address.

Investment flexibility

Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. Telephone and
fax redemptions and exchanges are subject to termination and their terms are
subject to change at any time by the Fund or the transfer agent. In some cases,
the transfer agent or Scudder Investor Services, Inc. may impose additional
conditions on telephone transactions.

Dividend reinvestment plan

You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.

Shareholder statements

You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.

Shareholder reports

In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.

To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.

Newsletters

Four times a year, Scudder sends you At the Helm, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.

Scudder Funds Centers

As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
Cincinnati, Los Angeles, New York, Portland (OR), San Diego, San Francisco and
Scottsdale.

T.D.D. service for the hearing impaired

Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.

33
<PAGE>

Scudder tax-advantaged retirement plans

Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.

* Scudder No-Fee IRA
* Keogh Plans
* 401(k) Plans
* Profit Sharing and Money Purchase Pension Plans
* 403(b) Plans
* SEP-IRA
* Scudder Horizon Plan (a variable annuity)

Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA, Profit Sharing
or Pension Plan accounts, call 1-800-225-5163.

The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State, Nevada
and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is the
Principal Underwriter. Scudder Horizon Plan is not available in all states.

34
<PAGE>

Trustees and Officers

David S. Lee*
President and Trustee

Juris Padegs*
Vice President (2) and Trustee

Daniel Pierce*
Vice President (1) and Trustee (1)

Henry P. Becton, Jr.
Trustee (1); President and General Manager, WGBH Educational Foundation

E. Michael Brown*
Trustee (2)

Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director

Peter B. Freeman
Trustee; Corporate Director and Trustee

Dudley H. Ladd*
Trustee (1)

George M. Lovejoy, Jr.
Trustee (1,2); Chairman Emeritus, Meredith & Grew, Incorporated

Wesley W. Marple, Jr.
Trustee (1,3); Professor of Business
Administration, Northeastern University
College of Business Administration

Jean C. Tempel
Trustee (2,3); Director, Executive Vice
President and Manager, Safeguard
Scientifics Inc.

Donald C. Carleton*
Vice President

Cuyler W. Findlay*
Vice President (1)

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

Edward J. O'Connell*
Vice President and Assistant Treasurer

Coleen Downs Dinneen*
Assistant Secretary

(1) Scudder Municipal Trust
(2) Scudder Tax Free Money Fund
(3) Scudder Tax Free Trust
All funds unless otherwise indicated.
* Scudder, Stevens & Clark, Inc.

35
<PAGE>

Investment products and services
<TABLE>
<S> <C>
The Scudder Family of Funds Income
Money market Scudder Emerging Markets Income Fund
Scudder Cash Investment Trust Scudder GNMA Fund
Scudder U.S. Treasury Money Fund Scudder Income Fund
Tax free money market+ Scudder International Bond Fund
Scudder Tax Free Money Fund Scudder Short Term Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Global Income Fund
Scudder New York Tax Free Money Fund* Scudder Zero Coupon 2000 Fund
Tax free+ Growth
Scudder California Tax Free Fund* Scudder Capital Growth Fund
Scudder High Yield Tax Free Fund Scudder Development Fund
Scudder Limited Term Tax Free Fund Scudder Global Fund
Scudder Managed Municipal Bonds Scudder Global Small Company Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Gold Fund
Scudder Massachusetts Tax Free Fund* Scudder Greater Europe Growth Fund
Scudder Medium Term Tax Free Fund Scudder International Fund
Scudder New York Tax Free Fund* Scudder Latin America Fund
Scudder Ohio Tax Free Fund* Scudder Pacific Opportunities Fund
Scudder Pennsylvania Tax Free Fund* Scudder Quality Growth Fund
Growth and Income Scudder Value Fund
Scudder Balanced Fund The Japan Fund
Scudder Growth and Income Fund
Retirement Plans and Tax-Advantaged Investments
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan*+++ (a variable annuity) Profit Sharing and
401(k) Plans Money Purchase Pension Plans
Closed-end Funds#
The Argentina Fund, Inc. Scudder New Europe Fund, Inc.
The Brazil Fund, Inc. Scudder World Income Opportunities Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc. Institutional Cash Management
The Latin America Dollar Income Fund, Inc. Scudder Institutional Fund, Inc.
Montgomery Street Income Securities, Inc. Scudder Fund, Inc.
Scudder New Asia Fund, Inc. Scudder Treasurers Trust(TM)++

For complete information on any of the above Scudder funds, including management fees and expenses, call or write for a
free prospectus. Read it carefully before you invest or send money. +A portion of the income from the tax-free funds
may be subject to federal, state and local taxes. *Not available in all states. +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are traded on various stock exchanges. ++For
information on Scudder Treasurers Trust(TM), an institutional cash management service that utilizes certain portfolios of
Scudder Fund, Inc. ($100,000 minimum), call: 1-800-541-7703.

</TABLE>

36
<PAGE>

How to contact Scudder
<TABLE>
<S> <C> <C>

Account Service and Information: Please address all correspondence to:
Scudder Investor The Scudder Funds
For existing account service Relations P.O. Box 2291
and transactions 1-800-225-5163 Boston, Massachusetts
02107-2291
For account updates, prices, Scudder Automated
yields, exchanges and Information Line (SAIL)
redemptions 1-800-343-2890

Investment Information: Or Stop by a Scudder Funds Center:
Scudder Investor
To receive information about Relations Many shareholders enjoy the personal, one-on-one
the Scudder funds, for 1-800-225-2470 service of the Scudder Funds Centers. Check for a
additional applications and Funds Center near you--they can be found in the
prospectuses, or for investment following cities:
questions

For establishing 401(k) and Scudder Defined Boca Raton New York
403(b) plans Contribution Services Boston Portland, OR
1-800-323-6105 Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale

For information on Scudder Treasurers Trust(TM), an For information on Scudder Institutional Funds*, funds
institutional cash management service for corporations, designed to meet the broad investment management and
non-profit organizations and trusts which utilizes service needs of banks and other institutions, call:
certain portfolios of Scudder Fund, Inc.* ($100,000 1-800-854-8525.
minimum), call: 1-800-541-7703.
</TABLE>

Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.

* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees and
expenses. Please read it carefully before you invest or send money.

37
<PAGE>

SCUDDER TAX FREE MONEY FUND

(A Pure No-Load(TM) Diversified Investment Company Specializing
in the Management of a Portfolio of High-Quality, Short-Term Securities
Exempt from Federal Income Taxes Which Seeks to Maintain
a Constant Net Asset Value of $1.00 Per Share)

and

SCUDDER LIMITED TERM TAX FREE FUND

A Pure No-Load(TM) (No Sales Charges) Diversified Mutual Fund
Which Seeks to Provide as High a Level of Income Exempt
From Regular Federal Income Tax as is Consistent
With a High Degree of Principal Stability

and

SCUDDER MEDIUM TERM TAX FREE FUND

(A Pure No-Load(TM) Diversified Investment Company Specializing
in the Management of a Portfolio Primarily of High-Grade,
Intermediate-Term Municipal Securities Exempt
From Federal Income Taxes, with an Emphasis on
Limited Principal Fluctuation)

and

SCUDDER MANAGED MUNICIPAL BONDS

(A Series of a Pure No-Load(TM) Diversified Investment Company
Specializing in the Management of a Portfolio of
Primarily High-Grade, Long-Term
Municipal Securities)

and

SCUDDER HIGH YIELD TAX FREE FUND

(A Series of a Pure No-Load(TM) Diversified Investment Company
Specializing in the Management of a Municipal Bond
Portfolio of Primarily Investment-
Grade Municipal Securities)

- --------------------------------------------------------------------------------

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1995

- --------------------------------------------------------------------------------

This combined Statement of Additional Information is not a prospectus
and should be read in conjunction with the combined prospectus of Scudder Tax
Free Money Fund, Scudder Medium Term Tax Free Fund, Scudder Managed Municipal
Bonds, Scudder High Yield Tax Free Fund, each dated May 1, 1995, and
Scudder Limited Term Tax Free Fund, dated March 1, 1995, as amended from
time to time, copies of which may be obtained without charge by writing to
Scudder Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103.

<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
THE FUNDS AND THEIR OBJECTIVES........................................................................................1
General Investment Objectives and Policies of Scudder Tax Free Money Fund....................................1
General Investment Objective and Policies of Scudder Limited Term Tax Free Fund....................... 3
General Investment Objectives and Policies of Scudder Medium Term Tax Free Fund..............................5
General Investment Objective and Policies of Scudder Managed Municipal Bonds.................................6
General Investment Objective and Policies of Scudder High Yield Tax Free Fund................................8
Investments and Investment Techniques Common to the Funds...................................................11
Trustees' Power to Change Objectives and Policies...........................................................22
Investment Restrictions.....................................................................................22

PURCHASES............................................................................................................30
Additional Information About Opening an Account.............................................................30
Checks......................................................................................................31
Wire Transfer of Federal Funds..............................................................................31
Share Price.................................................................................................31
Share Certificates..........................................................................................31
Other Information...........................................................................................32

EXCHANGES AND REDEMPTIONS............................................................................................32
Exchanges...................................................................................................32
Redemption by Telephone.....................................................................................33
Redemption by Mail or Fax...................................................................................34
Redemption by Write-A-Check.................................................................................34
Other Information...........................................................................................34

FEATURES AND SERVICES OFFERED BY THE FUNDS...........................................................................35
The Pure No-Load(TM) Concept................................................................................35
Distribution Plans..........................................................................................36
Scudder Funds Centers.......................................................................................36
Reports to Shareholders.....................................................................................36
Diversification.............................................................................................37
Transaction Summaries.......................................................................................37

SCUDDER FAMILY OF FUNDS..............................................................................................37

SPECIAL PLAN ACCOUNTS................................................................................................40
Automatic Withdrawal Plan...................................................................................40
Cash Management System - Group Sub-Accounting Plan for Trust Accounts,
Nominees and Corporations..............................................................................41
Automatic Investment Plan...................................................................................41
Uniform Transfers/Gifts to Minors Act.......................................................................41
Scudder Trust Company.......................................................................................41

DIVIDENDS............................................................................................................41
Scudder Tax Free Money Fund.................................................................................41
Scudder Limited Term Tax Free Fund, Scudder Medium Term Tax Free Fund,
Scudder Managed Municipal Bonds and Scudder High Yield Tax Free Fund...................................42

i
<PAGE>

PERFORMANCE INFORMATION..............................................................................................43
Scudder Tax Free Money Fund.................................................................................43
Yield..............................................................................................43
Effective Yield....................................................................................43
Tax-Equivalent Yield...............................................................................43
Scudder Limited Term Tax Free Fund, Scudder Medium Term Tax Free Fund,
Scudder Managed Municipal Bonds and Scudder High Yield Tax Free Fund...................................44
Average Annual Total Return........................................................................44
Cumulative Total Return............................................................................45
Total Return.......................................................................................45
Yield..............................................................................................46
Tax-Equivalent Yield...............................................................................46
Tax-Exempt Income vs. Taxable Income........................................................................47
Comparison of Portfolio Performance.........................................................................47

ORGANIZATION OF THE FUNDS............................................................................................51

INVESTMENT ADVISER...................................................................................................52
Personal Investments by Employees of the Adviser............................................................56

TRUSTEES AND OFFICERS................................................................................................56

REMUNERATION.........................................................................................................60

DISTRIBUTOR..........................................................................................................60

TAXES................................................................................................................61

PORTFOLIO TRANSACTIONS...............................................................................................65
Brokerage...................................................................................................65
Portfolio Turnover..........................................................................................66

NET ASSET VALUE......................................................................................................66
Scudder Tax Free Money Fund.................................................................................66
Scudder Limited Term Tax Free Fund, Scudder Medium Term Tax Free Fund,
Scudder Managed Municipal Bonds and Scudder High Yield Tax Free Fund...................................66

ADDITIONAL INFORMATION...............................................................................................67
Experts.....................................................................................................67
Shareholder Indemnification.................................................................................67
Ratings of Municipal Obligations............................................................................68
Commercial Paper Ratings....................................................................................69
Glossary....................................................................................................69
Other Information...........................................................................................70

FINANCIAL STATEMENTS.................................................................................................72
Scudder Tax Free Money Fund.................................................................................72
Scudder Limited Term Tax Free Fund..........................................................................72
Scudder Medium Term Tax Free Fund...........................................................................72
Scudder Managed Municipal Bonds.............................................................................72
Scudder High Yield Tax Free Fund............................................................................72
</TABLE>

ii
<PAGE>

THE FUNDS AND THEIR OBJECTIVES

(See "Scudder Tax Free Money Fund --
Investment objectives and policies" and "Investments,"

"Scudder Limited Term Tax Free Fund --
Investment objectives and policies," and "Investments"

"Scudder Medium Term Tax Free Fund --
Investment objectives and policies," and "Investments,"
"Scudder Managed Municipal Bonds --
Investment objectives and policies" and "Investments,"
"Scudder High Yield Tax Free Fund --
Investment objectives and policies" and "Investments,"
and "Additional information
about policies and investments"
in the Funds' prospectus.)

Scudder Tax Free Money Fund sometimes is referred to herein as "STFMF."
Scudder Tax Free Trust, the Massachusetts business trust of which Scudder
Limited Term Tax Free Fund and Scudder Medium Term Tax Free Fund are series,
is referred to herein as "STFT." Scudder Limited Term Tax Free Fund, a series
of STFT, sometimes is referred to herein as "SLTTFF." Scudder Medium Term
Tax Free Fund, a series of STFT, sometimes is referred to herein as "SMTTFF."
Scudder Municipal Trust, the Massachusetts business trust of which Scudder
Managed Municipal Bonds and Scudder High Yield Tax Free Fund are series, is
referred to herein as "SMT." Scudder Managed Municipal Bonds, a series of SMT,
sometimes is referred to herein as "SMMB." Scudder High Yield Tax Free Fund, a
series of SMT, is sometimes referred to herein as "SHYTFF." STFMF,
SLTTFF , SMTTFF, SMMB and SHYTFF sometimes are referred to individually as
a "Fund" and jointly as "the Funds."

General Investment Objectives and Policies of Scudder Tax Free Money Fund

Scudder Tax Free Money Fund is a pure no-load(TM) open-end diversified
investment company. The investment objectives of STFMF are to provide to its
shareholders income exempt from regular federal income tax while seeking
stability of principal. STFMF pursues these objectives through the professional
management of a high quality portfolio consisting primarily of municipal
securities (as defined below under "Investments and Investment Techniques Common
to the Funds--Municipal Securities") having remaining maturities of 397 days or
less with a dollar-weighted average portfolio maturity of 90 days or less. STFMF
seeks to maintain a constant net asset value of $1.00 per share, although in
certain circumstances this may not be possible. Unless otherwise specified, the
investment objectives and policies of STFMF can be changed by the Trustees
without a vote of a majority of the Fund's outstanding voting securities. There
can be no assurance that STFMF's objectives will be achieved or that income to
shareholders which is exempt from federal income tax will be exempt from state
and local taxes. No more than 20% of STFMF's net assets will normally be
invested in municipal securities whose interest income is subject to the
individual alternative minimum tax.

STFMF's Investments. All of STFMF's assets will consist of municipal securities,
temporary investments in taxable securities as described below, and cash. STFMF
will invest in municipal securities which are rated at the time of purchase by
Moody's Investors Service, Inc. ("Moody's") within its two highest ratings for
municipal obligations--Aaa and Aa, or within Moody's short-term municipal
obligations top ratings of MIG 1 and MIG 2, are rated at the time of purchase by
Standard & Poor's ("S&P") within S&P's two highest ratings for municipal
obligations--AAA/AA and SP-1+/SP-1--or are rated at the time of purchase by
Fitch Investors Service, Inc. ("Fitch") within Fitch's two highest ratings for
municipal obligations-AAA/AA or within Fitch's highest short term rating of F-1
and F-2, all in such proportions as management will determine. The Fund also may
invest in securities rated within the two highest ratings by only one of those
rating agencies if no other rating agency has rated the security. In some cases,
short-term municipal obligations are rated using the same categories as are used
for corporate obligations. For a description of ratings for municipal and
corporate obligations, see "ADDITIONAL INFORMATION--Ratings of Municipal and
Corporate Bonds, Commercial Paper Ratings." In addition, unrated municipal
securities will be considered as being within the foregoing quality ratings if
the issuer, or other equal or junior municipal securities of the same issuer,
has a rating within the foregoing ratings of Moody's, S&P or Fitch. STFMF may
also invest in municipal securities which are unrated if, in the opinion of
Scudder, Stevens & Clark, Inc. (the "Adviser"), such securities possess
creditworthiness comparable to those rated securities in which STFMF may invest.

<PAGE>

Subsequent to its purchase by STFMF, an issue of municipal securities
may cease to be rated or its rating may be reduced below the minimum required
for purchase by STFMF. The Adviser will dispose of any such security unless the
Board of Trustees of the Fund determines that such disposal would not be in the
best interests of the Fund. To the extent that the ratings accorded by Moody's,
S&P or Fitch for municipal securities may change as a result of changes in these
rating systems, STFMF will attempt to use comparable ratings as standards for
its investment in municipal securities in accordance with the investment
policies contained herein.

From time to time on a temporary basis or for defensive purposes, STFMF
may, subject to its investment restrictions, hold cash and invest temporarily in
taxable investments which mature in one year or less at the time of purchase,
consisting of (1) other obligations issued by or on behalf of municipal or
corporate issuers; (2) U.S. Treasury notes, bills and bonds; (3) obligations of
agencies and instrumentalities of the U.S. Government; (4) money market
instruments, such as domestic bank certificates of deposit, finance company and
corporate commercial paper, and banker's acceptances; and (5) repurchase
agreements (agreements under which the seller agrees at the time of sale to
repurchase the security at an agreed time and price) with respect to any of the
obligations which the Fund is permitted to purchase. STFMF will not invest in
instruments issued by banks or savings and loan associations unless at the time
of investment such issuers have total assets in excess of $1 billion (as of the
date of their most recently published annual financial statements). Commercial
paper investments will be limited to commercial paper rated A1+ and A1 by S&P,
Prime 1 by Moody's or F-1 by Fitch. STFMF may hold cash or invest temporarily in
taxable investments due, for example, to market conditions or pending investment
of proceeds of subscriptions for shares of STFMF or proceeds from the sale of
portfolio securities or in anticipation of redemptions. However, STFMF expects
to invest such proceeds in municipal securities as soon as practicable. Interest
income from temporary investments may be taxable to shareholders as ordinary
income.

STFMF may acquire other types of securities, such as common and
preferred stocks and corporate bonds, in connection with the merger or
consolidation with, or acquisition of the assets of, another investment company
or personal holding company. In no case will STFMF acquire them if more than 20%
of the Fund's total assets would consist of such securities, cash and temporary
taxable investments. STFMF would issue its shares at net asset value in
connection with such a merger, consolidation or acquisition.

Maintenance of Constant Net Asset Value. Pursuant to a Rule of the Securities
and Exchange Commission (the "SEC") STFMF uses the amortized cost method of
valuing its investments, which facilitates the maintenance of the Fund's per
share net asset value at $1.00. The amortized cost method, which is used to
value all of STFMF's portfolio securities, involves initially valuing a security
at its cost and thereafter amortizing to maturity any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument.

Consistent with the provisions of the Rule, STFMF maintains a
dollar-weighted average portfolio maturity of 90 days or less, purchases only
instruments having remaining maturities of 397 days or less, and invests only in
securities determined by or under the direction of the Trustees to be of high
quality with minimal credit risks.

The Trustees have also established procedures designed to stabilize, to
the extent reasonably possible, STFMF's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures include review of
STFMF's portfolio by the Trustees, at such intervals as they deem appropriate,
to determine whether the Fund's net asset value calculated by using available
market quotations or market equivalents (the determination of value by reference
to interest rate levels, quotations of comparable securities and other factors)
deviates from $1.00 per share based on amortized cost. Market quotations and
market equivalents used in such review may be obtained from an independent
pricing service approved by the Trustees.

The extent of deviation between STFMF's net asset value based upon
available market quotations or market equivalents and $1.00 per share based on
amortized cost will be periodically examined by the Trustees. If such deviation
exceeds 1/2 of 1%, the Trustees will promptly consider what action, if any, will
be initiated. In the event the Trustees determine that a deviation exists which
may result in material dilution or in other unfair results to investors or
existing shareholders, they will take such corrective action as they regard to
be necessary and appropriate, including the sale of portfolio instruments prior
to maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding part or all of dividends or payment of distributions from
capital or capital gains; redemptions of shares in kind; or establishing a net
asset value per share by using available market quotations or equivalents. In

2
<PAGE>

addition, in order to stabilize the net asset value per share at $1.00 the
Trustees have the authority (1) to reduce or increase the number of shares
outstanding on a pro-rata basis, and (2) to offset each shareholder's pro-rata
portion of the deviation between the net asset value per share and $1.00 from
the shareholder's accrued dividend account or from future dividends. STFMF may
hold cash for the purpose of stabilizing its net asset value per share. Holdings
of cash, on which no return is earned, would tend to lower the yield on STFMF's
shares.

Special Considerations. Yields on municipal securities depend on a variety of
factors, including money market conditions, municipal bond market conditions,
the size of a particular offering, the maturity of the obligation and the
quality of the issue. Municipal securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon municipalities to levy taxes. There is also the
possibility that as a result of litigation or other conditions the power or
ability of any one or more issuers to pay when due principal of and interest on
its or their Municipal securities may be materially affected. Shares of STFMF
are not insured by any agency of the U.S. Government. The Fund also practices
other investment strategies that may involve additional risk. (See "Investments
and Investment Techniques Common to the Funds.")

General Investment Objective and Policies of Scudder Limited Term Tax Free Fund

Scudder Limited Term Tax Free Fund, a series of Scudder Tax Free Trust,
is a pure no-load,(TM) open-end diversified mutual fund designed for investors
seeking a higher level of federally tax-free income than normally provided by
tax-free money market investments; and more price stability than investments in
long-term municipal bonds.

The Fund's investment objective is to provide as high a level of income
exempt from regular federal income tax as is consistent with a high degree of
principal stability. In pursuing this goal, the Fund maintains a diversified
portfolio of shorter-term high-grade municipal debt securities with a
dollar-weighted average effective maturity of between one and five years. Within
this limitation, the Fund may not purchase individual securities with effective
maturities greater than 10 years at the time of purchase or issuance, whichever
is later. To the extent the Fund invests in higher-grade securities, it will be
unable to avail itself of opportunities for higher income which may be available
with lower-grade investments. Except as otherwise indicated, the Fund's
investment objective and policies are not fundamental and may be changed without
a shareholder vote. Shareholders will receive written notice of any changes in
the Fund's objective. If there is a change in investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light of
their then current financial position and needs. There can be no assurance that
the Fund's objective will be met.

In computing the dollar-weighted average effective maturity of its
portfolio, the Fund will have to estimate the effective maturity of debt
obligations that are subject to prepayment or redemption by the issuer, based on
projected cash flows from such obligations. In some cases the Adviser will
determine the effective maturity of debt securities. For purposes of the Fund's
investment policy, an instrument will be treated as having a maturity earlier
than its stated maturity date if the instrument has technical features (such as
puts or demand features) or a variable rate of interest which, in the judgment
of the Adviser, will result in the instrument being valued in the market as
though it has the earlier maturity.

SLTTFF's Investments. The Fund may invest in municipal securities that are debt
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their subdivisions, agencies and
instrumentalities, the interest on which, in the opinion of bond counsel, is
exempt from regular federal income tax. Such municipal securities include
municipal notes, which are generally used to provide short-term capital needs
and have maturities of one year or less. Municipal notes include tax
anticipation notes, revenue anticipation notes, bond anticipation notes and
construction loan notes.

The Fund may also invest in municipal bonds, which meet longer-term
capital needs and generally have maturities of more than one year when issued.
Municipal bonds include general obligation bonds which are secured by the
issuer's pledge of its faith, credit and taxing power for payment of principal
and interest, revenue bonds, pre-refunded bonds, industrial development and
other private activity bonds. The Fund may not invest more than 25% of its
assets in pollution control and industrial revenue bonds or taxable investments

3
<PAGE>

of private sector companies in the same industry. The Fund may also invest in
variable rate demand instruments. Variable rate demand instruments are
securities with long stated maturities but demand features that allow the holder
to demand 100% of the principal plus interest within one to seven days. The
coupon varies daily, weekly or monthly with the market. The price remains at par
and this provides stability to the portfolio at market yields.

For federal income tax purposes, the income earned from municipal
securities may be entirely tax-free, taxable or subject to only the alternative
minimum tax ("AMT"). However, the Fund has no current intention of investing in
municipal securities whose interest income is taxable or AMT bonds.

Normally at least 80% of the Fund's net assets are invested in
municipal bonds which are rated within the three highest quality ratings of
Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa and A), Standard & Poor's
("S&P") (Aaa, Aa and A) or Fitch Investors Service, Inc. ("Fitch") (AAA, AA and
A) or their equivalents, or if unrated, judged by the Fund's investment adviser,
Scudder, Stevens & Clark, Inc. (the "Adviser"), to be of comparable quality, at
the time of purchase. The Fund may invest in a debt security so rated by one
rating agency although the security may be rated lower by one or more of the
other agencies. However, the Fund will not invest in any debt security rated
lower than Baa by Moody's, BBB by S&P or Fitch or of equivalent quality as
determined by the Adviser. Securities must also meet credit standards applied by
the Adviser. Should the rating of a portfolio security be downgraded the Adviser
will determine whether it is in the best interest of the Fund to retain or
dispose of the security. (See "ADDITIONAL INFORMATION--Ratings of Municipal
Obligations.")

At least 80% of the Fund's total assets will normally be invested in
municipal bonds and, under normal market conditions, the Fund expects to invest
100% of its portfolio securities in municipal securities. However, if defensive
considerations or an unusual disparity between after-tax income on taxable and
municipal securities makes it advisable, up to 20% of the Fund's assets may be
held in cash or invested in short-term taxable investments, including U.S.
Government obligations and money market instruments. The Fund may temporarily
invest more than 20% of its assets in taxable securities during periods which,
in the Adviser's opinion, require a defensive position. A portion of the Fund's
income may be subject to regular federal, state and local income taxes.

The Fund may also invest in third-party puts, and when-issued or
forward delivery securities, and may purchase warrants to purchase debt
securities, and may also utilize various other strategic transactions.

Management Strategies. In pursuit of its investment objective, the Fund
purchases securities that it believes are attractive and competitive values in
terms of quality, yield, and the relationship of current price to maturity
value. However, recognizing the dynamics of municipal obligation prices in
response to changes in general economic conditions, fiscal and monetary
policies, interest rate levels and market forces such as supply and demand for
various issues, the Adviser, subject to the Trustees' supervision, performs
credit analysis and manages the Fund's portfolio continuously, attempting to
take advantage of opportunities to improve total return, which is a combination
of income and principal performance over the long term. The primary strategies
employed in the management of the Fund's portfolio are:

Emphasis on Credit Analysis. The Fund's portfolio is invested in municipal
obligations rated within, or judged by the Fund's Adviser to be of a quality
comparable to, the four highest rating categories of Moody's, S&P or Fitch, or
in U.S. Government obligations. The ratings assigned by Moody's, S&P or Fitch
represent their opinions as to the quality of the securities which they
undertake to rate. It should be emphasized, however, that ratings are relative
and are not absolute standards of quality. Furthermore, even within this segment
of the municipal obligation market, relative credit standing and market
perceptions thereof may shift.

Variations of Maturity. In an attempt to capitalize on the differences in total
return from municipal obligations of differing maturities, maturities may be
varied according to the structure and level of interest rates, and the Adviser's
expectations of changes therein. To the extent that the Fund invests in
short-term maturities, capital volatility will generally be reduced.

4
<PAGE>

Emphasis on Relative Valuation. The interest rate (and hence price)
relationships between different categories of municipal obligations of the same
or generally similar maturity tend to change constantly in reaction to broad
swings in interest rates and factors affecting relative supply and demand. These
disparities in yield relationships may afford opportunities to implement a
flexible policy of trading the Fund's holdings in order to invest in more
attractive market sectors or specific issues.

Market Trading Opportunities. In pursuit of the above the Fund may engage in
short-term trading (selling securities held for brief periods of time, usually
less than three months) if the Adviser believes that such transactions, net of
costs, would further the attainment of the Fund's objective. The needs of
different classes of lenders and borrowers and their changing preferences and
circumstances have in the past caused market dislocations unrelated to
fundamental creditworthiness and trends in interest rates which have presented
market trading opportunities. There can be no assurance that such dislocations
will occur in the future or that the Fund will be able to take advantage of
them. The Fund intends to limit its voluntary short-term trading to the extent
such limitation is necessary for it to qualify as a "regulated investment
company" under the Internal Revenue Code.

Income Level and Credit Risk. Because the Fund holds high quality municipal
securities, the income earned on shares of the Fund will tend to be less than it
might be on a portfolio emphasizing lower quality securities. Municipal
obligations are subject to the provisions of bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by Congress or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon
municipalities to levy taxes. There is also the possibility that as a result of
litigation or other conditions the power or ability of any one or more issuers
to pay when due principal of and interest on its or their municipal obligations
may be materially affected. Although the Fund's quality standards are designed
to reduce the credit risk of investing in the Fund, that risk cannot be entirely
eliminated.

General Investment Objectives and Policies of Scudder Medium Term Tax Free Fund

Scudder Medium Term Tax Free Fund, a series of Scudder Tax Free Trust,
is a pure no-load(TM), open-end diversified mutual fund designed for investors
seeking a higher level of federally tax-free income than normally provided by
tax-free money market investments or other short-term investments, and more
price stability than investments in long-term municipal bonds.

The Fund's objectives are to provide a high level of income free from
regular federal income tax and to limit principal fluctuation. The Fund will
invest primarily in high-grade intermediate-term bonds. The dollar-weighted
average effective maturity of the Fund's portfolio will range between five and
ten years. Within this limitation, the Fund may purchase individual securities
with effective maturities no greater than fifteen years. There can be no
assurance that the Fund's objectives will be met.

In computing the dollar-weighted average effective maturity of its
portfolio, the Fund will have to estimate the effective maturity of debt
obligations that are subject to prepayment or redemption by the issuer, based on
projected cash flows from such obligations. In some cases the Adviser will
determine the effective maturity of debt securities. For purposes of the
Fund's investment policy, an instrument will be treated as having a maturity
earlier than its stated maturity date if the instrument has technical features
(such as puts or demand features) or a variable rate of interest which, in the
judgment of the Adviser, will result in the instrument being valued in the
market as though it has the earlier maturity.

Investment Considerations. The municipal securities in which the Fund invests
are debt obligations issued by or on behalf of the District of Columbia, states,
territories, and possessions of the United States and their political
subdivisions, agencies and instrumentalities, the interest on which is exempt
from regular federal income tax. Such municipal securities include municipal
notes, which are generally used to provide short-term capital needs, and have
maturities of one year or less. Municipal notes include tax anticipation notes,
revenue anticipation notes, bond anticipation notes and construction loan notes.
The Fund may also invest in municipal bonds which meet longer-term capital needs
and generally have maturities of more than one year when issued. Municipal bonds
include general obligation bonds which are secured by the issuer's pledge of its
faith, credit and taxing power for payment of principal and interest, revenue
bonds, prerefunded bonds, industrial development and other private activity
bonds.

5
<PAGE>

Municipal securities purchased may include the foregoing as well as
variable rate demand instruments. Variable rate demand instruments are
securities with long stated maturities but demand features that allow the holder
to demand 100% of the principal plus interest within 1 to 7 days. The coupon
varies daily, weekly or monthly with the market and the price remains at par;
this provides a great deal of stability to the Fund at market yields. The value
of the underlying variable rate demand instrument may change with changes in
interest rates.

At least 80% of the Fund's net assets will normally be invested in
municipal bonds. Normally 80% of the Fund's net assets will be invested in
municipal bonds which (a) are rated at the time of purchase within the three
highest grades assigned by Moody's, S&P or Fitch or their equivalents, or (b) if
not rated, are judged at the time of purchase by the Adviser to be of a quality
comparable to the three highest ratings of Moody's, S&P or Fitch. Securities
must also meet the credit standards of the Adviser. The Fund will not invest in
any debt security rated lower than Baa by Moody's, BBB by S&P or Fitch, or of
equivalent quality as determined by the Adviser. The Fund may invest in a debt
security so rated by one rating agency although the security may be rated lower
by the other agency. Should the rating of a portfolio security be downgraded,
the Adviser will determine whether it is in the best interest of the Fund to
retain or dispose of the security.

Under normal market conditions the Fund expects to invest 100% of its
portfolio securities in municipal securities. However, if defensive
considerations or an unusual disparity between after-tax income on taxable and
municipal securities make it advisable, up to 20% of the Fund's assets may be
held in cash or invested in short-term taxable investments, including U.S.
Government obligations and taxable money market instruments. The Fund may
temporarily invest more than 20% of its assets in taxable securities during
periods which, in the Adviser's opinion, require a defensive position.

Management Strategies and Portfolio Turnover. SMTTFF may engage in short-term
trading (selling securities held for brief periods of time, usually less than 3
months) if the Advisor believes that such transactions, net costs including
taxes, if any, would improve the overall return of its portfolio. The needs of
different classes of lenders and borrowers and their changing preferences and
circumstances have in the past caused market dislocations unrelated to
fundamental creditworthiness and trends in interest rates which have presented
market trading opportunities. There can be no assurance that such dislocations
will occur in the future or that SMTTFF will be able to take advantage of them.
SMTTFF will limit its voluntary short-term trading to the extent such limitation
is necessary for it to qualify as a "regulated investment company" under the
Internal Revenue Code. (See "TAXES.")

It is anticipated that the portfolio turnover rate will vary
considerably from period to period depending on market developments, but will
not be expected to exceed 100 percent. Higher levels of portfolio activity
result in high transaction costs and may also result in taxes on realized
capital gains to be borne by the Fund's shareholders.

Special Considerations. Because SMTTFF holds high quality municipal securities,
the income earned on shares of the Fund will tend to be less than it might be on
a portfolio emphasizing lower quality securities. Municipal obligations are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the Federal Bankruptcy Code, and laws,
if any, which may be enacted by Congress or state legislatures extending the
time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that as a result of litigation or other
conditions the power or ability of any one or more issuers to pay when due
principal of and interest on its or their municipal obligations may be
materially affected. Although SMTTFF quality standards are designed to minimize
the credit risk of investing in the Fund, that risk cannot be entirely
eliminated. The Fund also practices other investment strategies that may involve
additional risk. (See "Investments and Investment Techniques Common to the
Funds.")

General Investment Objective and Policies of Scudder Managed Municipal Bonds

Scudder Managed Municipal Bonds, a series of SMT, is a pure no-load(TM)
open-end diversified management investment company (or mutual fund). The
investment objective of SMMB is to provide to investors income exempt from
regular federal income tax primarily through investments in high-grade,
long-term municipal securities (as defined below under "Investments and
Investment Techniques Common to the Funds--Municipal Securities"). In contrast
to simply holding a fixed portfolio of municipal securities, SMMB will attempt
to take advantage of opportunities in the market to achieve a higher total
return, i.e., the combination of income and capital performance over the long

6
<PAGE>

term. There can be no assurance that the objective of SMMB will be achieved or
that income to shareholders which is exempt from federal income tax will be
exempt from state or local taxes. In addition, the market prices of municipal
securities, like those of taxable debt securities, vary inversely with interest
rate changes. Thus, the net asset value per share can be expected to fluctuate
and shareholders may receive more or less than the purchase price for shares
they redeem.

It is a fundamental policy which may not be changed without the
approval of a majority of the outstanding voting securities of SMMB (as defined
under "Investment Restrictions") that at least 80% of SMMB's net assets will be
invested in municipal bonds except as stated in the last sentence of this
paragraph. Subject to this policy and as a matter of nonfundamental policy, at
least 75% of SMMB's net assets will be invested in municipal securities which
are rated at the time of purchase within the three highest ratings assigned by
Moody's, S&P or Fitch, or of equivalent quality, and 100% of SMMB's investments
in municipal securities will consist of municipal securities which are rated at
the time of purchase within the four highest ratings assigned by such services,
or their equivalents. SMMB will purchase unrated municipal securities only if at
the time of purchase they are judged by the Adviser to be of comparable quality
to the four highest ratings of Moody's, S&P and Fitch and to be readily
marketable. Securities must also meet credit standards applied by the Adviser.
When, in the opinion of management, defensive considerations or an unusual
disparity between the after-tax income on taxable investments and comparable
municipal securities make it advisable to do so, up to 20% of SMMB's net assets
may be held in cash or invested in short-term taxable investments such as (1)
U.S. Treasury notes, bills and bonds; (2) obligations of agencies and
instrumentalities of the U.S. Government; (3) money market instruments, such as
domestic bank certificates of deposit, finance company and corporate commercial
paper, and banker's acceptances; and (4) repurchase agreements (agreements under
which the seller agrees at the time of sale to repurchase the security at an
agreed time and price) with respect to any of the obligations which the Fund is
permitted to purchase. Notwithstanding the foregoing, for temporary defensive
purposes, SMMB may invest more than 20% of its net assets in securities the
interest income from which may be subject to federal income tax to meet
temporary liquidity requirements.

At December 31, 1994 , approximately 51% of the bonds in
the Fund's portfolio were rated AAA, 22 % were rated AA, 20 % were
rated A and 6% were rated BBB by Moody's, S&P or Fitch, or of equivalent
quality. 1% of the bonds in the Fund's portfolio were not rated.

Management Strategies and Portfolio Turnover. In pursuit of its investment
objective, SMMB purchases municipal securities that it believes are attractive
and competitive values in terms of quality and yield. However, recognizing the
dynamics of municipal bond prices in response to changes in general economic and
political conditions, fiscal and monetary policies, interest rate levels and
market forces such as supply and demand for various bond issues, the Adviser,
subject to the Trustees' supervision, performs credit analysis and manages
SMMB's portfolio continuously, attempting to take advantage of opportunities to
improve total return, which is a combination of income and principal performance
over the long term. The primary strategies employed in the management of SMMB's
portfolio are:

1. Emphasis on Quality. As indicated above, at least 75% of SMMB's net
assets will be invested in municipal securities which, at the time of purchase,
have a rating within the three highest ratings assigned by Moody's, S&P or
Fitch, or their equivalents, and 100% of the Fund's investments in municipal
securities will be securities which at the time of purchase have a rating within
the four highest ratings as assigned by Moody's (Aaa, Aa, A, Baa), S&P (AAA, AA,
A, BBB) or Fitch (AAA, AA, A, BBB), or securities of comparable quality as
determined by the Adviser. The ratings assigned by Moody's, S&P and Fitch
represent their opinions as to the quality of the municipal securities which
they undertake to rate. It should be emphasized, however, that ratings are
relative and are not absolute standards of quality. Furthermore, even within the
high quality segment of the municipal bond market, relative credit standing and
market perceptions thereof may shift. Should the rating of a portfolio security
be downgraded the Adviser will determine whether it is in the best interest of
the Fund to retain or dispose of the security.

The Adviser has over many years developed an experienced staff to
assign its own quality ratings which are considered in making value judgments
and in arriving at purchase or sale decisions. Through the discipline of this
procedure the Adviser attempts to discern variations in credit rankings of the
published services, and to anticipate changes in credit ranking. The Adviser's
Bond Research Group covers the broad spectrum of senior securities and the
Adviser is responsible, among investments other than SMMB's portfolio, for the
management of more than $10 billion in market value of municipal securities.

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2. Variations of Maturity. In an attempt to capitalize on the
differences in total return from municipal securities of differing maturities,
maturities may be varied according to the structure and level of interest rates,
and the Adviser's expectations of changes therein.

3. Emphasis on Relative Valuation. The interest rate (and hence price)
relationships between different categories of municipal securities of the same
or generally similar maturity tend to change constantly in reaction to broad
swings in interest rates and factors affecting relative supply and demand. These
disparities in yield relationships may afford opportunities to implement a
flexible policy of trading portfolio holdings in order to invest in more
attractive market sectors or specific issues.

4. Market Trading Opportunities. In addition to the above, SMMB may
engage in short-term trading (selling securities held for brief periods of time,
usually less than 3 months) if the Adviser believes that such transactions, net
of costs including taxes, if any, would improve the overall return of its
portfolio. The needs of different classes of lenders and borrowers and their
changing preferences and circumstances have in the past caused market
dislocations unrelated to fundamental creditworthiness and trends in interest
rates which have presented market trading opportunities. There can be no
assurance that such dislocations will occur in the future or that SMMB will be
able to take advantage of them. SMMB will limit its voluntary short-term trading
to the extent such limitation is necessary for it to qualify as a "regulated
investment company" under the Internal Revenue Code. (See "TAXES.")

5. Portfolio Turnover Rate. It is anticipated that the portfolio
turnover rate will vary considerably from period to period depending on market
developments, but would not be expected to exceed 100 percent. Higher levels of
portfolio activity result in high transaction costs and may also result in taxes
on realized capital gains to be borne by the Fund's shareholders.

Special Considerations. Because SMMB holds high quality municipal securities,
the income earned on shares of the Fund will tend to be less than it might be on
a portfolio emphasizing lower quality securities. Municipal obligations are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the Federal Bankruptcy Code, and laws,
if any, which may be enacted by Congress or state legislatures extending the
time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that as a result of litigation or other
conditions the power or ability of any one or more issuers to pay when due
principal of and interest on its or their municipal obligations may be
materially affected. Although SMMB's quality standards are designed to minimize
the credit risk of investing in the Fund, that risk cannot be entirely
eliminated. The Fund also practices other investment strategies that may involve
additional risk. (See "Investments and Investment Techniques Common to the
Funds.")

General Investment Objective and Policies of Scudder High Yield Tax Free Fund

Scudder High Yield Tax Free Fund is a series of SMT. The investment
objective of SHYTFF is to provide a high level of interest income that is exempt
from regular federal income tax, from an actively managed portfolio consisting
primarily of investment-grade municipal securities. SHYTFF will not invest in
municipal securities, the income from which is subject to regular federal income
tax. From time to time, a portion of SHYTFF's distributions may be taxable as
long-term capital gain or, if made from short-term capital gains realized by
SHYTFF, as ordinary income. SHYTFF's income may be subject to the alternative
minimum tax depending upon investors' particular situations. However, no more
than 20% of SHYTFF's net assets will normally be invested in municipal
securities whose interest income is subject to the individual alternative
minimum tax. There can be no assurance that this objective will be achieved or
that income to shareholders which is exempt from federal income tax will be
exempt from state or local taxes. In addition, the market prices of municipal
securities, like those of taxable debt securities, vary inversely with interest
rate changes. Thus, SHYTFF's net asset value per share can be expected to
fluctuate and shareholders may receive more or less than the purchase price for
shares they redeem.

As a nonfundamental policy, SHYTFF expects under normal market
conditions to invest 100% of its portfolio securities in municipal securities.
In addition, SHYTFF has adopted a nonfundamental policy that at least 80% of its
net assets will normally be invested in municipal bonds, the interest on which
is not a tax preference item under the individual alternative minimum tax.
However, it is a fundamental policy which may not be changed without the
approval of majority of SHYTFF's outstanding voting securities that at least 80%
of SHYTFF's assets will, under normal market conditions, be invested in
municipal bonds. SHYTFF, as a matter of fundamental policy, will not invest more

8
<PAGE>

than 20% of its total assets in taxable securities, except that for temporary
defensive purposes, the Fund may invest more than 20% of its assets in taxable
securities to meet temporary liquidity requirements. When, in the Adviser's
opinion, temporary defensive investing is advisable, up to 100% of SHYTFF's
assets may be invested in high quality municipal bonds. Bonds of high quality
are rated in the top two rating categories by Moody's, S&P and Fitch or, if
unrated, judged by the Adviser to be of equivalent quality.

Most of the Municipal Bonds in which SHYTFF invests will be
investment-grade municipal bonds. Investment-grade bonds are those which are
rated at the time of purchase within the four highest rating categories by
Moody's (Aaa, Aa, A or Baa), S&P (AAA, AA, A or BBB) or Fitch (AAA, AA, A or
BBB), or which, if unrated, are determined to be of comparable quality by the
Adviser. The Fund may invest up to 35% of its total assets in bonds rated below
Baa by Moody's, BBB by S&P or Fitch, or unrated securities considered to be of
equivalent quality. The Fund may not invest in bonds rated below B by Moody's,
S&P or Fitch, or their equivalent. SHYTFF expects to invest primarily in
medium-grade municipal bonds rated, at the time of purchase, A or Baa by
Moody's, A or BBB by S&P or Fitch or, if unrated, determined to be of equivalent
quality by the Adviser. These medium-grade bonds ordinarily are higher yielding
than high quality bonds (rated within the two highest rating categories by
Moody's, S&P or Fitch). However, medium-grade bonds also involve greater credit
risk and are subject to greater price volatility than high quality bonds. In
addition, medium-grade bonds may be lower yielding than below investment-grade
bonds. See "Additional Information--Ratings of Municipal and Corporate Bonds".

Issuers of junk bonds may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally are greater
than is the case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of high yield
securities may be more likely to experience financial stress, especially if such
issuers are highly leveraged. In addition, the market for high yield municipal
securities is relatively new and has not weathered a major economic recession,
and it is unknown what effects such a recession might have on such securities.
During such a period, such issuers may not have sufficient revenues to meet
their interest payment obligations. The issuer's ability to service its debt
obligations also may be adversely affected by specific issuer developments, or
the issuer's inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss due to default by the
issuer is significantly greater for the holders of junk bonds because such
securities may be unsecured and may be subordinated to other creditors of the
issuer.

It is expected that a significant portion of the junk bonds acquired by
SHYTFF will be purchased upon issuance, which may involve special risks because
the securities so acquired are new issues. In such instances SHYTFF may be a
substantial purchaser of the issue and therefore have the opportunity to
participate in structuring the terms of the offering. Although this may enable
the Fund to seek to protect itself against certain of such risks, the
considerations discussed herein would nevertheless remain applicable.

Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of junk bonds,
particularly in a thinly traded market. Factors adversely affecting the market
value of such securities are likely to affect adversely SHYTFF's net asset
value. In addition, the Fund may incur additional expenses to the extent that it
is required to seek recovery upon a default on a portfolio holding or
participate in the restructuring of the obligation.

At December 31, 1994 , approximately 18 % of the bonds in
the Fund's portfolio were rated AAA, 12 % were rated AA, 13 % were
rated A and 40% were rated BBB by Moody's, S&P or Fitch, or of equivalent
quality. 17% of the bonds in the Fund's portfolio were not rated.

Under normal market conditions, SHYTFF expects to invest principally in
municipal securities with long-term maturities (i.e., more than 10 years).
SHYTFF has the flexibility, however, to invest in municipal securities with
short- and medium-term maturities as well.

Management Strategies and Portfolio Turnover. In pursuit of its investment
objective, SHYTFF purchases municipal bonds that it believes are attractive and
competitive values in terms of quality and yield. However, recognizing the
dynamics of municipal bond prices in response to changes in general economic and
political conditions, fiscal and monetary policies, interest levels and market
forces such as supply and demand for various bond issues, the Adviser, subject
to the Trustees' supervision, performs credit analysis and manages SHYTFF's

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<PAGE>

portfolio continuously, attempting to take advantage of opportunities to improve
total return, which is a combination of income and principal performance over
the long term. The primary strategies employed in the management of SHYTFF's
portfolio are:

1. Emphasis on High Income. As indicated above, SHYTFF expects to
invest primarily in medium-grade municipal bonds rated A or Baa by Moody's, A or
BBB by S&P or A or BBB by Fitch or, if unrated, of equivalent quality as
determined by the Adviser. However, municipal bonds rated within the same rating
category may vary in terms of the creditworthiness of their issuers and market
perceptions of creditworthiness. Therefore, the Adviser reviews continuously the
quality of municipal bonds in which SHYTFF invests. Should the rating of a
portfolio security be downgraded the Adviser will determine whether it is in the
best interest of the Fund to retain or dispose of the security.

The Adviser's Bond Research Group covers the broad spectrum of senior
securities and the Adviser is responsible, among investments other than SHYTFF's
portfolio, for the management of more than $10 billion in market value of
municipal bonds.

2. Variations of Maturity. In an attempt to capitalize on the
differences in total return from municipal bonds of differing maturities,
maturities may be varied according to the structure and level of interest rates,
and the Adviser's expectations of changes therein.

3. Emphasis on Relative Valuation. The interest rate (and hence price)
relationships between different categories of municipal bonds of the same or
generally similar maturity tend to change constantly in reaction to broad swings
in interest rates and factors affecting relative supply and demand. These
disparities in yield relationships may afford opportunities to implement a
flexible policy of trading portfolio holdings in order to invest in more
attractive market sectors or specific issues.

4. Market Trading Opportunities. In addition to the above, SHYTFF may
engage in short-term trading (selling securities held for brief periods of time,
usually less than 3 months) if the Adviser believes that such transactions, net
of costs including taxes, if any, would improve the overall return of its
portfolio. The needs of different classes of lenders and borrowers and their
changing preferences and circumstances have in the past caused market
dislocations unrelated to fundamental creditworthiness and trends in interest
rates which have presented market trading opportunities. There can be no
assurance that such dislocations will occur in the future or that SHYTFF will be
able to take advantage of them. SHYTFF will limit its voluntary short-term
trading to the extent such limitation is necessary to qualify as a "regulated
investment company" under the Internal Revenue Code. (See "TAXES.")

Special Considerations. Because under normal market conditions SHYTFF holds
medium-grade municipal bonds, the income earned on shares of the Fund will tend
to be higher than it might be on a portfolio emphasizing higher quality
securities. However, the credit risk of holding medium-grade municipal bonds is
greater than that pertaining to higher quality securities. Municipal obligations
are subject to the provisions of bankruptcy, insolvency and other laws affecting
the rights and remedies of creditors, such as the Federal Bankruptcy Code, and
laws, if any, which may be enacted by Congress or state legislatures extending
the time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that as a result of litigation or other
conditions the power or ability of any one or more issuers to pay when due
principal of and interest on its or their municipal obligations may be
materially affected. The Fund also practices other investment strategies that
may involve additional risk. (See "Investments and Investment Techniques Common
to the Funds.")

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<PAGE>

Investments and Investment Techniques Common to the Funds

As discussed below, the following description of investments and
investment techniques is applicable to more than one of the Funds.

Municipal Securities. Municipal Securities are issued by or on behalf of states,
territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities to obtain funds for various public
purposes. The interest on these obligations is generally exempt from federal
income tax in the hands of most investors, except for the possible applicability
of the alternative minimum tax. The two principal classifications of municipal
securities are "Notes" and "Bonds."

1. Municipal Notes. Municipal Notes are generally used to provide for
short-term capital needs and generally have maturities of one year or less.
Municipal notes include: Tax Anticipation Notes; Revenue Anticipation Notes;
Bond Anticipation Notes; and Construction Loan Notes.

Tax anticipation notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue such as Federal revenues
available under the Federal Revenue Sharing Program. Tax anticipation notes and
revenue anticipation notes are generally issued in anticipation of various
seasonal revenues such as income, sales, use, and business taxes. Bond
anticipation notes are sold to provide interim financing. These notes are
generally issued in anticipation of long-term financing in the market. In most
cases, these monies provide for the repayment of the notes. Construction loan
notes are sold to provide construction financing. After the projects are
successfully completed and accepted, many projects receive permanent financing
through the Federal Housing Administration under "Fannie Mae" (the Federal
National Mortgage Association) or "Ginnie Mae" (the Government National Mortgage
Association). There are, of course, a number of other types of notes issued for
different purposes and secured differently from those described above.

2. Municipal Bonds. Municipal bonds, which meet longer term capital
needs and generally have maturities of more than one year when issued, have two
principal classifications: "General Obligation" Bonds and "Revenue" Bonds.

Issuers of General Obligation Bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to fund
a wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of General Obligation Bonds is the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. The taxes that can be levied for the payment of debt service may
be limited or unlimited as to rate or amount or special assessments.

The principal security for a Revenue Bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
Bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may also be
used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security including partially or
fully insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund. Lease rental revenue bonds issued by a state or local authority for
capital projects are secured by annual lease rental payments from the state or
locality to the authority sufficient to cover debt service on the authority's
obligations.

Industrial Development and Pollution Control Bonds (which are types of
private activity bonds), although nominally issued by municipal authorities, are
generally not secured by the taxing power of the municipality but are secured by
the revenues of the authority derived from payments by the industrial user.

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<PAGE>

Under federal tax legislation, certain types of Industrial Development Bonds and
Pollution Control Bonds may no longer be issued on a tax-exempt basis, although
previously-issued bonds of these types and certain refundings of such bonds are
not affected.

3. Municipal Lease Obligations and Participation Interests. A municipal
lease obligation may take the form of a lease, installment purchase contract or
conditional sales contract which is issued by a state or local government and
authorities to acquire land, equipment and facilities. Income from such
obligations is generally exempt from state and local taxes in the state of
issuance. Municipal lease obligations frequently involve special risks not
normally associated with general obligations or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title in the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
relieve the governmental issuer of any obligation to make future payments under
the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. In addition,
such leases or contracts may be subject to the temporary abatement of payments
in the event the issuer is prevented from maintaining occupancy of the leased
premises or utilizing the leased equipment. Although the obligations may be
secured by the leased equipment or facilities, the disposition of the property
in the event of nonappropriation or foreclosure might prove difficult, time
consuming and costly, and result in a delay in recovery or the failure to fully
recover the Fund's original investment.

Participation interests represent undivided interests in municipal
leases, installment purchase contracts, conditional sales contracts or other
instruments. These are typically issued by a trust or other entity which has
received an assignment of the payments to be made by the state or political
subdivision under such leases or contracts.

Certain municipal lease obligations and participation interests may be
deemed illiquid for the purpose of the Fund's limitation on investments in
illiquid securities. Other municipal lease obligations and participation
interests acquired by the Fund may be determined by the Adviser to be liquid
securities for the purpose of such limitation. In determining the liquidity of
municipal lease obligations and participation interests, the Adviser will
consider a variety of factors including: (1) the willingness of dealers to bid
for the security; (2) the number of dealers willing to purchase or sell the
obligation and the number of other potential buyers; (3) the frequency of trades
or quotes for the obligation; and (4) the nature of the marketplace in which the
security trades. In addition, the Adviser will consider factors unique to
particular lease obligations and participation interests affecting the
marketability thereof. These include the general creditworthiness of the issuer,
the importance to the issuer of the property covered by the lease and the
likelihood that the marketability of the obligation will be maintained
throughout the time the obligation is held by the Fund.

The Fund may purchase participation interests in municipal lease
obligations held by a commercial bank or other financial institution. Such
participations provide the Fund with the right to a pro rata undivided interest
in the underlying municipal lease obligations. In addition, such participations
generally provide the Fund with the right to demand payment, on not more than
seven days' notice, of all or any part of the Fund's participation interest in
the underlying municipal lease obligation, plus accrued interest. The Fund will
only invest in such participations if, in the opinion of bond counsel, counsel
for the issuers of such participations or counsel selected by the Adviser, the
interest from such participations is exempt from regular federal income tax and
state income tax, if applicable.

4. Other Municipal Securities. There is, in addition, a variety of
hybrid and special types of municipal securities as well as numerous differences
in the security of municipal securities both within and between the two
principal classifications above.

The Funds may purchase variable rate demand instruments that are
tax-exempt municipal obligations providing for a periodic adjustment in the
interest rate paid on the instrument according to changes in interest rates
generally. These instruments also permit a Fund to demand payment of the unpaid
principal balance plus accrued interest upon a specified number of days' notice
to the issuer or its agent. The demand feature may be backed by a bank letter of
credit or guarantee issued with respect to such instrument. The Funds intend to
exercise the demand only (1) upon a default under the terms of the municipal
obligation, (2) as needed to provide liquidity to the Fund, or (3) to maintain a
high quality investment portfolio or (4) to maximize the Fund's yield. A bank
that issues a repurchase commitment may receive a fee from a Fund for this
arrangement. The issuer of a variable rate demand instrument may have a
corresponding right to prepay in its discretion the outstanding principal of the
instrument plus accrued interest upon notice comparable to that required for the
holder to demand payment.

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<PAGE>

The variable rate demand instruments that a Fund may purchase are
payable on demand on not more than seven calendar days' notice. The terms of the
instruments provide that interest rates are adjustable at intervals ranging from
daily up to six months, and the adjustments are based upon the current interest
rate environment as provided in the respective instruments. The Funds will
determine the variable rate demand instruments that they will purchase in
accordance with procedures approved by the Trustees to minimize credit risks.
The Adviser may determine that an unrated variable rate demand instrument meets
a Fund's quality criteria by reason of being backed by a letter of credit or
guarantee issued by a bank that meets the quality criteria for the Fund. Thus,
either the credit of the issuer of the municipal obligation or the guarantor
bank or both will meet the quality standards of a Fund. The Adviser will
reevaluate each unrated variable rate demand instrument held by a Fund on a
quarterly basis to determine that it continues to meet the Fund's quality
criteria.

The interest rate of the underlying variable rate demand instruments
may change with changes in interest rates generally, but the variable rate
nature of these instruments should decrease changes in value due to interest
rate fluctuations. Accordingly, as interest rates decrease or increase, the
potential for capital gain and the risk of capital loss on the disposition of
portfolio securities are less than would be the case with a comparable portfolio
of fixed income securities. The Funds may purchase variable rate demand
instruments on which stated minimum or maximum rates, or maximum rates set by
state law, limit the degree to which interest on such variable rate demand
instruments may fluctuate; to the extent it does, increases or decreases in
value of such variable rate demand notes may be somewhat greater than would be
the case without such limits. Because the adjustment of interest rates on the
variable rate demand instruments is made in relation to movements of the
applicable rate adjustment index, the variable rate demand instruments are not
comparable to long-term fixed interest rate securities. Accordingly, interest
rates on the variable rate demand instruments may be higher or lower than
current market rates for fixed rate obligations of comparable quality with
similar final maturities.

The maturity of the variable rate demand instruments held by the Funds
will ordinarily be deemed to be the longer of (1) the notice period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (2) the period remaining until the instrument's next interest rate
adjustment.

5. General Considerations. An entire issue of Municipal Securities may
be purchased by one or a small number of institutional investors such as one of
the Funds. Thus, the issue may not be said to be publicly offered. Unlike
securities which must be registered under the Securities Act of 1933 prior to
offer and sale unless an exemption from such registration is available,
municipal securities which are not publicly offered may nevertheless be readily
marketable. A secondary market exists for municipal securities which were not
publicly offered initially.

Securities purchased for the Funds are subject to the limitations on
holdings of securities which are not readily marketable contained in each Fund's
investment restrictions. The Adviser determines whether a municipal security is
readily marketable based on whether it may be sold in a reasonable time
consistent with the customs of the municipal markets (usually seven days) at a
price (or interest rate) which accurately reflects its value. The Adviser
believes that the quality standards applicable to each Fund's investments
enhance marketability. In addition, Stand-by Commitments and demand obligations
also enhance marketability.

For the purpose of each Fund's investment restrictions, the
identification of the "issuer" of municipal securities which are not General
Obligation Bonds is made by the Adviser on the basis of the characteristics of
the obligation as described above, the most significant of which is the source
of funds for the payment of principal of and interest on such obligations.

Each Fund expects that it will not invest more than 25% of its total
assets in municipal securities whose issuers are located in the same state or
more than 25% of its total assets in municipal securities the security of which
is derived from any one of the following categories: hospitals and health
facilities; turnpikes and toll roads; ports and airports; or colleges and
universities. Each Fund may invest more than 25% of its total assets in
municipal securities of one or more of the following types: public housing
authorities; general obligations of states and localities; lease rental
obligations of states and local authorities; state and local housing finance
authorities; municipal utilities systems; bonds that are secured or backed by
the Treasury or other U.S. Government guaranteed securities; or industrial
development and pollution control bonds. There could be economic, business or
political developments, which might affect all municipal securities of a similar
type. However, the Funds believe that the most important consideration affecting

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<PAGE>

risk is the quality of particular issues of municipal securities rather than
factors affecting all, or broad classes of, municipal securities.

When-Issued or Forward Delivery Securities. The Funds may purchase securities
offered on a "when-issued" or "forward delivery" basis. When so offered, the
price, which is generally expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued or
forward delivery securities take place at a later date. During the period
between purchase and settlement, no payment is made by the purchaser to the
issuer and no interest on the when-issued or forward delivery security accrues
to the purchaser. To the extent that assets of a Fund are not invested prior to
the settlement of a purchase of securities, that Fund will earn no income;
however, it is intended that each Fund will be fully invested to the extent
practicable and subject to the policies stated above. While when-issued or
forward delivery securities may be sold prior to the settlement date, it is
intended that each Fund will purchase such securities with the purpose of
actually acquiring them unless a sale appears desirable for investment reasons.
At the time the Fund makes the commitment to purchase securities on a
when-issued or forward delivery basis, it will record the transaction and
reflect the value of the security in determining its net asset value. The Funds
do not believe that the net asset value or income of their portfolios will be
adversely affected by their purchase of securities on a when-issued or forward
delivery basis. Each Fund will establish with its custodian a segregated account
in which it will maintain cash, U.S. Government securities and other high grade
debt obligations equal in value to commitments for when-issued or forward
delivery securities. Such segregated securities either will mature or, if
necessary, be sold on or before the settlement date.

Stand-by Commitments. Each Fund, with the exception of SLTTFF, may engage
in Stand-by Commitments. STFMF has received an order from the SEC which will
enable it to improve its portfolio liquidity by making available same-day
settlements on portfolio sales (and thus facilitate the same-day payments of
redemption proceeds in federal funds) through the acquisition of "Stand-by
Commitments." SMTTFF, SMMB and SHYTFF may engage in such transactions subject to
the limitations in the rules under the Investment Company Act of 1940 (the "1940
Act"). A Stand-by Commitment is a right acquired by a Fund, when it purchases a
municipal security from a broker, dealer or other financial institution
("seller"), to sell up to the same principal amount of such securities back to
the seller, at that Fund's option, at a specified price. Stand-by Commitments
are also known as "puts." STFMF's, SMMB's and SHYTFF's investment policies
permit the acquisition of Stand-by Commitments solely to facilitate portfolio
liquidity. The acquisition of or the power to exercise a Stand-by Commitment
will not affect the valuation or maturity of STFMF's underlying portfolio, which
will be valued in accordance with the order of the SEC. The exercise by a Fund
of a Stand-by Commitment is subject to the ability of the other party to fulfill
its contractual commitment.

Stand-by Commitments acquired by the Funds will have the following
features: (1) they will be in writing and will be physically held by a Fund's
custodian; (2) a Fund's rights to exercise them will be unconditional and
unqualified; (3) they will be entered into only with sellers which in the
Adviser's opinion present a minimal risk of default; (4) although Stand-by
Commitments will not be transferable, municipal securities purchased subject to
such commitments may be sold to a third party at any time, even though the
commitment is outstanding; and (5) their exercise price will be (i) a Fund's
acquisition cost (excluding the cost, if any, of the Stand-by Commitment) of the
municipal securities which are subject to the commitment (excluding any accrued
interest which a Fund paid on their acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period a Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date. Since STFMF will value
municipal securities on an amortized cost basis, the amount receivable upon
exercise of a Stand-by Commitment will be substantially the same as the value
assigned by that Fund to the underlying securities. Moreover, while there is
little risk of an event occurring which would make amortized cost valuation of
its portfolio securities inappropriate, if such condition developed, the
securities may, in the discretion of the Trustees, be valued on the basis of
available market information and held to maturity. Each Fund expects to refrain
from exercising a Stand-by Commitment in the event that the amount receivable
upon exercise of the Stand-by Commitment is significantly greater than the then
current market value of the underlying municipal securities in order to avoid
imposing a loss on a seller and thus jeopardizing that Fund's business
relationship with that seller.

The Funds expect that Stand-by Commitments generally will be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, each Fund will pay for Stand-by Commitments, either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitments. As a matter of policy, the total amount
"paid" by a Fund in either manner for outstanding Stand-by Commitments will not

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exceed 1/2 of 1% of the value of total assets of that Fund calculated
immediately after any Stand-by Commitment is acquired.

It is difficult to evaluate the likelihood of use or the potential
benefit of a Stand-by Commitment. Therefore, it is expected that the Funds'
Trustees will determine that Stand-by Commitments ordinarily have a "fair value"
of zero, regardless of whether any direct or indirect consideration was paid.
However, in the case of SMTTFF, if the market price of the security subject to
the Stand-by Commitment is less than the exercise price of the Stand-by
commitment, such security will ordinarily be valued at such exercise price. When
each Fund has paid for a Stand-by Commitment, its cost will be reflected as
unrealized depreciation for the period during which the commitment is held. In
addition, for purposes of complying with the condition of the SEC's amortized
cost Rule that the dollar-weighted average maturity of its portfolio shall not
exceed 90 days, the maturity of a portfolio security of STFMF shall not be
considered shortened or otherwise affected by any Stand-by Commitment to which
such security is subject.

Management of the Funds understands that the Internal Revenue Service
(the "Service") has issued a favorable revenue ruling to the effect that, under
specified circumstances, a registered investment company will be the owner of
tax-exempt municipal obligations acquired subject to a put option. The Service
has also issued private letter rulings to certain taxpayers (which do not serve
as precedent for other taxpayers) to the effect that tax-exempt interest
received by a regulated investment company with respect to such obligations will
be tax-exempt in the hands of the company and may be distributed to its
shareholders as exempt-interest dividends. The Service has subsequently
announced that it will not ordinarily issue advance ruling letters as to the
identity of the true owner of property in cases involving the sale of securities
or participation interests therein if the purchaser has the right to cause the
security, or the participation interest therein, to be purchased by either the
seller or a third party. Each of the Funds intends to take the position that it
owns any municipal obligations acquired subject to a Stand-by Commitment and
that tax-exempt interest earned with respect to such municipal obligations will
be tax-exempt in its hands. There is no assurance that the Service will agree
with such position in any particular case. There is no assurance that Stand-by
Commitments will be available to the Funds nor has any of the Funds assumed that
such commitments would continue to be available under all market conditions.

Third Party Puts. The Funds may also purchase long-term fixed rate bonds that
have been coupled with an option granted by a third party financial institution
allowing a Fund at specified intervals (not exceeding 397 calendar days in the
case of STFMF) to tender (or "put") the bonds to the institution and receive the
face value thereof (plus accrued interest). These third party puts are available
in several different forms, may be represented by custodial receipts or trust
certificates and may be combined with other features such as interest rate
swaps. The Fund receives a short-term rate of interest (which is periodically
reset), and the interest rate differential between that rate and the fixed rate
on the bond is retained by the financial institution. The financial institution
granting the option does not provide credit enhancement, and in the event that
there is a default in the payment of principal or interest, or downgrading of a
bond to below investment grade, or a loss of the bond's tax-exempt status, the
put option will terminate automatically, the risk to the Fund will be that of
holding such a long-term bond and, in the case of STFMF, the dollar-weighted
average maturity of the Fund's portfolio would be adversely affected.

These bonds coupled with puts may present the same tax issues as are
associated with Stand-by Commitments discussed above. As with any Stand-by
Commitments acquired by a Fund, the Fund intends to take the position that it is
the owner of any municipal obligation acquired subject to a third-party put, and
that tax-exempt interest earned with respect to such municipal obligations will
be tax-exempt in its hands. There is no assurance that the Service will agree
with such position in any particular case. Additionally, the federal income tax
treatment of certain other aspects of these investments, including the treatment
of tender fees and swap payments, in relation to various regulated investment
company tax provisions is unclear. However, the Adviser intends to manage the
Funds' portfolios in a manner designed to minimize any adverse impact from these
investments.

Repurchase Agreements. Each Fund, with the exception of SLTTFF, may enter
into repurchase agreements with any member bank of the Federal Reserve System or
any domestic broker/dealer which is recognized as a reporting government
securities dealer if the creditworthiness of the bank or broker/dealer has been
determined by the Adviser to be at least as high as that of other issuers of
obligations the Fund may purchase or to be at least equal to that of issuers of
commercial paper rated within the two highest grades assigned by Moody's, S&P or
Fitch.

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A repurchase agreement provides a means for a Fund to earn taxable
income on funds for periods as short as overnight. It is an arrangement under
which the purchaser (i.e., a Fund) acquires a security ("obligation") and the
seller agrees, at the time of sale, to repurchase the obligation at a specified
time and price. The repurchase price may be higher than the purchase price, the
difference being income to a Fund, or the purchase and repurchase prices may be
the same, with interest at a stated rate due to a Fund together with the
repurchase price upon repurchase. In either case, the income to a Fund (which is
taxable) is unrelated to the interest rate on the obligation itself. Obligations
will be physically held by the custodian or in the Federal Reserve Book Entry
system.

For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from a Fund to the seller of the obligation subject to the repurchase
agreement and is therefore subject to that Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
obligation purchased by a Fund subject to a repurchase agreement as being owned
by that Fund or as being collateral for a loan by that Fund to the seller. In
the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the obligation before repurchase of the obligation
under a repurchase agreement, a Fund may encounter delay and incur costs before
being able to sell the security. Delays may involve loss of interest or decline
in price of the obligation. If the court characterized the transaction as a loan
and a Fund has not perfected a security interest in the obligation, that Fund
may be required to return the obligation to the seller's estate and be treated
as an unsecured creditor of the seller. As an unsecured creditor, a Fund would
be at the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for a Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the obligation, in which
case a Fund may incur a loss if the proceeds to that Fund from the sale to a
third party are less than the repurchase price. However, if the market value of
the obligation subject to the repurchase agreement becomes less than the
repurchase price (including interest), the Fund involved will direct the seller
of the obligation to deliver additional securities so that the market value of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that a Fund will be unsuccessful in seeking to
impose on the seller a contractual obligation to deliver additional securities.

Reverse Repurchase Agreements. STFMF and SMTTFF may enter into "reverse
repurchase agreements," which are repurchase agreements in which a Fund, as the
seller of the securities, agrees to repurchase them at an agreed time and price.
STFMF and SMTTFF will maintain a segregated account with its custodian
containing cash, U.S. Government securities and other high grade debt
obligations equal in value to its obligation in connection with outstanding
reverse repurchase agreements. STFMF may also acquire participation in privately
negotiated loans to municipal borrowers provided that the interest received by
the Fund is exempt, in the opinion of bond counsel to the municipal borrower,
from federal income tax. Reverse repurchase agreements are borrowings subject to
STFMF's and SMTTFF's investment restrictions applicable to that activity.

Participation Interests. STFMF may purchase from banks participation interests
in all or part of specific holdings of municipal securities. Each participation
is backed by an irrevocable letter of credit or guarantee of the selling bank
that the Adviser has determined meets the prescribed quality standards of each
Fund. Thus, even if the credit of the issuer of the municipal security does not
meet the quality standards of STFMF, the credit of the selling bank will. STFMF
has the right to sell the participation back to the bank after seven days'
notice for the full principal amount of the Fund's interest in the municipal
security plus accrued interest, but only (1) as required to provide liquidity to
the Fund, (2) to maintain a high quality investment portfolio or (3) upon a
default under the terms of the municipal security. The selling bank may receive
a fee from STFMF in connection with the arrangement. STFMF will not purchase
participation interests unless it receives an opinion of counsel or a ruling of
the Internal Revenue Service satisfactory to the Trustees of the Fund that
interest earned by the Fund on municipal obligations in which it holds
participation interests is exempt from federal income tax. An opinion of counsel
is not binding on the Service and there is no assurance that the Service will
agree with any opinion of counsel.

Strategic Transactions and Derivatives. Each Fund, with the exception of
STFMF may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates and broad or specific market movements), to manage the effective maturity
or duration of the Fund's portfolio, or to enhance potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.

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Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, the Funds may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, and enter into various
interest rate transactions such as swaps, caps, floors or collars (collectively,
all the above are called "Strategic Transactions"). Strategic Transactions may
be used without limit (except to the extent that 80% of the Funds' net assets
are required to be invested in tax-exempt municipal securities, and as limited
by the Funds' other investment restrictions) to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Funds' portfolio resulting from securities markets fluctuations, to
protect the Funds' unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Funds' portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities. Some Strategic Transactions may also be used to
enhance potential gain although no more than 5% of the Funds' assets will be
committed to Strategic Transactions entered into for non-hedging purposes. Any
or all of these investment techniques may be used at any time and in any
combination, and there is no particular strategy that dictates the use of one
technique rather than another, as use of any Strategic Transaction is a function
of numerous variables including market conditions. The ability of the Funds to
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The
Funds will comply with applicable regulatory requirements when implementing
these strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.

Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Funds, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Funds can realize on its
investments or cause the Funds to hold a security it might otherwise sell. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Funds creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Funds' position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Funds might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.

General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, a Fund's purchase of a put option on a security might be designed
to protect its holdings in the underlying instrument (or, in some cases, a
similar instrument) against a substantial decline in the market value by giving
the Fund the right to sell such instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the seller the obligation to sell, the underlying instrument at the
exercise price. A Fund's purchase of a call option on a security, financial
future, index, currency or other instrument might be intended to protect a Fund

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<PAGE>

against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. A Fund is
authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.

With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.

A Fund's ability to close out its position as a purchaser or seller of
an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. A Fund
will only sell OTC options that are subject to a buy-back provision permitting a
Fund to require the Counterparty to sell the option back to a Fund at a formula
price within seven days. A Fund expects generally to enter into OTC options that
have cash settlement provisions, although it is not required to do so.

Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, a Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. A Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from Standard & Poor's
("S&P") or P-1 from Moody's Investors Service ("Moody's") or an equivalent
rating from any other nationally recognized statistical rating organization
("NRSRO") or are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
a Fund, and portfolio securities "covering" the amount of a Fund's obligation
pursuant to an OTC option sold by it (the cost of the sell-back plus the
in-the-money amount, if any) are illiquid, and are subject to a Fund's
limitation on investing no more than 10% of its assets in illiquid securities.

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<PAGE>

If a Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase a Fund's income. The sale of put options can also provide income.

A Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices and futures contracts. All calls sold by a Fund must be "covered" (i.e.,
a Fund must own the securities or futures contract subject to the call) or must
meet the asset segregation requirements described below as long as the call is
outstanding. Even though a Fund will receive the option premium to help protect
it against loss, a call sold by a Fund exposes a Fund during the term of the
option to possible loss of opportunity to realize appreciation in the market
price of the underlying security or instrument and may require a Fund to hold a
security or instrument which it might otherwise have sold.

A Fund may purchase and sell put options on securities, including U.S.
Treasury and agency securities, mortgage-backed securities, municipal
obligations and Eurodollar instruments (whether or not it holds the above
securities in its portfolio) and on securities indices and futures contracts
other than futures on individual corporate debt and individual equity
securities. A Fund will not sell put options if, as a result, more than 50% of a
Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that a Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.

General Characteristics of Futures. A Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate or fixed-income market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The sale of a futures contract creates
a firm obligation by a Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right in return for the premium paid to assume a position in a
futures contract and obligates the seller to deliver such position.

A Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission and will be
entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires a Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of options on financial futures involves payment of a
premium for the option without any further obligation on the part of a Fund. If
a Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an offsetting transaction
but there can be no assurance that the position can be offset prior to
settlement at an advantageous price, nor that delivery will occur.

A Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of a Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.

Options on Securities Indices and Other Financial Indices. A Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,

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<PAGE>

upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

Combined Transactions. A Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions and multiple
interest rate transactions and any combination of futures, options and interest
rate transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of a Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which a
Fund may enter are interest rate and index swaps and the purchase or sale of
related caps, floors and collars. A Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities a Fund anticipates purchasing at
a later date. A Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream a Fund
may be obligated to pay. Interest rate swaps involve the exchange by a Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. An index swap is an agreement to swap cash flows
on a notional amount based on changes in the values of the reference indices.
The purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.

A Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and a Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. A Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from an NRSRO or is determined to be of equivalent credit quality by the
Adviser. If there is a default by the Counterparty, a Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

Eurodollar Instruments. A Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. A Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.

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Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.

Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that a Fund segregate liquid high grade
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security or financial instrument.
In general, either the full amount of any obligation by a Fund to pay or deliver
securities or assets must be covered at all times by the securities, instruments
or currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid high grade securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by a Fund will require a Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate liquid high-grade
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by a Fund on an index will require a Fund to own
portfolio securities which correlate with the index or to segregate liquid high
grade assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by a Fund requires a Fund to segregate
liquid, high grade assets equal to the exercise price.

OTC options entered into by a Fund, including those on securities,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when a Fund
sells these instruments it will only segregate an amount of assets equal to its
accrued net obligations, as there is no requirement for payment or delivery of
amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by a Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when a Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, a Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by a Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and a Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement,
will be treated the same as other options settling with physical delivery.

In the case of a futures contract or an option thereon, a Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.

With respect to swaps, a Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to a Fund's net obligation, if any.

Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. A Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, a Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by a Fund. Moreover, instead of segregating assets if a Fund held a futures
or forward contract, it could purchase a put option on the same futures or
forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.

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<PAGE>

A Fund's activities involving Strategic Transactions may be limited by
the requirements of Subchapter M of the Internal Revenue Code for qualification
as a regulated investment company. (See "TAXES.")

Trustees' Power to Change Objectives and Policies

The objectives and policies of the Funds described above may be
changed, unless expressly stated to the contrary, by their respective Trustees
without a vote of their shareholders.

Investment Restrictions

Unless specified to the contrary, the following restrictions are
fundamental policies and may not be changed with respect to each of the Funds
without the approval of a majority of the outstanding voting securities of such
Fund which, under the 1940 Act and the rules thereunder and as used in this
Statement of Additional Information, means the lesser of (1) 67% of the shares
of such Fund present at a meeting if the holders of more than 50% of the
outstanding shares of such Fund are present in person or by proxy, or (2) more
than 50% of the outstanding shares of such Fund. Any nonfundamental policy of a
Fund may be modified by the Fund's Trustees without a vote of the Fund's
shareholders.

Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, the Funds.

As a matter of fundamental policy, Scudder Tax Free Money Fund may not:

(1) with respect to 75% of its total assets taken at market value,
purchase more than 10% of the voting securities of any one
issuer or invest more than 5% of the value of its total assets
in the securities of any one issuer, except obligations issued
or guaranteed by the U.S. Government, its agencies, or
instrumentalities and except securities of other investment
companies;

(2) borrow money except as a temporary measure for extraordinary
or emergency purposes or except in connection with reverse
repurchase agreements; provided that the Fund maintains asset
coverage of 300% for all borrowings;

(4) act as underwriter of securities issued by others except to
the extent that it may be deemed an underwriter in connection
with the disposition of portfolio securities of the Fund;

(5) make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent that the entry into
repurchase agreements and the purchase of debt securities in
accordance with its investment objectives and investment
policies may be deemed to be loans;

(6) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur and except for
shares of the separate classes or series of the Fund;

(7) purchase (a) private activity bonds or (b) securities which
are neither municipal obligations or securities of the U.S.
Government, its agencies or instrumentalities, if in either
case the purchase would cause more than 25% of the market
value of its total assets at the time of such purchase to be
invested in the securities of one or more issuers having their
principal business activities in the same industry (for
purposes of this restriction, telephone companies are
considered to be in a separate industry from gas and electric
public utilities, and wholly-owned finance companies are
considered to be in the industry of their parents if their
activities are primarily related to financing the activities
of their parents);

22
<PAGE>

(8) purchase securities other than those described in the Fund's
prospectus or statement of additional information; or

(9) purchase securities which are not municipal obligations if
such purchase would cause more than 20% of the Fund's total
assets to be invested in such securities, except that the Fund
may invest more than 20% of its total assets in such
securities prior to the time normal operating conditions have
been achieved and during other than normal market conditions.

In addition, as a matter of nonfundamental policy, Scudder Tax Free
Money Fund may not:

(a) purchase or retain securities of any open-end investment
company, or securities of closed-end investment companies
except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchases, or
except when such purchase, though not made in the open market,
is part of a plan of merger, consolidation, reorganization or
acquisition of assets; in any event the Fund may not purchase
more than 3% of the outstanding voting securities of another
investment company, may not invest more than 5% of its assets
in another investment company, and may not invest more than
10% of its assets in other investment companies;

(b) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;

(c) purchase or retain securities of an issuer any of whose
officers, directors, trustees or security holders is an
officer, director or trustee of the Fund or a member, officer,
director or trustee of the investment adviser of the Fund if
one or more of such individuals owns beneficially more than
one-half of one percent (1/2%) of the outstanding shares or
securities or both (taken at market value) of such issuer and
such individuals owning more than one-half of one percent
(1/2%) of such shares or securities together own beneficially
more than 5% of such shares or securities or both;

(d) purchase securities on margin or make short sales, unless, by
virtue of its ownership of other securities, it has the right
to obtain securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is
made upon the same conditions, except that the Fund may obtain
such short-term credits as may be necessary for the clearance
of purchases and sales of securities;

(e) invest more than 10% of its net assets in securities which are
not readily marketable, the disposition of which is restricted
under Federal securities laws, or in repurchase agreements not
terminable within 7 days, and the Fund will not invest more
than 5% of its total assets in restricted securities;

(f) purchase securities of any issuer with a record of less than
three years continuous operations, including predecessors,
except U.S. Government securities, securities of such issuers
which are rated by at least one nationally recognized
statistical rating organization, municipal obligations and
obligations issued or guaranteed by any foreign government or
its agencies or instrumentalities, if such purchase would
cause the investments of the Fund in all such issuers to
exceed 5% of the total assets of the Fund taken at market
value;

(g) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which
own or invest in such interests);

(h) borrow money in excess of 5% of its total assets (taken at
market value) or borrow other than from banks;

(i) purchase warrants if as a result warrants taken at the lower
of cost or market value would represent more than 5% of the
value of the Fund's total net assets or more than 2% of its
net assets in warrants that are not listed on the New York or
American Stock Exchanges or on an exchange with comparable
listing requirements (for this purpose, warrants attached to
securities will be deemed to have no value), unless attached
to other securities in which it is permitted to invest;

23
<PAGE>

(j) purchase or sell any put or call options or any combinations
thereof, except that it may acquire rights to resell municipal
obligations at an agreed upon price and at or within an agreed
upon time ("Stand-by Commitments");

(k) purchase or sell real estate limited partnership interests; or

(l) make loans unless all loans of portfolio securities are fully
collateralized and marked to market daily.

As a matter of fundamental policy, Scudder Limited Term Tax Free Fund
may not:

(1) with respect to 75% of the value of the total assets of the
Fund invest more than 5% of the value of the total assets of
the Fund in the securities of any one issuer, except U.S.
Government securities;

(2) borrow money, except from banks or pursuant to reverse
repurchase agreements as a temporary measure for extraordinary
or emergency purposes (the Fund is required to maintain asset
coverage [including borrowings] of 300% for all borrowings)
and no purchases of securities for the Fund will be made while
borrowings of the Fund exceed 5% of the Fund's assets;

(3) purchase and sell real estate (though it may invest in
securities of companies which deal in real estate and in other
permitted investments secured by real estate) or physical
commodities or physical commodities contracts;

(4) act as underwriter of the securities issued by others except
to the extent that the purchase of securities in accordance
with its investment objectives and policies directly from the
issuer thereof and the later disposition thereof may be deemed
to be underwriting;

(5) issue senior securities, except as appropriate to evidence
indebtedness which the Fund is permitted to incur pursuant to
Investment Restriction (2) and except for shares of the
separate series of the Trust, shares of each of which will be
preferred in liquidation and as to dividends over all other
series of the Trust with respect to assets specifically
allocated to that series;

(6) purchase the securities of any issuer if such purchase would
cause more than 10% of the voting securities of such issuer to
be held by the Fund;

(7) purchase from or sell to any of its officers and Trustees, its
investment adviser, its principal underwriter or the officers
or directors of its investment adviser or principal
underwriter, portfolio securities of the Fund; or

(8) purchase (i) pollution control and industrial development
bonds or (ii) securities which are not municipal obligations
if the purchase would cause more than 25% in the aggregate of
the market value of the total assets of the Fund at the time
of such purchase to be invested in the securities of one or
more issuers having their principal business activities in the
same industry.

(9) make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent the entry into repurchase
agreements and the purchase of debt securities in accordance
with its investment objectives and investment policies may be
deemed to be loans.

In addition, as a matter of nonfundamental policy, Scudder Limited Term
Tax Free Fund may not:

(a) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Fund's total assets at the
time any loan is made; all loans of portfolio securities will
be fully collateralized and marked to market daily;

(b) purchase or sell interests in oil, gas or other mineral
leases, or exploration or development programs (although it
may invest in municipal obligations and other permitted
investments of issuers which own or invest in such interests);

24
<PAGE>

(c) purchase or retain securities of any open-end investment
company or securities of closed-end investment companies
except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchases, or
except when such purchase, though not made in the open market,
is part of a plan of merger, consolidation, reorganization or
acquisition of assets; in any event the Fund may not purchase
more than 3% of the outstanding voting securities of another
investment company, may not invest more than 5% of its assets
in another investment company, and may not invest more than
10% of its assets in other investment companies;

(d) purchase restricted securities (for these purposes restricted
security means a security with a legal or contractual
restriction on resale in the principal market in which the
security is traded), including repurchase agreements maturing
in more than seven days and securities which are not readily
marketable if as a result more than 10% of the Fund's net
assets (valued at market at purchase) would be invested in
such securities;

(e) purchase securities if, as a result thereof, more than 5% of
the value of the Fund's net assets would be invested in
restricted securities (for these purposes restricted security
means a security with a legal or contractual restriction on
resale in the principal market in which the security is
traded);

(f) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Fund
at any time do not exceed 20% of the value of its net assets;
or sell put options on securities if, as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of the Fund's net assets;

(g) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to all futures contracts
entered into on behalf of the Fund and the premiums paid for
options on futures contracts does not exceed 5% of the fair
market value of the Fund's total assets; provided, that in the
case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing
the 5% limit;

(h) purchase or sell real estate limited partnership interests;

(i) purchase securities which are not tax free obligations if such
purchase would cause more than 20% of its total assets to be
invested in such securities, except that for temporary
defensive purposes or to meet temporary liquidity
requirements, or if there is an unusual disparity between
after-tax income on taxable and municipal securities, the Fund
may invest more than 20% of its total assets in securities the
interest income from which may be subject to federal income
tax.

(j) participate on a joint or a joint and several basis in any
trading account in securities, but may for the purpose of
possibly achieving better net results on portfolio
transactions or lower brokerage commission rates join with
other investment company and client accounts managed by
Scudder, Stevens & Clark, Inc. in the purchase or sale of debt
obligations;

(k) purchase or retain securities of an issuer any of whose
officers, directors, trustees or security holders is an
officer or Trustee of the Fund or a member, officer, director
or trustee of the investment adviser of the Fund if one or
more of such individuals owns beneficially more than one-half
of one percent (1/2 of 1%) of the shares or securities or both
(taken at market value) of such issuer and such individuals
owning more than one-half of one percent (1/2 of 1%) of such
shares or securities together own beneficially more than 5% of
such shares or securities or both;

(l) purchase securities on margin or make short sales unless, by
virtue of its ownership of other securities, it has the right
to obtain securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is
made upon the same conditions;

(m) purchase securities of any issuer with a record of less than
three years' continuous operation, including predecessors,
except (i) obligations issued or guaranteed by the U.S.

25
<PAGE>

Government or its agencies or (ii) municipal obligations which
are rated by at least one nationally recognized municipal bond
rating service, if such purchase would cause the Fund's
investments in all such issuers to exceed 5% of the Fund's
total assets taken at market value;

SLTTFF has no current intention of engaging in any borrowing, lending
of portfolio securities or investing in closed-end investment companies.

As a matter of fundamental policy, Scudder Medium Term Tax Free Fund
may not:

(4) act as underwriter of the securities issued by others except
to the extent that it may be deemed to be an underwriter in
connection with the purchase of securities in accordance with
its investment objectives and policies directly from the
issuer thereof and the later disposition thereof may be deemed
to be underwriting;

(5) make loans to other persons, except to the extent that the
purchase of debt obligations in accordance with its investment
objectives and policies and the entry into repurchase
agreements may be deemed to be loans. The purchase of all of a
publicly offered issue of debt obligations or all or a portion
of non-publicly offered debt obligations may be deemed the
making of a loan for this purpose, but, although not a policy
which may be changed only by a vote of the shareholders,
management expects that such securities would seldom exceed
25% of the net assets of the Fund. These securities are not
expected to comprise a major part of the Fund's investments;

(6) issue senior securities, except as appropriate to evidence
indebtedness which the Fund is permitted to incur pursuant to
Investment Restriction (2) and except for shares of the
separate series of the Trust, shares of each of which will be
preferred in liquidation and as to dividends over all other
series of the Trust with respect to assets specifically
allocated to that series;

(7) purchase the securities of any issuer if such purchase would
cause more than 10% of the voting securities of such issuer to
be held by the Fund (the Fund has not employed this practice
within the last year nor does it have any current intention of
doing so in the foreseeable future);

(8) purchase from or sell to any of its officers and Trustees, its
investment adviser, its principal underwriter or the officers,
directors and partners of its investment adviser or principal
underwriter, portfolio securities of the Fund; or

(9) purchase (i) pollution control and industrial development
bonds or (ii) securities which are not municipal obligations
if the purchase would cause more than 25% in the aggregate of
the market value of the total assets of the Fund at the time
of such purchase to be invested in the securities of one or
more issuers having their principal business activities in the
same industry.

26
<PAGE>

In addition, as a matter of nonfundamental policy, Scudder Medium Term
Tax Free Fund may not:

(a) enter into repurchase agreements or purchase any securities
if, as a result thereof, more than 10% of the total assets of
the Fund (taken at market value) would be, in the aggregate,
subject to repurchase agreements maturing in more than seven
days and invested in restricted securities or securities which
are not readily marketable:

(b) participate on a joint or a joint and several basis in any
trading account in securities, but may for the purpose of
possibly achieving better net results on portfolio
transactions or lower brokerage commission rates join with
other investment company and client accounts managed by
Scudder, Stevens & Clark in the purchase or sale of debt
obligations;

(c) purchase or retain securities of an issuer any of whose
officers, directors, trustees or security holders is an
officer or Trustee of the Fund or a member, officer, director
or trustee of the investment adviser of the Fund if one or
more of such individuals owns beneficially more than one-half
of one percent (1/2 of 1%) of the shares or securities or both
(taken at market value) of such issuer and such individuals
owning more than one-half of one percent (1/2 of 1%) of such
shares or securities together own beneficially more than 5% of
such shares or securities or both;

(d) purchase securities on margin or make short sales unless, by
virtue of its ownership of other securities, it has the right
to obtain the same securities in the same amount as the
securities sold and, if the right is conditional, the sale is
made upon the same conditions, except that the Fund may
maintain short positions in forward currency contracts,
options and futures contracts, subject to any legal
requirements concerning segregation;

(e) purchase securities of any issuer with a record of less than
three years' continuous operation, including predecessors,
except (i) obligations issued or guaranteed by the U.S.
Government or its agencies or (ii) municipal obligations which
are rated by at least one nationally recognized municipal bond
rating service, if such purchase would cause the Fund's
investments in all such issuers to exceed 5% of the Fund's
total assets taken at market value;

(f) purchase or sell interests in oil, gas or other mineral
leases, or exploration or development programs (although it
may invest in municipal obligations and other permitted
investments of issuers which own or invest in such interests);

(g) invest in the securities of other investment companies, except
by purchase in the open market when no commission or profit to
a sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase,
though not made on the open market, is part of a plan of
merger or consolidation;

(h) purchase warrants, unless attached to other securities in
which it is permitted to invest;

(i) purchase restricted securities (for these purposes restricted
security means a security with a legal or contractual
restriction on resale in the principal market in which the
security is traded), including repurchase agreements maturing
in more than seven days and securities which are not readily
marketable if as a result more than 10% of the Fund's net
assets (valued at market at purchase) would be invested in
such securities;

(j) purchase securities if, as a result thereof, more than 5% of
the value of the Fund's net assets would be invested in
restricted securities (for these purposes restricted security
means a security with a legal or contractual restriction on
resale in the principal market in which the security is
traded);

(k) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Fund
at any time do not exceed 20% of the value of its net assets;

27
<PAGE>

or sell put options on securities if, as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of the Fund's net assets;

(l) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to all futures contracts
entered into on behalf of the Fund and the premiums paid for
options on futures contracts does not exceed 5% of the fair
market value of the Fund's total assets; provided, that in the
case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing
the 5% limit;

(m) purchase or sell real estate limited partnership interests; or

(n) purchase securities which are not tax free obligations if such
purchase would cause more than 20% of its total assets to be
invested in such securities, except that for temporary
defensive purposes or to meet temporary liquidity
requirements, the Fund may invest more than 20% of its total
assets in securities the interest income from which may be
subject to federal income tax.

Additionally, the Fund has not engaged in borrowing during its last
fiscal year and has no current intention of borrowing money for the foreseeable
future.

As a matter of fundamental policy, each of Scudder Managed Municipal
Bonds and Scudder High Yield Tax Free Fund may not:

(1) with respect to 75% of its total assets taken at market value,
purchase more than 10% of the voting securities of any one
issuer or invest more than 5% of the value of its total assets
in the securities of any one issuer, except obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities and except securities of other investment
companies;

(3) purchase or sell real estate (except that the Fund may invest
in (i) securities of companies which deal in real estate or
mortgages, and (ii) securities secured by real estate or
interests therein, and that the Fund reserves freedom of
action to hold and to sell real estate acquired as a result of
the Fund's ownership of securities); each Fund may not
purchase or sell physical commodities or contracts relating to
physical commodities;

(4) act as underwriter of securities issued by others, except to
the extent that it may be deemed an underwriter in connection
with the disposition of portfolio securities of the Fund;

(5) make loans to other persons, except (a) loans of portfolio
securities and (b) to the extent the entry into repurchase
agreements and the purchase of debt obligations in accordance
with its investment objectives and investment policies may be
deemed to be loans;

(6) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except for
shares of the separate classes or series of the Fund, provided
that collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation
margin, are not considered to be the issuance of senior
securities for purposes of this restriction;

(7) purchase (a) private activity bonds, or (b) securities which
are neither municipal obligations nor securities of the U.S.
Government, its agencies or instrumentalities, if in either
case the purchase would cause more than 25% of the market
value of its total assets at the time of such purchase to be
invested in the securities of one or more issuers having their
principal business activities in the same industry (for the
purposes of this restriction, telephone companies are
considered to be in a separate industry from gas and electric
public utilities, and wholly-owned finance companies are

28
<PAGE>

considered to be in the industry of their parents if their
activities are related primarily to financing the activities
of their parents);

(8) (for Scudder High Yield Tax Free Fund only) purchase
securities which are not tax free obligations if such purchase
would cause more than 20% of its total assets to be invested
in such securities, except that for temporary defensive
purposes, the Fund may invest more than 20% of its total
assets in securities the interest income from which may be
subject to federal income tax (i) to meet temporary liquidity
requirements, and (ii) during the period between the
commitment to purchase tax free securities and the settlement
date of such purchases.

(9) (for Scudder Managed Municipal Bonds) purchase securities
which are not tax free obligations if such purchase would
cause more than 20% of its net assets to be invested in such
securities, except that for temporary defensive purposes, the
Fund may invest more than 20% of its net assets in securities
the interest income from which may be subject to federal
income tax (i) until the Fund is substantially invested in
municipal securities, (ii) to meet temporary liquidity
requirements, and (iii) during the period between the
commitment to purchase municipal securities and the settlement
date of such purchases.

(10) purchase securities other than those described in the Fund's
prospectus or statement of additional information.

In addition, as a matter of nonfundamental policy, each of Scudder
Managed Municipal Bonds and Scudder High Yield Tax Free Fund may not:

(b) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;

(d) purchase securities on margin or make short sales, unless, by
virtue of its ownership of other securities, it has the right
to obtain securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is
made upon the same conditions, except in connection with
arbitrage transactions and except that a Fund may obtain such
short-term credits as may be necessary for the clearance of
purchases and sales of securities;

29
<PAGE>

cause the investments of a Fund in all such issuers to exceed
5% of the total assets of the Fund taken at market value;

(g) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Fund
at any time do not exceed 20% of its net assets; or sell put
options on securities if, as a result, the aggregate value of
the obligations underlying such put options would exceed 50%
of the Fund's net assets;

(h) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to all futures contracts
entered into on behalf of the Fund and the premiums paid for
options on futures contracts does not exceed 5% of the fair
market value of the Fund's total assets; provided, however,
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit;

(i) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which
own or invest in such interests);

(j) borrow money, including reverse repurchase agreements, in
excess of 5% of its total assets (taken at market value) or
borrow other than from banks;

(k) purchase warrants if as a result warrants taken at the lower
of cost or market value would represent more than 5% of the
value of a Fund's total net assets or more than 2% of its net
assets in warrants that are not listed on the New York or
American Stock Exchanges or on an exchange with comparable
listing requirements (for this purpose, warrants attached to
securities will be deemed to have no value);

(l) purchase or sell real estate limited partnership interests;

(m) purchase securities which are not tax free obligations if such
purchase would cause more than 20% of its total assets to be
invested in such securities, except that for temporary
defensive purposes or to meet temporary liquidity
requirements, the Fund may invest more than 20% of its total
assets in securities the interest income from which may be
subject to federal income tax; or

(n) make loans unless all loans of portfolio securities are fully
collateralized and marked to market daily.

PURCHASES

(See "Purchases" and "Transaction information" in the
Funds' prospectus.)

Additional Information About Opening an Account

Shareholders of other Scudder funds who have submitted an account
application and have certified a tax identification number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the
National Association of Securities Dealers, Inc. ("NASD"), and banks may open an
account by wire. These investors must call 1-800-225-5163 to get an account
number. During the call, the investor will be asked to indicate the Fund name,
the amount to be wired ($1,000 minimum), the name of the bank or trust company
from which the wire will be sent, the exact registration of the new account, the
tax identification or Social Security number, address and telephone number. The
investor must then call the bank to arrange a wire transfer to The Scudder
Funds, State Street Bank and Trust Company, Boston, MA 02101 ABA Number
011000028, DDA Account Number 9903-5552. The investor must give the Scudder fund
name, account name and the new account number. Finally, the investor must send a
completed and signed application to the Fund promptly.

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<PAGE>

Checks

A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.

If shares of a Fund are purchased by a check which proves to be
uncollectible, the Trusts reserve the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by that Fund or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, such Fund will have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from or restricted in placing future orders in any of the Scudder
funds.

Wire Transfer of Federal Funds

In the case of SLTTFF, SMTTFF, SMMB and SHYTFF, to purchase
shares of a Fund and obtain the same day dividend, and in the case of STFMF to
obtain the net asset value determined as of twelve o'clock noon, you must have
your bank forward federal funds by wire transfer and provide the required
account information so as to be available to the Fund prior to twelve o'clock
noon eastern time on that day. If you wish to make a purchase of $500,000 or
more you should notify the Fund's transfer agent, Scudder Service Corporation
(the "Transfer Agent") of such a purchase by calling 1-800-225-5163. If either
the federal funds or the account information is received after twelve o'clock
noon eastern time but both the funds and the information are made available
before the close of regular trading on the New York Stock Exchange (the
"Exchange") (normally 4 p.m. eastern time), on any business day, shares will be
purchased at net asset value determined on that day but will not receive the
dividend; in such cases, dividends commence on the next business day.

For each Fund the bank sending an investor's federal funds by bank wire
may charge for the service. Presently each Fund pays a fee for receipt by State
Street Bank (the "Custodian") of "wired funds," but the right to charge
investors for this service is reserved.

Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Martin Luther King, Jr. Day (the 3rd Monday in
January), Columbus Day (the 2nd Monday in October) and Veterans Day (November
11). Investors are not able to purchase shares by wiring federal funds on such
holidays because the Custodian is not open to receive such federal funds on
behalf of a Fund.

Share Price

Purchases will be filled without sales charge at the net asset value
next computed after receipt of a purchase order in good order. Net asset value
for STFMF normally is computed twice a day, as of twelve o'clock noon and the
close of regular trading on the Exchange on each day the Exchange is open for
trading. Net asset value for SLTTFF, SMTTFF, SMMB and SHYTFF normally is
computed as of the close of regular trading on each day the Exchange is open for
trading. Orders received after such close will be filled at the net asset value
per share on the following business day. If the order has been placed by a
member of the NASD, other than the Funds' principal underwriter, Scudder
Investor Services, Inc., it is the responsibility of that member broker, rather
than a Fund, to forward the purchase order to the Transfer Agent in Boston by
the close of regular trading on the Exchange.

Share Certificates

Due to the desire of the Funds' management to afford ease of
redemption, certificates will not be issued to indicate ownership in the Funds.
Share certificates now in a shareholder's possession may be sent to the Transfer
Agent for cancellation and credit to such shareholder's account. Shareholders
who prefer may hold the certificates in their possession until they wish to
exchange or redeem such shares. See "Purchases" and "Exchanges and redemptions"
in the Funds' prospectus.

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<PAGE>

Other Information

If purchases or redemptions of the Funds' shares are arranged and
settlement is made at the investor's election through a member of the NASD,
other than Scudder Investor Services, Inc., that member may, at its discretion,
charge a fee for that service. The Board of Trustees of each Fund and Scudder
Investor Services, Inc., the Funds' principal underwriter, each has the right to
limit the amount of purchases and to refuse to sell to any person; and each may
suspend or terminate the offering of shares of their respective Funds, including
one or all series of SMT, at any time.

The "Tax Identification Number" section of the Funds' application must
be completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g., from exempt investors a certification of exempt status) will be returned
to the investor.

A Fund may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of, the assets of any investment
company (or series thereof) or personal holding company, subject to the
requirements of the 1940 Act.

EXCHANGES AND REDEMPTIONS

(See "Exchanges and redemptions" and "Transaction information" in
the Funds' prospectus.)

Exchanges

Exchanges are comprised of a redemption from one Scudder fund and the
purchase of another Scudder fund to an existing account or newly-established
account. When an exchange involves a new account, the new account will be
established with the same registration, tax identification number, address,
telephone redemption option, "Scudder Automated Information Line" (SAIL)
transaction authorization, and dividend option as the existing account. Other
features will not carry over automatically to the new account. Exchanges to a
new fund account must be for a minimum of $1,000. When an exchange represents an
additional investment into an existing account, the account receiving the
exchange proceeds must have identical registration, tax identification number,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request must
be in writing and must contain a signature guarantee as described under
"Transaction information--Redeeming shares--Signature Guarantee" in the Fund's
prospectus.

Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at respective net asset
values determined on that day. Exchange orders received after the close of
regular trading will be executed on the following business day.

Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder Fund to an
existing account in another Scudder Fund through Scudder's Automatic Exchange
Program. Exchanges must be for a minimum of $50. Shareholders may add this free
feature over the phone or in writing. Automatic Exchanges will continue until
the shareholder requests by phone or in writing to have the feature removed, or
until the originating account is depleted. The Trust and the Transfer Agent each
reserves the right to suspend or terminate the privilege of the Automatic
Exchange Program at any time.

There is no charge to the shareholder for any exchange described above.
An exchange into another Scudder fund is a redemption of shares, and therefore
may result in tax consequences (gain or loss) to the shareholder and the
proceeds of such exchange may be subject to backup withholding (See "TAXES").

Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Trusts employ
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Trusts do not follow such
procedures, they may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trusts will not be liable for acting upon
instructions communicated by telephone that they reasonably believe to be

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<PAGE>

genuine. The Trusts and the Transfer Agent each reserves the right to suspend or
terminate the privilege of exchanging by telephone or fax at any time.

The Scudder Funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from Scudder Investor Services, Inc. a prospectus of
the Scudder fund into which the exchange is being contemplated.

Redemption by Telephone

In order to request redemptions by telephone, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which the redemption proceeds are to be sent.
The proceeds will not be mailed or wired other than to a predesignated bank
account. Shareholders currently receive the right to redeem up to $50,000 to
their address of record automatically, without having to elect it.

(a) NEW INVESTORS wishing to establish telephone redemption to a
designated bank account must complete the appropriate section
on the application.

(b) EXISTING SHAREHOLDERS who wish to establish telephone
redemption to a designated bank account or who want to change
the bank account previously designated to receive redemption
payments should either return a Telephone Redemption Option
Form (available upon request) or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. A signature and a signature guarantee
are required for each person in whose name the account is
registered.

Shareholders of STFMF who have elected "telephone redemption" may
telephone before twelve o'clock noon and request that proceeds of their
redemption be wired to the designated bank on the same day. Shareholders
redeeming before noon will receive the net asset value per share determined as
of twelve o'clock noon and will not receive the dividend on the day of
redemption.

Shareholders of STFMF whose redemption requests are received by the
Fund's transfer agent after twelve o'clock noon eastern time and prior to 4 p.m.
will receive the net asset value per share determined as of 4 p.m. and will
receive that day's dividend for the day of redemption. Proceeds will normally be
mailed on the next business day or wired on the next day on which State Street
Bank is open for business. Redemption requests received by the Fund's Transfer
Agent after 4 p.m. will receive the net asset value on the next business day.

If a request for redemption to a shareholder's bank account is made by
telephone or telegram, payment will be made by Federal Reserve bank wire to the
bank account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5.00
charge for all wire redemptions.

Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a
participant in the Federal Reserve System, redemption proceeds must be
wired through a commercial bank which is a correspondent of the savings
bank. As this may delay receipt by the shareholder's account, it is
suggested that investors wishing to use a savings bank discuss wire
procedures with their bank and submit any special wire transfer
information with the telephone redemption authorization. If appropriate
wire information is not supplied, redemption proceeds will be mailed to
the designated bank.

The Trusts employ procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Trusts do not follow such procedures, they may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Trusts will not be
liable for acting upon instructions communicated by telephone that they
reasonably believe to be genuine.

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<PAGE>

Redemption by Mail or Fax

Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with signatures guaranteed as explained in the
Funds' Prospectus.

In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).

It is suggested that shareholders holding share certificates or shares
registered in other than individual names contact the Transfer Agent prior to
any redemptions to ensure that all necessary documents accompany the request.
When shares are held in the name of a corporation, trust, fiduciary agent,
attorney or partnership, the Transfer Agent requires, in addition to the stock
power, certified evidence of authority to sign. These procedures are for the
protection of shareholders and should be followed to ensure prompt payment.
Redemption requests must not be conditional as to date or price of the
redemption. Proceeds of a redemption will be sent within seven business days
after receipt by the Transfer Agent of a request for redemption that complies
with the above requirements. Delays of more than seven days of payment for
shares tendered for repurchase or redemption may result, but only until the
purchase check has cleared.

Redemption by Write-A-Check

All new investors and existing shareholders of STFMF , SLTTFF and
SMTTFF who apply for checks may use them to pay any person, provided that each
check is for at least $100 and not more than $5 million. By using the checks,
the shareholder will receive daily dividend credit on his or her shares until
the check has cleared the banking system. Investors who purchased shares by
check may write checks against those shares only after they have been on each
Fund's books for seven business days. Shareholders who use this service may also
use other redemption procedures. No shareholder may write checks against
certificated shares. The Funds pay the bank charges for this service. However,
each Fund will review the cost of operation periodically and reserves the right
to determine if direct charges to the persons who avail themselves of this
service would be appropriate. The Funds, Scudder Service Corporation and State
Street Bank and Trust Company each reserves the right at any time to suspend or
terminate the "Write-A-Check" procedure.

Checks will be returned by the Custodian if there are insufficient
shares to meet the withdrawal amount. Potential fluctuations in the per share
value of SMTTFF should be considered in determining the amount of the check. An
investor should not attempt to close an account by check, because the exact
balance at the time the check clears will not be known when the check is
written.

Other Information

If a shareholder redeems all shares in the account, the shareholder
will receive, in addition to the net asset value thereof, all declared but
unpaid dividends thereon. The value of shares redeemed or repurchased may be
more or less than a shareholder's cost depending upon the net asset value at the
time of the redemption or repurchase. None of the Funds imposes a redemption or
repurchase charge, although a wire charge may be applicable for redemption
proceeds wired to a shareholder's bank account. Redemption of shares, including
redemptions undertaken to effect an exchange for shares of another Scudder fund,
and including exchanges and redemptions with STFMF, SLTTFF and SMTTFF by
Write-A-Check, may result in tax consequences (gain or loss) to the shareholder,
and the proceeds of such redemptions may be subject to backup withholding (see
"TAXES.")

Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.

The determination of net asset value may be suspended at times and a
shareholder's right to redeem shares and to receive payment therefor may be
suspended at times (a) during which the Exchange is closed, other than customary
weekend and holiday closings, (b) during which trading on the Exchange is
restricted, (c) during which an emergency exists as a result of which disposal
by the Fund involved of securities owned by it is not reasonably practicable or
it is not reasonably practicable for that Fund fairly to determine the value of
its net assets, or (d) during which the SEC by order permits such suspension of

34
<PAGE>

the right of redemption or a postponement of the date of payment or of
redemption; provided that applicable rules and regulations of the SEC (or any
succeeding governmental authority) shall govern as to whether the conditions
prescribed in (b), (c) or (d) exist.

If transactions at any time reduce a shareholder's account balance in a
Fund to below $1,000 in value, such Fund may notify the shareholder that, unless
the account balance is brought up to at least $1,000, that Trust will redeem all
shares of that Fund, close the account balance and send the redemption proceeds
to the shareholder. The shareholder has sixty days to bring the account balance
up to $1,000 before any action will be taken by that Fund. No transfer from an
existing account to establish a new Scudder fund account, should be for less
than $1,000. (This policy applies to accounts of new shareholders, but does not
apply to certain Special Plan Accounts.) The Trustees of STFMF and SMT have the
authority to change the minimum account size.

FEATURES AND SERVICES OFFERED BY THE FUNDS

(See "Shareholder benefits" in the Funds'
prospectus.)

The Pure No-Load(TM) Concept

Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its funds from the
vast majority of mutual funds available today. The primary distinction is
between load and no-load funds.

Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.

A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.

A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Rules of Fair Practice, a mutual fund
can call itself a "no-load" fund only if the 12b-1 fee and/or service fee does
not exceed 0.25% of a fund's average annual net assets.

Because Scudder funds do not pay any asset-based sales charges or
service fees, Scudder developed and trademarked the phrase pure no-load(TM) to
distinguish Scudder funds from other no-load mutual funds. Scudder pioneered the
no-load concept when it created the nation's first no-load fund in 1928, and
later developed the nation's first family of no-load mutual funds.

The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder pure no-load fund over investing the same amount
in a load fund that collects an 8.50% front-end load, a load fund that collects
only a 0.75% 12b-1 and/or service fee, and a no-load fund charging only a 0.25%
12b-1 and/or service fee. The hypothetical figures in the chart show the value
of an account assuming a constant 10% rate of return over the time periods
indicated and reinvestment of dividends and distributions.

35
<PAGE>

Scudder Load Fund with No-Load Fund with
YEARS Pure No-Load(TM) 8.50% Load 0.75% 12b-1 0.25% 12b-1
----- Fund Fund Fee Fee
---- ---- --- ---
10 $25,937 $23,733 $24,222 $25,354

15 41,772 38,222 37,698 40,371

20 67,275 61,557 58,672 64,282

Investors are encouraged to review the fee tables on pages 2, 3 and 4
of the Fund's prospectus for more specific information about the rates at which
management fees and other expenses are assessed.

Distribution Plans

Investors have complete freedom of choice whether to receive cash or to
reinvest any dividends from net investment income, or distributions from
realized capital gains in additional shares of the same Fund. A change of
instructions for the method of payment must be received by the Fund's transfer
agent at least 5 days prior to a dividend record date. Shareholders may change
their dividend option either by calling 1-800-225-5163 or by sending written
instructions to the Transfer Agent. See "How to contact Scudder" in the
prospectus for the address. Please include your account number with your written
request.

Reinvestment usually is made on the day following the record date.
Investors may leave standing instructions with the transfer agent designating
their option for either reinvestment or cash distributions of any income
dividends or capital gains distributions. If no election is made, dividends and
distributions will be invested in additional shares of the relevant Fund.

Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gains distributions automatically deposited to their personal
bank account usually within three business days after a Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163.

Scudder Funds Centers

Investors may visit any of the Fund Centers maintained by Scudder
Investor Services, Inc. The Centers are designed to provide individuals with
services during any business day. Investors may pick up literature or obtain
assistance with opening an account, adding monies or special options to existing
accounts, making exchanges within the Scudder Family of Funds, redeeming shares
or opening retirement plans. Checks should not be mailed to the Centers but
should be mailed to "The Scudder Funds" at the address listed under "How to
contact Scudder" in the Funds' prospectus.

Reports to Shareholders

All three Trusts issue to their respective shareholders annual and
semiannual financial statements (audited annually by independent accountants),
including a list of investments held and statements of assets and liabilities,
operations, changes in net assets and financial highlights for that Fund, as the
case may be.

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<PAGE>

Diversification

A shareholder's investment represents an interest in a large,
diversified portfolio of carefully selected securities. Diversification may
protect investors against the possible risks associated with concentrating in
fewer securities.

Transaction Summaries

Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.

THE SCUDDER FAMILY OF FUNDS

(See "Investment products and services" in the Fund's
prospectus.)

The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
Initial purchases in each Scudder fund must be at least $1,000 or $500 in the
case of IRAs. Subsequent purchases must be for $100 or more. Minimum investments
for special plan accounts may be lower.

MONEY MARKET

Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital, and consistent therewith, to maintain the liquidity of
capital and to provide current income through investment in a
supervised portfolio of short-term debt securities. SCIT intends to
seek to maintain a constant net asset value of $1.00 per share,
although in certain circumstances this may not be possible.

Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and consistent therewith to provide current income
through investment in a supervised portfolio of U.S. Government and
U.S. Government guaranteed obligations with maturities of not more than
762 calendar days. The Fund intends to seek to maintain a constant net
asset value of $1.00 per share, although in certain circumstances this
may not be possible.

INCOME

Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued in
emerging markets.

Scudder GNMA Fund seeks to provide investors with high current income
from a portfolio of high-quality GNMA securities.

Scudder Income Fund seeks to earn a high level of income consistent
with the prudent investment of capital through a flexible investment
program emphasizing high-grade bonds.

Scudder International Bond Fund seeks to provide income from a
portfolio of high-grade bonds denominated in foreign currencies. As a
secondary objective, the Fund seeks protection and possible enhancement
of principal value by actively managing currency, bond market and
maturity exposure and by security selection.

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<PAGE>

Scudder Short Term Bond Fund seeks to provide a higher and more stable
level of income than is normally provided by money market investments,
and more price stability than investments in intermediate-and long-term
bonds.

Scudder Short Term Global Income Fund seeks to provide high current
income from a portfolio of high-grade money market instruments and
short-term bonds denominated in foreign currencies and the U.S. dollar.

Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with the minimization of
reinvestment risks through investments primarily in zero coupon
securities.

TAX FREE MONEY MARKET

Scudder Tax Free Money Fund ("STFMF") is designed to provide investors
with income exempt from regular federal income tax while seeking
stability of principal. STFMF seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may
not be possible.

Scudder California Tax Free Money Fund* is designed to provide
California taxpayers income exempt from California state and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.

Scudder New York Tax Free Money Fund* is designed to provide New York
taxpayers income exempt from New York state, New York City and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.

TAX FREE

Scudder High Yield Tax Free Fund seeks to provide high income which is
exempt from regular federal income tax by investing in investment-grade
municipal securities.

Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.

Scudder Managed Municipal Bonds seeks to provide income which is exempt
from regular federal income tax primarily through investments in
long-term municipal securities with an emphasis on high quality.

Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation by investing in high-grade municipal securities of
intermediate maturities.

Scudder California Tax Free Fund* seeks to provide income exempt from
both California and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
California state, municipal and local government obligations.

Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide as
high a level of income exempt from Massachusetts personal and regular
federal income tax as is consistent with a high degree of principal
stability.

Scudder Massachusetts Tax Free Fund* seeks to provide income exempt
from both Massachusetts and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
Massachusetts state, municipal and local government obligations.

Scudder New York Tax Free Fund* seeks to provide income exempt from New
York state, New York City and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
investments in New York state, municipal and local government
obligations.

- --------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.

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<PAGE>

Scudder Ohio Tax Free Fund* seeks to provide income exempt from both
Ohio and regular federal income taxes through the professional and
efficient management of a portfolio consisting of Ohio state, municipal
and local government obligations.

Scudder Pennsylvania Tax Free Fund* seeks to provide income exempt from
both Pennsylvania and regular federal income taxes through a portfolio
consisting of Pennsylvania state, municipal and local government
obligations.

GROWTH AND INCOME

Scudder Balanced Fund seeks to provide a balance of growth and income,
as well as long-term preservation of capital, from a diversified
portfolio of equity and fixed income securities.

Scudder Growth and Income Fund seeks to provide long-term growth of
capital, current income, and growth of income through a portfolio
invested primarily in common stocks and convertible securities by
companies which offer the prospect of growth of earnings while paying
current dividends.

GROWTH

Scudder Capital Growth Fund seeks to maximize long-term growth of
capital through a broad and flexible investment program emphasizing
common stocks.

Scudder Development Fund seeks to achieve long-term growth of capital
primarily through investments in marketable securities, principally
common stocks, of relatively small or little-known companies which in
the opinion of management have promise of expanding their size and
profitability or of gaining increased market recognition for their
securities, or both.

Scudder Global Fund seeks long-term growth of capital primarily through
a diversified portfolio of marketable equity securities selected on a
worldwide basis. It may also invest in debt securities of U.S. and
foreign issuers. Income is an incidental consideration.

Scudder Global Small Company Fund seeks above-average capital
appreciation over the long term by investing primarily in the equity
securities of small companies located throughout the world.

Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.

Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.

Scudder International Fund seeks long-term growth of capital through
investment principally in a diversified portfolio of marketable equity
securities selected primarily to permit participation in non-U.S.
companies and economies with prospects for growth. It also invests in
fixed-income securities of foreign governments and companies, with a
view toward total investment return.

Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.

Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.

Scudder Quality Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of
seasoned, financially strong U.S. growth companies.

- --------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.

39
<PAGE>

Scudder Value Fund seeks long-term growth of capital through investment
in undervalued equity securities.

The Japan Fund, Inc. seeks capital appreciation through investment in
Japanese securities, primarily in common stocks of Japanese companies.

The net asset values of most Scudder Funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder Funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.

The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
Scudder Service Representative; easy telephone exchanges into Scudder money
market, tax free, income, and growth funds; shares redeemable at net asset value
at any time.

SPECIAL PLAN ACCOUNTS

(See "Scudder tax-advantaged retirement plans", "Purchases--By
Automatic Investment Plan" and "Exchanges and redemptions--By
Automatic Withdrawal Plan" in the Funds' prospectus.)

Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. It is
advisable for an investor considering the funding of the investment plans
described below to consult with an attorney or other investment or tax adviser
with respect to the suitability requirements and tax aspects thereof.

None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.

Automatic Withdrawal Plan

Non-retirement plan shareholders who currently own or purchase $10,000
or more of shares of the Fund may establish an Automatic Withdrawal Plan. The
investor can then receive monthly, quarterly or periodic redemptions from his or
her account for any designated amount of $50 or more. Payments are mailed at the
end of each month. The check amounts may be based on the redemption of a fixed
dollar amount, fixed share amount, percent of account value or declining
balance. The Plan provides for income dividends and capital gains distributions,
if any, to be reinvested in additional shares. Shares are then liquidated as
necessary to provide for withdrawal payments. Since the withdrawals are in
amounts selected by the investor and have no relationship to yield or income,
payments received cannot be considered as yield or income on the investment and
the resulting liquidations may deplete or possibly extinguish the initial
investment. Requests for increases in withdrawal amounts or to change payee must
be submitted in writing, signed exactly as the account is registered and contain
signature guarantee(s) as described under "Transaction information--Redeeming
shares--Signature guarantees" in the Funds' prospectus. Any such requests must
be received by the Funds' transfer agent by the 15th of the month in which such
change is to take effect. An Automatic Withdrawal Plan may be terminated at any
time by the shareholder, the Trusts or their agents on written notice, and will
be terminated when all shares of the Fund under the Plan have been liquidated or
upon receipt by the Trust of notice of death of the shareholder.

An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.

40
<PAGE>

Cash Management System - Group Sub-Accounting Plan for
Trust Accounts, Nominees and Corporations

To minimize record-keeping by fiduciaries and corporations,
arrangements have been made with the Transfer Agent to offer a convenient group
sub-accounting and dividend payment system to bank trust departments and others.
Debt obligations of banks which utilize the Cash Management System are not given
any preference in the acquisition of investments for a Fund or Portfolio.

In its discretion, a Fund may accept minimum initial investments of
less than $1,000 (per Portfolio) as part of a continuous group purchase plan by
fiduciaries and others (e.g., brokers, bank trust departments, employee benefit
plans) provided that the average single account in any one Fund or Portfolio in
the group purchase plan will be $1,000 or more. A Fund may also wire all
redemption proceeds where the group maintains a single designated bank account.

Shareholders who withdraw from the group purchase plan through which
they were permitted to initiate accounts under $1,000 will be subject to the
minimum account restrictions described under "EXCHANGES AND REDEMPTIONS--Other
Information."

Automatic Investment Plan

Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.

The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when the shares are priced low the investor will
purchase more shares than when the share price is higher. Over a period of time
this investment approach may allow the investor to reduce the average price of
the shares purchased. However, this investment approach does not assure a profit
or protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.

Uniform Transfers/Gifts to Minors Act

Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.

The Trusts reserve the right, after notice has been given to the
shareholder and custodian, to terminate a shareholder's account in the event
that regular investments to the account cease before the $1,000 minimum is
reached.

Scudder Trust Company

Annual service fees are paid by the Funds to Scudder Trust Company, an
affiliate of the Adviser, for certain retirement plan accounts, and are included
in the fees paid to the Transfer Agent.

DIVIDENDS

(See "Distribution and performance information" in the
Funds' prospectus.)

Scudder Tax Free Money Fund

The net investment income of STFMF is determined as of the close of
regular trading on the Exchange, usually 4 p.m., eastern time, on each day the
Exchange is open for trading.

All the investment income of STFMF so determined normally will be
declared as a dividend to shareholders of record as of determination of the net
asset value at twelve o'clock noon after the purchase and redemption of shares.

41
<PAGE>

Shares purchased as of the determination of net asset value made as of the close
of the Exchange will not participate in that day's dividend; in such
cases dividends commence on the next business day. Checks will be mailed to
shareholders electing to take dividends in cash, and confirmations will be
mailed to shareholders electing to invest dividends in additional shares for the
month's dividends on the fourth business day of the next month. Dividends will
be invested at the net asset value per share, normally $1.00, determined as of 4
p.m. on the first business day of each month.

Dividends are declared daily on each day on which the Exchange
is open for business. The dividends for a business day immediately preceding a
weekend or holiday will normally include an amount equal to the net income for
the subsequent days on which dividends are not declared. However, no daily
dividend will include any amount of net income in respect of a subsequent
semi-annual accounting period.

Because the net investment income of STFMF is declared as a dividend
each time the net income of the Fund is determined, the net asset value per
share of the Fund (i.e., the fair value of the net assets of the Fund divided by
the number of shares of the Fund outstanding) will remain at $1.00 per share
immediately after each such determination and dividend declaration, unless (i)
there are unusual or extended fluctuations in short-term interest rates or other
factors, such as unfavorable changes in the creditworthiness of issuers
affecting the value of securities in the Fund's portfolio, or (ii) net
investment income is a negative amount.

Net investment income (from the time of the immediately preceding
determination thereof) consists of (i) all interest income accrued on the
portfolio assets of the Fund less (ii) all actual and accrued expenses. Interest
income included in the daily computation of net income is comprised of original
issue discount earned on discount paper accrued ratably to the date of maturity
as well as accrued interest. Expenses of STFMF, including the management fee
payable to the Adviser, are accrued each day.

Normally STFMF will have a positive net investment income at the time
of each determination thereof. Net investment income may be negative if an
unexpected liability must be accrued or a loss realized. If the net investment
income of STFMF determined at any time is a negative amount, the net asset value
per share will be reduced below $l.00 unless one or more of the following steps
are taken: the Trustees have the authority (l) to reduce the number of shares in
each shareholder's account, (2) to offset each shareholder's pro rata portion of
negative net investment income from the shareholder's accrued dividend account
or from future dividends, or (3) to combine these methods in order to seek to
maintain the net asset value per share at $l.00. STFMF may endeavor to restore
the net asset value per share to $l.00 by not declaring dividends from net
investment income on subsequent days until restoration, with the result that the
net asset value per share will increase to the extent of positive net investment
income which is not declared as a dividend.

Should STFMF incur or anticipate any unusual or unexpected significant
expense or loss which would affect disproportionately the Fund's income for a
particular period, the Trustees would at that time consider whether to adhere to
the dividend policy described above or to revise it in the light of the then
prevailing circumstances in order to ameliorate, to the extent possible, the
disproportionate effect of such expense, loss or depreciation on the then
existing shareholders. Such expenses or losses may nevertheless result in a
shareholder's receiving no dividends for the period during which the shares are
held and in receiving upon redemption a price per share lower than that which
was paid.

Distributions of realized capital gains, if any, are paid in November
or December of STFMF's taxable year although the Fund may make an additional
distribution within three months of the Fund's fiscal year end of December 31.
STFMF expects to follow the practice of distributing all net realized capital
gains to shareholders and expects to distribute realized capital gains at least
annually. However, if any realized capital gains are retained by STFMF for
reinvestment and federal income taxes are paid thereon by the Fund, the Fund
will elect to treat such capital gains as having been distributed to
shareholders; as a result, shareholders would be able to claim their share of
the taxes paid by the Fund on such gains as a credit against their individual
federal income tax liability.

Scudder Limited Term Tax Free Fund, Scudder Medium Term Tax Free Fund,
Scudder Managed Municipal Bonds and Scudder High Yield Tax Free Fund

SLTTFF, SMTTFF, SMMB and SHYTFF will follow the practice of
distributing substantially all of their net investment income (defined under
"ADDITIONAL INFORMATION--Glossary") and any excess of net realized short-term
capital gains over net realized long-term capital losses. In the past, SMTTFF,

42
<PAGE>

SMMB and SHYTFF have followed the practice of distributing the entire excess of
net realized long-term capital gains over net realized short-term capital
losses. However, if it appears to be in the best interest of such Funds and the
relevant shareholders, such Fund may retain all or part of such gain for
reinvestment.

Dividends on SLTTFF, SMTTFF, SMMB and SHYTFF will be declared
daily and distributions of net investment income will be made monthly on the
fourth Boston business day of each month for the preceding month's net income.
Distributions of realized capital gains, if any, are paid in November or
December, and October in the case of SLTTFF, although an additional
distribution may be made within three months of the Fund's fiscal year end, if
necessary, and each Fund expects to continue to distribute net capital gains at
least annually. Both types of distributions will be made in shares of that Fund
and confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent. An additional
capital gain distribution may also be made (or treated as made) shortly before
December 31 in order to avoid the excise tax enacted by the Tax Reform Act of
1986 (See "TAXES"). Both types of distributions will be made in shares of the
Fund and confirmations will be mailed to each shareholder unless a shareholder
has elected to receive cash, in which case a check will be sent.

Scudder, Stevens & Clark, Inc. and its affiliates may purchase shares
of a Fund from time to time prior to the Fund's attainment of normal operating
conditions. To the extent that such shares are redeemed before a Fund's
achieving significant size, the yield on such Fund's shares may be adversely
affected.

PERFORMANCE INFORMATION

(See "Distribution and performance
information--Performance information" in
the Funds' prospectus.)

Scudder Tax Free Money Fund

From time to time, quotations of a Fund's performance may be included
in advertisements, sales literature or shareholder reports. These performance
figures may be calculated in the following manner:

Yield is the net annualized yield based on a specified 7-calendar day
period calculated at simple interest rates. Yield is calculated by determining
the net change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return. The yield is
annualized by multiplying the base period return by 365/7. The yield figure is
stated to the nearest hundredth of one percent. The yield of the Fund for the
seven-day period ended December 31, 1994 was 4.14 %.

Effective Yield is the net annualized yield for a specified 7
calendar-day period assuming a reinvestment of the income or compounding.
Effective yield is calculated by the same method as yield except the yield
figure is compounded by adding 1, raising the sum to a power equal to 365
divided by 7, and subtracting one from the result, according to the following
formula:

Effective Yield = [(Base Period Return + 1)^365/7] - 1.

The effective yield of the Fund for the seven-day period ended December
31, 1994 was 4.22 %.

Tax-Equivalent Yield is the net annualized taxable yield needed to
produce a specified tax-exempt yield at a given tax rate based on a specified
7-day period assuming a reinvestment of all dividends paid during such period.
Tax-equivalent yield is calculated by dividing that portion of the Fund's yield
(as computed in the yield description in A. above) which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield of the Fund that is not tax-exempt. Thus, taxpayers with effective
federal income tax rates of 36% and 39.6% would need to earn a taxable yield of
6.47 % and 6.85 %, respectively, to receive after-tax income equal
to the 4.14 % tax-free yield of Scudder Tax Free Money Fund on December
31, 1994 . Please refer to the chart beginning on page 47 for a
discussion of tax-exempt income v. taxable income.

43
<PAGE>

As described above, yield, effective yield and tax-equivalent yield are
historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. Yield, effective yield and,
tax-equivalent yield will vary based on changes in market conditions and the
level of the Fund's expenses.

In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indices which may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs.

From time to time, in marketing pieces and other fund literature, the
Fund's yield and performance over time may be compared to the performance of
broad groups of comparable mutual funds, bank money market deposit accounts and
fixed-rate insured certificates of deposit (CDs), or unmanaged indices of
securities that are comparable to money market funds in their terms and intent,
such as Treasury bills, bankers' acceptances, negotiable order of withdrawal
accounts, and money market certificates. Most bank CDs differ from money market
funds in several ways: the interest rate is fixed for the term of the CD, there
are interest penalties for early withdrawal of the deposit, and the deposit
principal is insured by the FDIC.

Scudder Limited Term Tax Free Fund, Scudder Medium Term Tax Free Fund,
Scudder Managed Municipal Bands and Scudder High Yield Tax Free Fund

From time to time, quotation of each Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures may be calculated in the following manner:

Average Annual Total Return is the average annual compound rate of
return for the periods of one year, five years and ten years (or such shorter
periods as may be applicable dating from the commencement of the Fund's
operations) all ended on the last day of a recent calendar quarter. If a Fund
has been in existence for less than ten years, the average annual total return
for the life of the Fund is given. Average annual total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by finding the average
annual compound rates of return of a hypothetical investment, over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):

T = (ERV/P)^1/n - 1
Where:

P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at the
beginning of the applicable period.

Average Annual Total Return for periods ended December 31, 1994

One Five Ten Life of
Year Years Years Fund
---- ----- ----- ----
Scudder Medium Term Tax Free Fund* -3.50% 6.81% 6.95% --

Scudder Managed Municipal Bonds -6.04 6.81 9.10 --

Scudder High Yield Tax Free Fund** -8.38 6.83 -- 6.45 (1)

* The foregoing average annual total return includes the period prior to
November 1, 1990, during which the Fund operated under the investment
objective and policies of Scudder Tax Free Target Fund 1990 Portfolio.
Average annual total return figures for the periods prior to November
1, 1990 should not be considered representative of the present Fund. If
the Adviser had not maintained Fund expenses for the period November 1,

44
<PAGE>

1990 through December 31, 1994 and had imposed a full management
fee for this period, the average annual total return for the one year
and five year periods and the life of the Fund would have been
_____ %, _____ % and _____ %, respectively.

** If the Adviser had not maintained Fund expenses and had imposed a full
management fee, the average annual total return for the life of the
Fund would have been approximately _____%.

(1) For the period beginning January 22, 1987 (commencement of operations).

Cumulative Total Return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of a Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):

C = (ERV/P) - 1
Where:

C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.

<TABLE>
<CAPTION>
Cumulative Total Return for periods ended December 31, 1994

One Five Ten Life of
Year Years Years Fund
---- ----- ----- ----
<S> <C> <C> <C> <C>
Scudder Medium Term Tax Free Fund* -3.50% 39.00% 95.84% --

Scudder Managed Municipal Bonds -6.04 39.04 138.82 --

Scudder High Yield Tax Free Fund** -8.38 39.12 -- 64.05 (1)

Scudder Limited Term Tax Free Fund 0.41 -- -- 0.41 (2)

* The foregoing cumulative total return includes the period prior to
November 1, 1990, during which the Fund operated under the investment
objective and policies of Scudder Tax Free Target Fund 1990 Portfolio.
Cumulative total return figures for the periods prior to November 1,
1990 should not be considered representative of the present Fund. If
the Adviser had not maintained Fund expenses for the period November 1,
1990 through December 31, 1994 and had imposed a full management fee
for this period, the cumulative total return for the one year and five
year periods and the life of the Fund would have been _____ %,
_____ % and _____ %, respectively.

** If the Adviser had not maintained Fund expenses and had imposed a full
management fee, the cumulative total return for the life of the Fund
would have been approximately _____%.

(1) For the period beginning January 22, 1987 (commencement of operations).

(2) For the period beginning February 15, 1994 (commencement of operations).

</TABLE>

Total Return is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative Total Return.

45
<PAGE>

Yield is the net annualized yield based on a specified 30-day (or one
month) period assuming a semiannual compounding of income. Included in net
investment income is the amortization of market premium or accretion of market
and original issue discount. Yield is calculated by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period, according to the following formula:

YIELD = 2[(a-b/cd + 1)^6 - 1]

Where:

a = dividends and interest earned during the period.
b = expenses accrued for the period (net of expense maintenance).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.

Yields for the 30-day period ended December 31, 1994

Scudder Medium Term Tax Free Fund* 5.29 %

Scudder Managed Municipal Bonds 5.79 %

Scudder High Yield Tax Free Fund 6.52 %

Scudder Limited Term Tax Free Fund 5.38 %

* The Adviser maintained Fund expenses for the period November 1, 1990
through June 30, 1993. From July 1, 1993 to January 1, 1994 the
Adviser maintained Fund expenses at 0.25% of average daily net assets
of the Fund. For the period January 2, 1994 to April 30, 1994 the
Adviser maintained the Fund's total annualized expenses at 0.50%. For
the period May 1, 1994 to December 31, 1994 the Adviser maintained the
Fund's total annualized expenses at 0.70%. The yield for the 30-day
period ended December 31, 1994, had the Adviser not maintained Fund
expenses, would have been approximately _____ %.

Tax-Equivalent Yield is the net annualized taxable yield needed to
produce a specified tax-exempt yield at a given tax rate based on a specified
30-day (or one month) period assuming a reinvestment of all dividends paid
during such period (a method known as "semiannual compounding"). Tax-equivalent
yield is calculated by dividing that portion of the Fund's yield (as computed in
the yield description in D., above) which is tax-exempt by one minus a stated
Federal income tax rate and adding the product to that portion, if any, of the
yield of the Fund that is not tax-exempt.

Tax-Equivalent Yields as of December 31, 1994

<TABLE>
<CAPTION>
TAXABLE EQUIVALENT*

28% 31% 36% 39.6%
FUND Tax Bracket Tax Bracket Tax Bracket Tax Bracket
- ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Scudder Medium Term Tax Free Fund 7.33% 7.65% 8.27% 8.76%

Scudder Managed Municipal Bonds 8.03% 8.38% 9.05% 9.59%

Scudder High Yield Tax Free Fund 9.07% 9.46% 10.19% 10.79%

Scudder Limited Term Tax Free Fund 7.47% 7.80% 8.41% 8.91%

* Based on federal income tax rates in effect for the 1994 taxable
year.
</TABLE>

46
<PAGE>

Tax-Exempt Income vs. Taxable Income

The following table illustrates comparative yields from taxable and
tax-exempt obligations under federal income tax rates in effect for the
1994 calendar year.

1994 Taxable Federal To Equal Hypothetical Tax-Free Yields of 5%, 7% and 9%, a
Income Brackets Tax Rates Taxable Investment Would Have To Earn**
Individual
Return 5% 7% 9%
------ -- -- --
<C> <C> <C> <C> <C> <C>
$0 - $22,100 15.0% 5.88% 8.24% 10.59%
22,101 - $53,500 28.0% 6.94% 9.72% 12.50%
$53,501 - $115,000 31.0% 7.25% 10.14% 13.04%
$115,001 - $250,000 36.0% 7.81% 10.94% 14.06%
Over $250,000 39.6% 8.28% 11.59% 14.90%

Joint
Return
------
$0 - $36,900 15.0% 5.88% 8.24% 10.59%
$36,901 - $89,150 28.0% 6.94% 9.72% 12.50%
$89,151 - $140,000 31.0% 7.25% 10.14% 13.04%
$140,001 - $250,000 36.0% 7.81% 10.94% 14.06%
Over $250,000 39.6% 8.28% 11.59% 14.90%

** These illustrations assume the Federal alternative minimum tax is not applicable, that an individual is not
a "head of household" and claims one exemption and that taxpayers filing a joint return claim two
exemptions. Note also that these federal income tax brackets and rates do not take into account the effects
of (i) a reduction in the deductibility of itemized deductions for taxpayers whose federal adjusted gross
income exceeds $108,450 ($54,225 in the case of a married individual filing a separate return), or of (ii)
the gradual phaseout of the personal exemption amount for taxpayers whose federal adjusted gross income
exceeds $108,450 (for single individuals) or $162,700 (for married individuals filing jointly). The
effective federal tax rates and equivalent yields for such taxpayers would be higher than those shown above.
</TABLE>

Example:*

Based on 1993 federal tax rates, a married couple filing a joint return
with two exemptions and taxable income of $40,000 would have to earn a
tax-equivalent yield of 6.94% in order to match a tax-free yield of 5%.

There is no guarantee that a fund will achieve a specific yield. While
most of the income distributed to the shareholders of each Fund will be exempt
from federal income taxes, portions of such distributions may be subject to
federal income taxes. Distributions may also be subject to state and local
taxes.

* Net amount subject to federal income tax after deductions and
exemptions, exclusive of the alternative minimum tax.

As described above, average annual total return, cumulative total
return, total return, yield, and tax-equivalent yield are historical, show the
performance of a hypothetical investment and are not intended to indicate future
performance. Average annual total return, cumulative total return, total return,
yield, and tax-equivalent yield for a Fund will vary based on changes in market
conditions and the level of the Fund's expenses.

Investors should be aware that the principal of each Fund is not
insured.

Comparison of Portfolio Performance

A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should

47
<PAGE>

consider the effects of the methods used to calculate performance when comparing
performance of a Fund with performance quoted with respect to other investment
companies or types of investments.

In connection with communicating its performance to current or
prospective shareholders, a Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, the Russell 2000 Index, and statistics published by the Small
Business Administration.

From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, a Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.

From time to time, in marketing and other Fund literature, Trustees and
officers of the Funds, the Funds' portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Funds. In addition, the amount of assets that the Adviser has under management
in various geographical areas may be quoted in advertising and marketing
materials.

The Funds may be advertised as an investment choice in Scudder's
college planning program. The description may contain illustrations of projected
future college costs based on assumed rates of inflation and examples of
hypothetical fund performance, calculated as described above.

Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.

Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Funds. The
description may include a "risk/return spectrum" which compares the Funds to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Funds to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.

Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.

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A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.

Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.

Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Funds, including reprints of, or selections from, editorials or
articles about these Funds. Sources for Fund performance information and
articles about the Funds may include the following:

American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.

Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.

Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.

Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.

Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.

CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.

Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.

Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.

Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.

Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.

The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.

Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.

IBC/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity and

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including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."

Ibbotson Associates, Inc., a company specializing in investment research and
data.

Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.

Investor's Daily, a daily newspaper that features financial, economic, and
business news.

Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.

Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.

Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.

Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.

The New York Times, a nationally distributed newspaper which regularly covers
financial news.

The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.

No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.

Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.

Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.

Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.

Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.

United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.

USA Today, a leading national daily newspaper.

U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.

Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.

Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.

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Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.

Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.

ORGANIZATION OF THE FUNDS

(See "Fund organization" in the Funds'
prospectus.)

Scudder Tax Free Money Fund is a Massachusetts business trust
established under a Declaration of Trust dated October 5, 1979, as amended.
Scudder Medium Term Tax Free Fund is a series of Scudder Tax Free Trust, a
Massachusetts business trust established under a Declaration of Trust dated
December 28, 1982, as amended. Scudder Limited Term Tax Free Fund is the other
series of the Trust. The name and investment objectives of SMTTFF were changed
effective November 1, 1990. Scudder Municipal Trust is a Massachusetts business
trust established under a Declaration of Trust dated September 24, 1976, as
amended. The Trustees of Scudder Municipal Trust have established and designated
two series of the Trust: Scudder Managed Municipal Bonds and Scudder High Yield
Tax Free Fund. Each Fund's authorized capital consists of an unlimited number of
shares of beneficial interest, $.01 par value. All shares of each Fund issued
and outstanding will be fully paid and non-assessable by the Funds, and
redeemable as described in this Statement of Additional Information.

All shares of STFMF and STFT are of one class and have equal
rights as to voting, dividends and liquidation. The Trustees of STFMF and
STFT have the authority to issue two or more series of shares and to
designate the relative rights and preferences as between the different series.
The Trustees of STFMF have not yet exercised that authority. If more than one
series of shares were issued and a series were unable to meet its obligations,
the remaining series might have to assume the unsatisfied obligations of that
series. All shares issued and outstanding will be fully paid and non-assessable
by the Funds and redeemable as described in this Statement of Additional
Information and in the Funds' prospectus.

The shares of SMT are issued in separate series, each share of which
represents an equal proportionate interest in that series with each other share
of that series. The Trustees of SMT have the authority to designate additional
series and to designate the relative rights and preferences as between the
different series.

The Trustees of STFMF and SMT, in their discretion, may authorize the
division of shares of each of their respective Funds (or shares of a series)
into different classes permitting shares of different classes to be distributed
by different methods. Although shareholders of different classes of a series
would have an interest in the same portfolio of assets, shareholders of
different classes may bear different expenses in connection with different
methods of distribution. The Trustees have no present intention of taking the
action necessary to effect the division of shares into separate classes (which
under present regulations would require the Funds first to obtain an exemptive
order of the SEC), nor of changing the method of distribution of shares of the
Funds.

Currently, the assets of SMT and STFT received for the issue or
sale of the shares of each series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are to be
charged with the liabilities in respect to such series and with a share of the
general liabilities of SMT. If a series were unable to meet its obligations, the
assets of all other series may in some circumstances be available to creditors
for that purpose, in which case the assets of such other series could be used to
meet liabilities which are not otherwise properly chargeable to them. Expenses
with respect to any two or more series are to be allocated in proportion to the
asset value of the respective series except where allocations of direct expenses
can otherwise be fairly made. The officers of SMT and STFT, subject to the
general supervision of the Trustees, have the power to determine which
liabilities are allocable to a given series, or which are general or allocable
to two or more series. In the event of the dissolution or liquidation of SMT and
STFT, the holders of the shares of any series are entitled to receive as a class
the underlying assets of such shares available for distribution to shareholders.

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Shares of SMT and STFT entitle their holders to one vote per
share; however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to the other
series.

Each Fund's Declaration of Trust provides that obligations of the Fund
involved are not binding upon the Trustees individually but only upon the
property of that Fund, that the Trustees and officers will not be liable for
errors of judgment or mistakes of fact or law, and that the Fund involved will
indemnify its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Fund except if it is determined in the manner provided in the
Declaration of Trust that they have not acted in good faith in the reasonable
belief that their actions were in the best interests of the Fund involved.
However, nothing in the Declarations of Trust protect or indemnify a Trustee or
officer against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.

INVESTMENT ADVISER

(See "Fund organization--Investment adviser" in the
Funds' prospectus.)

Each Fund has an investment advisory agreement (the "Agreement,"
collectively, the "Agreements" ) with the investment counsel firm of
Scudder, Stevens & Clark, Inc. (sometimes referred to herein as the "Adviser").
This organization is one of the most experienced investment management firms in
the United States. It was established as a partnership in 1919 and pioneered the
practice of providing investment counsel to individual clients on a fee basis.
In 1928 it introduced the first no-load mutual fund to the public. In 1953,
Scudder introduced Scudder International Fund, Inc., the first mutual fund
registered with the SEC in the U.S. investing internationally in several foreign
countries. The firm reorganized from a partnership to a corporation on June 28,
1985.

The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Development Fund, Scudder Equity Trust, Scudder Fund, Inc., Scudder Funds Trust,
Scudder Global Fund, Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder
Institutional Fund, Inc., Scudder International Fund, Inc., Scudder Investment
Trust, Scudder Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia
Fund, Inc., Scudder New Europe Fund, Inc., Scudder State Tax Free Trust, Scudder
Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund,
Scudder Variable Life Investment Fund, Scudder World Income Opportunities Fund,
Inc., The Argentina Fund, Inc., The Brazil Fund, Inc., The First Iberian Fund,
Inc., The Korea Fund, Inc., The Japan Fund, Inc. and The Latin America Dollar
Income Fund, Inc. Some of the foregoing companies or trusts have two or more
series.

The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $11 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust and AARP Cash
Investment Funds.

The Adviser maintains a large research department, which conducts
ongoing studies of the factors that affect the position of various industries,
companies and individual securities. The Adviser receives published reports and
statistical compilations from issuers and other sources, as well as analyses
from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. In selecting the securities in which
the Funds may invest, the conclusions and investment decisions of the Adviser
with respect to the Funds are based primarily on the analyses of its own
research department.

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<PAGE>

Certain investments may be appropriate for more than one of the Funds
(or more than one series of SMT and STFT ) and also for other clients
advised by the Adviser, in particular the other Scudder tax free funds.
Investment decisions for the Funds and other clients are made with a view to
achieving their respective investment objectives and after consideration of such
factors as their current holdings, availability of cash for investment and the
size of their investments generally. Frequently, a particular security may be
bought or sold for only one client or in different amounts and at different
times for more than one but less than all clients. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling the security. In addition, purchases or sales of the same security
may be made for two or more clients on the same day. In such event, such
transactions will be allocated among the clients in a manner believed by the
Adviser to be equitable to each. In some cases, this procedure could have an
adverse effect on the price or amount of the securities purchased or sold by a
Fund. Purchase and sale orders for a Fund may be combined with those of other
clients of the Adviser in the interest of achieving the most favorable net
results to the Funds.

Under the Agreements, the Adviser regularly provides the Funds with
continuing investment management consistent with each Fund's investment
objectives, policies and restrictions and determines what securities shall be
purchased for each Fund, what securities shall be held or sold by each Fund, and
what portion of each Fund's assets shall be held uninvested, subject always to
the provisions of each Fund's Declaration of Trust and By-Laws, of the 1940 Act
and the Internal Revenue Code of 1986 and to each Fund's investment objectives,
policies and restrictions, and subject further to such policies and instructions
as the Trustees of each Fund may from time to time establish. The Adviser also
advises and assists the officers of each Fund in taking such steps as are
necessary or appropriate to carry out the decisions of its Trustees and the
appropriate committees of the Trustees regarding the conduct of the business of
the Funds.

Under the Agreements, the Adviser also renders significant
administrative services (not otherwise provided by third parties) necessary for
the Funds' operations as an open-end investment company including, but not
limited to, preparing reports and notices to the Trustees and shareholders;
supervising, negotiating contractual arrangements with, and monitoring various
third-party service providers to the Funds (such as the Funds' transfer agent,
pricing agents, custodian, accountants and others); preparing and making filings
with the SEC and other regulatory agencies; assisting in the preparation and
filing of the Funds' federal, state and local tax returns; preparing and filing
the Fund's federal excise tax returns; assisting with investor and public
relations matters; monitoring the valuation of securities and the calculation of
net asset value; monitoring the registration of shares of the Funds under
applicable federal and state securities laws; maintaining the Funds' books and
records to the extent not otherwise maintained by a third party; assisting in
establishing accounting policies of the Funds; assisting in the resolution of
accounting and legal issues; establishing and monitoring the Funds' operating
budget; processing the payment of the Funds' bills; assisting the Funds in, and
otherwise arranging for, the payment of distributions and dividends and
otherwise assisting the Funds in the conduct of its business, subject to the
direction and control of the Trustees.

The Adviser pays the compensation and expenses (except expenses
incurred in attending Board and committee meetings outside New York, New York
and Boston, Massachusetts) of all Trustees and executive employees of each Fund
affiliated with the Adviser and makes available, without expense to the Funds,
the services of such trustees, officers and employees of the Adviser as may duly
be elected Trustees of the Funds, subject to their individual consent to serve
and to any limitations imposed by law, and provides each Fund's office space and
facilities.

For the above services STFMF pays a fee of 0.50 of 1% of the first $500
million of average daily net assets and 0.48 of 1% of such net assets over $500
million, payable monthly, provided the Fund will make such interim payments as
may be requested by the Adviser not to exceed 75% of the amount of the fee then
accrued on the books of the Fund and unpaid.

For the years ended December 31, 1992, 1993 and 1994 , the
investment advisory fees pursuant to its investment advisory agreement amounted
to $ 1,326,155, $1,204,009 and $1,222,791 , respectively.

Prior to December 12, 1990, STFMF paid the Adviser in monthly
installments an annual fee equal to approximately 0.50 of 1% of the first $300
million of average daily net assets of the Fund; 0.48 of 1% of the next $200
million of such assets and 0.46 of 1% of such assets over $500 million. Under
the prior Agreement the Fund bore the expense of administrative services
provided by the Adviser; these services are included within the current
Agreement and are not charged separately.

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<PAGE>

For the above services, SLTTFF pays the Adviser a monthly fee of 0.60%
of the average daily net assets of the Fund. The Agreement provides that if the
Fund's expenses, exclusive of taxes, interest, and extraordinary expenses,
exceed specified limits, such excess, up to the amount of the management fee,
will be paid by the Adviser. The Adviser retains the ability to be repaid by the
Fund if expenses fall below the specified limit prior to the end of the fiscal
year. These expense limitation arrangements can decrease the Fund's expenses and
improve its performance. For the period February 15, 1994 (commencement of
operations) to October 31, 1994, the Adviser did not impose its management fee
of $152,675.

The Adviser has agreed to maintain the annualized expenses of SLTTFF at
not more than 0.25% of the average daily net assets of SLTTFF until August 31,
1995.

For the fiscal period ended October 31, 1994 the amount to be
reimbursed by the Adviser equaled $124,328.

For the above services SMTTFF pays a monthly fee of 0.60 of 1% of the
first $500 million of average daily net assets and 0.50 of 1% of such assets in
excess of $500 million on an annual basis.

For the years ended December 31, 1992, 1993 and 1994, SMTTFF's
fees pursuant to such Agreement amounted to $ 2,771,139, $484,365 and
$4,150,246 respectively. The Adviser did not impose any of its fee for the
year ended December 31, 1992. For the years ended December 31, 1993 and
1994 , SMTTFF's aggregate fees pursuant to such Agreement amounted to
$5,202,848 and $4,920,420 , respectively; however, the Adviser did not
impose $4,718,483 and $770,174, respectively.

The Adviser has agreed to maintain the annualized expenses of SMTTFF at
not more than 0.70% of average daily net assets of the Fund until April 30,
1995. For the period January 1, 1992 to January 1, 1993 the Adviser maintained
expenses of the Fund at 0.50%. From January 1, 1993 to June 30, 1993 the Adviser
maintained expenses of the Fund at 0.0% of average daily net assets. From July
1, 1993 to January 1, 1994 the Adviser maintained expenses of the Fund at 0.25%
of average daily net assets. For the period January 2, 1994 to April 30, 1994
the Adviser maintained expenses at 0.50%. For the period May 1, 1994 to April
30, 1995 the Adviser maintained expenses at 0.70%. For the fiscal year ended
December 31, 1992 the amount reimbursed equaled $594,314.

For these services SMMB pays a monthly fee of 0.55 of 1% on the first
$200 million of average daily net assets and 0.50 of 1% on the next $500 million
and 0.475 of 1% of average daily net assets in excess of $700 million, payable
monthly, provided the Fund will make such interim payments as may be requested
by the Adviser not to exceed 75% of the amount of the fee then accrued on the
books of the Fund and unpaid.

For the years ended December 31, 1992, 1993 and 1994 , aggregate
fees incurred by SMMB pursuant to its investment advisory agreement amounted to
$ 4,135,346, $4,545,920 and $4,119,589 , respectively.

Prior to December 12, 1990 SMMB paid the Adviser in monthly
installments an annual fee equal to approximately 0.60 of 1% of the first $100
million of average daily net assets of the Fund; 0.50 of 1% of such net assets
between $100 million and $200 million; and 0.45 of 1% of such net assets in
excess of $200 million and 0.4% of such net assets in excess of $500 million.
Under the prior Agreement, the Fund bore the expense of administrative services
provided by the Adviser; these services are included within the current
Agreement and are not charged separately. Under the Management Agreement in
effect prior to August 10, 1993, the Fund paid the Adviser a fee equal to an
annual rate of 0.55 of 1% on the first $200 million of average daily net assets
and 0.50 of 1% of such assets over $200 million.

For the above services SHYTFF pays monthly a fee of 0.70 of 1% on the
first $200 million of average daily net assets and 0.65 of 1% on such net assets
in excess of $200 million, payable monthly, provided the Fund will make such
interim payments as may be requested by the Adviser not to exceed 75% of the
amount of the fee then accrued on the books of the Fund and unpaid.

The Adviser agreed not to impose all or a portion of its investment
advisory fee with respect to SHYTFF in order to maintain the annualized expenses
of the Fund at not more than 0.80% of average daily net assets of the Fund until
April 30, 1995. For the fiscal years ended December 31, 1992, 1993 and
1994 fees incurred by SHYTFF amounted to $ 1,225,773, $1,727,686 and

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<PAGE>

$1,526,385, respectively. For the years ended December 31, 1992, 1993 and
1994 the Adviser did not impose a fee which would have amounted to
$ 10,760, $161,421 and $498,322, respectively.

Prior to December 12, 1990, SHYTFF paid the Adviser in monthly
installments an annual fee equal to approximately 0.65 of 1% of average daily
net assets of the Fund. Under the prior Agreement the Fund bore the expense of
administrative services provided by the Adviser; these services are included
within the current Agreement and are not charged separately.

Counsel has advised the Fund that for completed fiscal periods the
Adviser would have been liable for failure to comply with the terms of a
publicly announced expense limitation.

Under the Agreements, each Fund is responsible for all of its other
expenses, including fees and expenses incurred in connection with membership in
investment company organizations; brokers' commissions; legal, auditing and
accounting expenses; taxes and governmental fees; the fees and expenses of the
Transfer Agent; the cost of preparing share certificates and any other expenses,
including clerical expenses, of issuance, sale, underwriting, distribution,
redemption or repurchase of shares; the expenses of and the fees for registering
or qualifying securities for sale; the fees and expenses of the Trustees,
officers and employees of the Funds who are not affiliated with the Adviser; the
cost of printing and distributing reports and notices to shareholders; and the
fees and disbursements of custodians. Each Fund may arrange to have third
parties assume all or part of the expenses of sale, underwriting and
distribution of shares of such Fund. Each Fund is also responsible for expenses
of shareholders' meetings and expenses incurred in connection with litigation,
proceedings and claims and the legal obligation it may have to indemnify its
officers and Trustees with respect thereto. The custodian agreement provides
that the custodian shall compute the net asset value.

The Agreements require the Adviser to reimburse a Fund all or a portion
of advances of its management fee to the extent annual expenses of such Fund
(including the management fees stated above) exceed the limitations prescribed
by any state in which the Fund's shares are offered for sale. Management of the
Funds has been advised that, while most states have eliminated expense
limitations, the lowest such limitation is currently 2 1/2% of average daily net
assets up to $30 million, 2% of the next $70 million of average daily net assets
and 1 1/2% of average daily net assets in excess of that amount. Certain
expenses such as brokerage commissions, taxes, extraordinary expenses and
interest are excluded from such limitations. The expense ratios for STFMF for
the years ended December 31, 1992, 1993 and 1994 were 0.73%, 0.75% and
0.77%, respectively. The expense ratio for SLTTFF for the fiscal period
February 15, 1994 (commencement of operations) to October 31, 1994 was 0%. The
expense ratios for SMTTFF for the fiscal years ended December 31, 1992, 1993
and 1994 were 0%, 0.14% and 0.63%, respectively. If expense
maintenance had not been in effect, total annualized Fund operating expenses for
SMTTFF for the years ended December 31, 1992, 1993 and 1994 would have
been 0.80%, 0.75% and 0.71% of average daily net assets, respectively.
The expense ratios of SMMB for the years ended December 31, 1992, 1993 and
1994 were 0.63%, 0.63% and 0.63%, respectively. Since the Adviser
maintained Fund expenses as described above, the expense ratios for SHYTFF were
0.98%, 0.92% and 0.80% for the fiscal years ended December 31, 1992,
1993 and 1994, respectively. If expense maintenance had not been in effect,
total annualized Fund operating expenses for SHYTFF for the years ended December
31, 1992, 1993 and 1994 would have been 0.99%, 0.98% and 0.97% of
average daily net assets, respectively. Any such fee advance required to be
returned to a Fund will be returned as promptly as practicable after the end of
the Fund's fiscal year. However, no fee payment will be made to the Adviser
during any fiscal year which will cause year-to-date expenses to exceed the
cumulative pro rata expense limitation at the time of such payment. The
amortization of organizational costs is described herein under "ADDITIONAL
INFORMATION--Other Information."

The Agreement for SLTTFF is dated February 15, 1994. The Agreement will
remain in effect until September 30, 1995, and will continue in effect from year
to year thereafter only if its continuance is approved annually by the vote of a
majority of those Trustees who are not parties to such Agreement or "interested
persons" of the Adviser or the Trust cast in person at a meeting called for the
purpose of voting on such approval and either by vote of a majority of the
Trustees or a majority of the outstanding voting securities of the Fund. The
Agreement was approved by such Trustees (including a majority of the Trustees
who are not such "interested persons") on December 14, 1993 and by the Fund's
shareowners on December 31, 1994. The Agreement may be terminated at any time
without payment of penalty by either party on sixty days' written notice, and
automatically terminates in the event of its assignment.

The Agreements of STFMF and SHYTFF, dated December 12, 1990, will
remain in effect as to each Fund until September 30, 1994. Those Agreements and
the Agreements of SMMB and SMTTFF dated August 10, 1994, will continue in effect

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from year to year thereafter only if its continuance is approved annually by the
vote of a majority of those Trustees of each Fund who are not parties to such
Agreement or "interested persons" of the Adviser or the Fund involved cast in
person at a meeting called for the purpose of voting on such approval and either
by vote of a majority of the Trustees or a majority of the outstanding voting
securities of such Fund. The Agreements of STFMF and SHYTFF were last approved,
and the Agreements of SMMB and SMTTF were initially approved, by such Trustees
(including a majority of the Trustees who are not such "interested persons") on
August 10, 1993. The Agreements may be terminated at any time without payment of
penalty by either party or sixty days' written notice, and each automatically
terminates in the even of its assignment.

The Agreements also provide that a Fund may use any name derived from
the name "Scudder, Stevens & Clark, Inc." only as long as the Agreement or any
extension, renewal or amendment thereof involved remains in effect.

In reviewing the terms of the Agreements and in discussions with
Scudder, Stevens & Clark, Inc. concerning the Agreements, Trustees who are not
"interested persons" of the Adviser are represented by independent counsel at
each Fund's expense.

The Agreements provide that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by one of the Funds
in connection with matters to which the Agreements relate, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreements.

Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Funds' custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions were not
influenced by existing or potential custodial or other Fund relationships.

None of the Trustees or Officers of a Fund may have dealings with that
Fund as principals in the purchase or sale of securities, except as individual
subscribers to or holders of shares of the Fund.

Personal Investments by Employees of the Adviser

Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.

<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS

Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trust Occupation** Services, Inc.
- ----------- ---------- ------------ --------------
<S> <C> <C> <C>
David S. Lee*+ President and Managing Director of Scudder, President, Director and
Trustee (1,2,3) Stevens & Clark, Inc. Assistant Treasurer

Henry P. Becton, Jr. Trustee (1) President and General Manager, --
WGBH WGBH Educational Foundation
125 Western Ave.
Boston, MA 02134

56
<PAGE>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trust Occupation** Services, Inc.
- ----------- ---------- ------------ --------------
Dawn-Marie Driscoll Trustee (1,2,3) Attorney and Corporate Director; --
5760 Flamingo Drive former Partner, Palmer & Dodge,
Cape Coral, FL 33904 law firm (1988-1990); former
Vice President and Counsel for
Filene's, retail department
store, until 1988

Peter B. Freeman Trustee (1,2,3) Corporate Director and Trustee --
100 Alumni Avenue
Providence, RI 02906

Dudley H. Ladd*+ Trustee (1) Managing Director of Scudder, Senior Vice President
Stevens & Clark, Inc. and Director

George M. Lovejoy, Jr. Trustee (1,2) Chairman of Meredith & Grew --
160 Federal Street Incorporated, a real estate
Boston, MA 02110 service company

Wesley W. Marple, Jr. Trustee (1,3) Professor of Business --
Northeastern University Administration, Northeastern
413 Hayden Hall University, College of Business
360 Huntington Avenue Administration
Boston, MA 02115

Jean C. Tempel Trustee (2,3) Director, Executive Vice --
President and Manager, Safeguard
Scientifics, Inc.

Daniel Pierce*+ Trustee and Vice Chairman of the Board and Vice President,
President (1) Managing Director of Scudder, Director and Assistant
Stevens & Clark, Inc. Treasurer

Juris Padegs*# Trustee (1,2,3) and Managing Director of Scudder, Vice President and
Vice President (2) Stevens & Clark, Inc. Director

E. Michael Brown*+ Trustee (2) Managing Director of Scudder, Assistant Treasurer
Stevens & Clark, Inc.

Donald C. Carleton+ Vice President Managing Director of Scudder, --
(1,2,3) Stevens & Clark, Inc.

Cuyler W. Findlay# Vice President Managing Director of Scudder, Senior Vice President
Stevens & Clark, Inc. and Director

Jerard K. Hartman# Vice President Managing Director of Scudder, --
(1,2,3) Stevens & Clark, Inc.

Thomas W. Joseph+ Vice President Principal of Scudder, Stevens & Vice President,
(1,2,3) Clark, Inc. Director, Treasurer and
Assistant Clerk

57
<PAGE>

Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trust Occupation** Services, Inc.
- ----------- ---------- ------------ --------------

Thomas F. McDonough+ Vice President and Principal of Scudder, Stevens & Clerk
Secretary (1,2,3) Clark, Inc.

Pamela A. McGrath+ Vice President and Principal of Scudder, Stevens & --
Treasurer (1,2,3) Clark, Inc.

Edward J. O'Connell# Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.
(1,2,3)

Coleen Downs Dinneen+ Assistant Secretary Vice President of Scudder, Assistant Clerk
(1,2,3) Stevens & Clark, Inc.
</TABLE>

(1) SMT
(2) STFMF
(3) STFT

* Messrs. Lee, Ladd, Padegs, Pierce and Brown are considered by the Funds
and their counsel to be Trustees who are "interested persons" of the
Adviser or of the Fund, within the meaning of the 1940 Act, as amended.
** Unless otherwise stated, all Trustees and Officers have been associated
with their respective companies for more than five years but not
necessarily in the same capacity.
+ Address: Two International Place, Boston, Massachusetts 02110
# Address: 345 Park Avenue, New York, New York 10154

Messrs. Freeman, Lee and Lovejoy are members of the Executive Committee
of STFMF, Mrs. DeFriez and Messrs. Freeman, Lee and Padegs are members of the
Executive Committee of STFT, and Messrs. Lee, Lovejoy, Marple and Pierce are
members of the Executive Committee of SMT. Each Committee has the power to
declare dividends from ordinary income and distributions of realized capital
gains to the same extent as its Board is so empowered.

As of April 1, 1995 , all Trustees and officers of STFMF as a
group owned beneficially (as that term is defined under Section 13(d) of the
Securities Exchange Act of 1934) less than 1% of the shares of the Fund.

To the best of STFMF's knowledge, as of April 1, 1995 , no person
owned beneficially more than 5% of the Fund's outstanding shares.

As of April 1, 1995 , all Trustees and officers of STFT as a
group owned beneficially (as that term is defined in Section 13(d) under the
Securities Exchange Act of 1934) less than 1% of SMTTFF.

Certain accounts for which the Adviser acts as investment adviser owned
___________ shares in the aggregate, or _____ % of the outstanding
shares of SMTTFF on April 1, 1995 . The Adviser may be deemed to be the
beneficial owner of such shares but disclaims any beneficial ownership in such
shares.

To the best of STFT's knowledge, as of April 1, 1995, no person
owned beneficially more than 5% of SMTTFF's outstanding shares except as stated
above.

As of April 1, 1995, all Trustees and officers of STFT as a group owned
beneficially (as that term is defined under Section 13(d) of the Securities
Exchange Act of 1934) less than 1% of SLTTFF.

As of April 1, 1995, __________ shares in the aggregate, _____% of the
outstanding shares of SLTTFF were held in the name of Moore Limited, 222
Delaware Avenue, Wilmington, DE 19801, who may be deemed to be the beneficial
owner of certain of these shares, but disclaims any beneficial ownership
therein.

58
<PAGE>

As of April 1, 1995, __________ shares in the aggregate, _____% of the
outstanding shares of SLTTFF were held in the name of Scudder, Stevens & Clark,
Inc., 345 Park Avenue, New York, NY 10154, who may be deemed to be the
beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.

To the best of STFT's knowledge, as of April 1, 1995, no person owned
beneficially more than 5% of SLTTFF's outstanding shares except as stated above.

As of April 1, 1995, all Trustees and officers of SMT as a group
owned beneficially (as that term is defined under Section 13(d) of the
Securities Exchange Act of 1934) __________ shares, or _____ % of
the shares of SMMB.

Certain accounts for which the Adviser acts as investment adviser owned
__________ shares in the aggregate, or _____ % of the outstanding
shares of SMMB on April 1, 1995. The Adviser may be deemed to be the beneficial
owner of such shares but disclaims any beneficial interest in such shares.

As of April 1, 1995, __________ shares in the aggregate,
_____ % of the outstanding shares of SMMB were held in the nominees of
Fiduciary Trust Company. Fiduciary Trust Company may be deemed to be the
beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.

To the best of SMT's knowledge, as of April 1, 1995, no person
owned beneficially more than 5% of SMMB's outstanding shares except as stated
above.

As of April 1, 1995, all Trustees and officers of SMT as a group
owned beneficially (as that term is defined under Section 13(d) of the
Securities Exchange Act of 1934) less than 1% shares of SHYTFF.

To the best of SMT's knowledge, as of April 1, 1995, no person
owned beneficially more than 5% of SHYTFF's outstanding shares.

The Trustees and officers of STFMF, STFT and SMT also serve in similar
capacities with other Scudder funds.

The Compensation Table on the following page provides, in tabular form, the
following data:

Column (1) All Trustees who receive compensation from the Trusts.
Column (2) Aggregate compensation received by a Trustee from all the series of a
Trust - Scudder Municipal Trust, Scudder Tax Free Trust and Scudder Tax Free
Money Fund. Columns (3) and (4) Pension or retirement benefits accrued or
proposed to be paid by the Trusts. The Trusts do not pay their directors such
benefits. Column (5) Total compensation received by a Trustee from the Trusts,
plus compensation received from all funds managed by Scudder (the "Fund
Complex") for which a Trustee serves. The total number of funds from which a
Trustee receives such compensation is also provided in column (5).

59
<PAGE>

<TABLE>
<CAPTION>
Compensation Table
for the year ended December 31, 1994
==================================================================================================================================
(1) (2) (3) (4) (5)
(b)
Scudder Tax
Free Trust
(a) consisting of Pension
Scudder two Funds: or Total
Municipal Trust Scudder Medium Retirement Estimated Compensation
consisting of two Funds: Term Tax Free Benefits Annual from the AARP
Scudder Managed Municipal Fund and (c) Accrued Benefits Trusts and Fund
Name of Person, Bonds and Scudder High Scudder Scudder Tax Free as Part Upon Complex Paid to
Position Yield Tax Free Fund Limited Term Money Fund of Fund Retirement Trustee
Tax Free Fund Expenses
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Henry P. Becton, Jr. $18,000 --- --- N/A N/A $90,597.83
Trustee (15 funds)

Amey A. DeFriez --- $13,104 $7,400 N/A N/A $79,725.83
Retired Trustee (15 funds)

Dawn-Marie Driscoll $18,000 $13,796 $9,000 N/A N/A $94,793.83
Trustee (16 funds)

Peter B. Freeman $18,000 $13,796 $9,000 N/A N/A $141,843.83
Trustee (31 funds)

George M. Lovejoy, $18,000 --- $9,000 N/A N/A $117,450.00
Jr. (12 funds)
Trustee

Wesley W. Marple, $18,000 $13,796 --- N/A N/A $95,693.83
Jr. (15 funds)
Trustee

Jean C. Tempel --- $392 $1,600 N/A N/A $15,968.00
Trustee ( 15 funds)
</TABLE>

REMUNERATION

Several of the officers and Trustees of each Fund also may be officers
or employees of the Adviser, Scudder Investor Services, Inc., Scudder Service
Corporation or Scudder Trust Company from whom they receive compensation, as a
result of which they may be deemed to participate in fees paid by the Funds. The
Funds pay no direct remuneration to any officer of a Fund. However, each Trustee
of the Fund who is not affiliated with the Adviser will be compensated for all
expenses relating to Trust business specifically including travel expenses
relating to Trust business. Each of these unaffiliated Trustees receives from
each Fund an annual Trustee's fee of $4,000 for STFMF and STFT, $4,000 for SMMB
and SHYTFF and from each Fund a fee of $300 for attending each Trustees'
meeting, audit committee meeting or meeting held for the purpose of considering
arrangements between a Fund and the Adviser or any of its affiliates. Each
unaffiliated Trustee also receives $100 for attending each committee meeting,
other than those set forth above. For the year ended December 31, 1994 ,
such fees totaled $36,168 for STFMF, $36,460 for SMTTFF,
$46,491 for SMMB and $46,639 for SHYTFF. For the fiscal period
ended October 31, 1994, such fees totaled $28,489 for SLTTFF.

DISTRIBUTOR

Each Fund has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a wholly-owned
subsidiary of the Adviser, a Delaware corporation. The underwriting agreements
of STFMF, SLTTFF, SMTTFF, SMMB and SHYTFF each dated September 10, 1985,
July 15, 1985, January 12, 1987 and January 12, 1987, respectively, will remain
in effect until September 30, 1994 and from year to year thereafter only if its
continuance is approved annually by a majority of the Trustees who are not
parties to such agreement or "interested persons" of any such party and by a
vote either of a majority of the Trustees or a majority of the outstanding
voting securities of the relevant Fund. The underwriting agreement of each Fund
was last approved by the Trustees on August 10, 1993.

Under the underwriting agreements, each Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of its registration statement and prospectus and any amendments and

60
<PAGE>

supplements thereto; the registration and qualification of shares for sale in
the various states, including registering a Fund as a broker/dealer in various
states, as required; the fees and expenses of preparing, printing and mailing
prospectuses annually to existing shareholders (see below for expenses relating
to prospectuses paid by the Distributor), notices, proxy statements, reports or
other communications to shareholders of that Fund; the cost of printing and
mailing confirmations of purchases of shares and any prospectuses accompanying
such confirmations; any issuance taxes and/or any initial transfer taxes; a
portion of shareholder toll-free telephone charges and expenses of shareholder
service representatives; the cost of wiring funds for share purchases and
redemptions (unless paid by the shareholder who initiates the transaction); the
cost of printing and postage of business reply envelopes; and a portion of the
cost of computer terminals used by both that Fund and the Distributor.

The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Funds'
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of the shares of each Fund to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by that Fund, unless a rule 12b-1 plan is in effect
which provides that the Fund shall bear some or all of such expenses.

Note: Although each Fund does not currently have a 12b-1 Plan, and the
Trustees have no current intention of adopting one, the Fund would also
pay those fees and expenses permitted to be paid or assumed by that
Fund pursuant to a 12b-1 Plan, if any, were such a plan adopted by the
Fund, notwithstanding any other provision to the contrary in the
underwriting agreement.

As agent, the Distributor currently offers shares of each Fund and
Portfolio on a continuous basis to investors in all states in which the Fund may
from time to time be registered or where permitted by applicable law. Each
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of any Fund.

TAXES

(See "Transaction information--Tax information, Tax
identification number" and "Distribution and performance
information" in the Funds' prospectus.)

Shareholders should consult their tax advisers about the application of
the provisions of tax law described in the Statement of Additional Information
in light of their particular tax situation.

Each Fund has elected to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code")
and has qualified as such. Each of the Funds intends to continue to so qualify,
in each taxable year as required under the Code in order to avoid payment of
federal income tax at the Fund level.

In order to qualify as a regulated investment company, each Fund must
meet certain requirements regarding the source of its income and the
diversification of its assets and must also derive less than 30% of its gross
income in each taxable year from certain types of investments (such as
securities, options and financial futures) held for less than three months.
Legislation currently pending before the U.S. Congress would repeal this
requirement. However, it is impossible to predict whether this legislation will
become law and, if it is so enacted, what form it will eventually take.

As a regulated investment company qualifying under Subchapter M of the
Code, each Fund is required to distribute to its shareholders at least 90
percent of its taxable net investment income and net short-term capital gain in
excess of net long-term capital loss and at least 90 percent of its tax-exempt
net investment income and generally is not subject to federal income tax to the
extent that it distributes annually all of its taxable net investment income and
net realized long-term and short-term capital gains in the manner required under
the Code. Each of the Funds intends to distribute annually all taxable and
tax-exempt net investment income and net realized capital gains in compliance
with applicable distribution requirements and therefore do not expect to pay
federal income tax.

61
<PAGE>

Each of the Funds is subject to a 4% nondeductible excise tax on
amounts of taxable income required to be but not distributed under a prescribed
formula. The formula requires payment to shareholders during a calendar year of
distributions representing at least 98% of such Fund's taxable ordinary income
for the calendar year and at least 98% of the excess of its capital gains over
capital losses realized during the one-year period ending October 31 during such
year as well as amounts that were neither distributed nor taxed to the Fund
during the prior calendar year. (Investment companies with taxable years ending
on November 30 or December 31 may make an irrevocable election to measure the
required capital gain distribution using their actual taxable year.) Although
the Funds' distribution policies should enable them to avoid excise tax
liability, each Fund may retain (and be subject to income or excise tax on) a
portion of its capital gain or other income if it appears to be in the best
interest of such Fund and its shareholders.

Net investment income is made up of dividends and interest, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of a Fund. STFMF intends to offset
realized capital gains by using its capital loss carryforward before
distributing any capital gains. As of December 31, 1994 , STFMF had a net
capital loss carryforward of approximately $170,413, which may be applied
against realized capital gains of each succeeding year until fully utilized or
until December 31, 1995 ($ 76,706 ), December 31, 1996 ($ 20,404 ),
December 31, 2000 ($ 6,818 ) December 31, 2001 ($ 28,852 ) and
December 31, 2002 ($37,633), the respective expiration dates, whichever
occurs first.

If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by STFT, SMMB or SHYTFF for reinvestment,
requiring federal income taxes to be paid thereon, the Fund involved will elect
to treat such capital gains as having been distributed to its shareholders. As a
result, shareholders will report such capital gains as long-term capital gains,
will be able to claim their share of federal income taxes paid by that Fund on
such gains as a credit against their own federal income tax liability, and will
be entitled to increase the adjusted tax basis of their Fund shares by the
difference between a pro rata share of such gains and their individual tax
credit.

Distributions of taxable net investment income and the excess of net
short-term capital gain over net long-term capital loss are taxable to
shareholders as ordinary income.

Subchapter M of the Code permits the character of tax-exempt interest
distributed by a regulated investment company to flow-through as tax-exempt
interest to its shareholders, provided that at least 50% of the value of its
assets at the end of each quarter of the taxable year is invested in state,
municipal and other obligations the interest on which is exempt under Section
103(a) of the Code. Each of the Funds intends to satisfy this 50% requirement in
order to permit distributions of tax-exempt interest to be treated as such for
federal income tax purposes in the hands of their shareholders. Distributions to
shareholders of tax-exempt interest earned by such Funds for the taxable year
are therefore not subject to regular federal income tax, although they may be
subject to the individual and corporate alternative minimum taxes described
below. Discount from certain stripped tax-exempt obligations or their coupons,
however, is taxable.

The Revenue Reconciliation Act of 1993 requires that any market
discount recognized on a tax-exempt bond is taxable as ordinary income. This
rule applies only for disposals of bonds purchased after April 30, 1993. A
market discount bond is a bond acquired in the secondary market at a price below
its redemption value. Under prior law, the treatment of market discount as
ordinary income did not apply to tax-exempt obligations. Instead, realized
market discount on tax-exempt obligations was treated as capital gain. Under the
new law, gain on the disposition of a tax-exempt obligation or any other market
discount bond that is acquired for a price less than its principal amount will
be treated as ordinary income (instead of capital gain) to the extent of accrued
market discount. This rule is effective only for bonds purchased after April 30,
1993.

Since no portion of the income of each of the Funds will be comprised
of dividends from domestic corporations, none of the income distributions of the
Funds will be eligible for the 70% deduction for dividends received from a Fund
by its corporate shareholders.

Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of the Fund involved have been held
by such shareholders. Such distributions are not eligible for the
dividends-received deduction to corporate shareholders of the Funds. Any loss
realized upon the redemption of shares of STFT , SMMB or SHYTFF within six
months from the date of their purchase will be treated as a long-term capital
loss to the extent of any amounts treated as distributions of long-term capital

62
<PAGE>

gain with respect to such shares. Any short-term capital loss realized upon the
redemption of shares of STFT , SMMB or SHYTFF within six months from the
date of their purchase will be disallowed to the extent of any tax-exempt
dividends received with respect to such shares, although the six-month period
may be reduced under Treasury regulations to be prescribed. Any loss realized on
the redemption of shares of one of such Funds may be disallowed if shares of the
same Fund are purchased (including shares purchased under the dividend
investment plan of the automatic reinvestment plan) within 30 days before or
after such redemption.

Distributions derived from interest which is exempt from regular
federal income tax may subject corporate shareholders to or increase their
liability under the 20% alternative minimum tax. A portion of such distributions
may constitute a tax preference item for individual shareholders and may subject
them to or increase their liability under the 24% alternative minimum tax.

Distributions of taxable net investment income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.

Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year, each Fund issues to its
shareholders a statement of the federal income tax status of all distributions,
including a statement of the percentage of the prior calendar year's
distributions which were designated as tax-exempt, the percentage of such
tax-exempt distributions treated as a tax-preference item for purposes of the
alternative minimum tax, and the source of such distributions on a
state-by-state basis. All distributions of taxable or tax-exempt net investment
income and net realized capital gain, whether received in shares or in cash,
must be reported by each shareholder on his or her federal income tax return.
Dividends and distributions declared in October, November or December to
shareholders as of a record date in such a month will be deemed to have been
received by shareholders in December if paid during January of the following
year. Redemptions of shares, except shares of STFMF, including exchanges for
shares of another Scudder fund, may result in tax consequences (gain or loss) to
the shareholder and are also subject to these reporting requirements.

Distributions by STFT , SMMB and SHYTFF, to the extent not
covered by earnings and profits of each Fund, will result in a reduction in the
net asset value of the shares. Should such a distribution reduce the net asset
value below a shareholder's cost basis, such distribution would nevertheless be
taxable to the shareholder as ordinary income or capital gain as described above
(to the extent it is made from taxable income or capital gains), even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them (to the extent that
such distribution is from taxable income or gain).

All futures contracts entered into by STFT , SMMB or SHYTFF, and
all options on futures contracts written or purchased by them will be governed
by Section 1256 of the Code. Absent a tax election to the contrary, gain or loss
attributable to the lapse, exercise or closing out of any such position
generally will be treated as 60% long-term and 40% short-term capital gain or
loss, and on the last trading day of the fiscal year, all outstanding Section
1256 positions will be marked to market (i.e. treated as if such positions were
closed out at their closing price on such day), with any resulting gain or loss
recognized as 60% long-term and 40% short-term capital gain or loss. Under
certain circumstances, entry into a futures contract to sell a security may
constitute a short sale for federal income tax purposes, causing an adjustment
in the holding period of the underlying security or a substantially identical
security owned by such Fund.

Positions of STFT , SMMB or SHYTFF, which consist of at least one
debt security not governed by Section 1256 and at least one futures contract or
option on a futures contract governed by Section 1256 which substantially
diminishes the risk of loss with respect to such debt security, will be treated
as a "mixed straddle." Although mixed straddles are subject to the straddle
rules of Section 1092 of the Code, the operation of which may cause deferral of
losses, adjustments in the holding periods of securities and conversion of
short-term capital losses into long-term capital losses, certain tax elections
exist for them which reduce or eliminate the operation of these rules. SMTTFF,
SMMB and SHYTFF will monitor their transactions in options and futures and may
make certain tax elections in order to mitigate the operation of these rules and

63
<PAGE>

prevent their disqualification as regulated investment companies for federal
income tax purposes.

Under the federal income tax law, each Fund will be required to report
to the Internal Revenue Service all distributions of taxable income and capital
gains and, in the case of SMTTFF, SMMB and SHYTFF, gross proceeds from the
redemption or exchange of shares, except in the case of certain exempt
shareholders. Under the "backup withholding" tax provisions of Section 3406 of
the Code, distributions of taxable income and capital gains and proceeds from
the redemption or exchange of shares are generally subject to withholding of
federal income tax at the rate of 31% in the case of non-exempt shareholders who
fail to furnish a regulated investment company with their taxpayer
identification numbers and with their required certifications regarding their
status under the federal income tax law. Under a special exception,
distributions of taxable income and capital gains of each Fund will not be
subject to backup withholding if each reasonably estimates that at least 95% of
all such distributions will consist of tax-exempt interest dividends. However,
the proceeds from the redemption or exchange of shares of SMTTFF, SMMB and
SHYTFF may be subject to backup withholding. If the withholding provisions are
applicable, any such distributions and proceeds, whether distributed in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.

Interest on indebtedness incurred by shareholders to purchase or carry
shares of each Fund will not be deductible for federal income tax purposes.
Under rules used by the Internal Revenue Service to determine when borrowed
funds are used for the purpose of purchasing or carrying particular assets, the
purchase of shares may be considered to have been made with borrowed funds even
though the borrowed funds are not directly traceable to the purchase of shares.

Section 147(a) of the Code prohibits exemption from taxation of
interest on certain governmental obligations to persons who are "substantial
users" (or persons related thereto) of facilities financed by such obligations.
The Funds have not undertaken any investigation as to the users of the
facilities financed by bonds in their portfolios.

Tax legislation in recent years has included several provisions that
may affect the supply of, and the demand for, tax-exempt bonds, as well as the
tax-exempt nature of interest paid thereon.

It is not possible to predict with certainty the effect of these recent
tax law changes upon the tax-exempt bond market, including the availability of
obligations appropriate for investment, nor is it possible to predict any
additional restrictions that may be enacted in the future. Each Fund will
monitor developments in this area and consider whether changes in its objectives
or policies are desirable.

Shareholders may be subject to state and local taxes on distributions
from each Fund and redemptions of the shares of each Fund. Some states exempt
from the state personal income tax distributions received from a regulated
investment company to the extent such distributions are derived from interest on
obligations issued by such state or its municipalities or political
subdivisions.

Each Fund is organized as a Massachusetts business trust or a series of
such trust and is not liable for any income or franchise tax in The Commonwealth
of Massachusetts provided that each qualifies as a regulated investment company
under the Code.

The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. domestic corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and foreign tax consequences of ownership of shares of a
Fund, including the possibility that such a shareholder may be subject to a U.S.
withholding tax at a rate of 30% (or at a lower rate under an applicable income
tax treaty) on amounts constituting ordinary income received by him or her.

Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations and applicable state and local tax
laws. Certain political events, including federal elections and future
amendments to federal income tax laws, may affect the desirability of investing
in the Funds.

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PORTFOLIO TRANSACTIONS

Brokerage

To the maximum extent feasible, the Adviser places orders for portfolio
transactions through the Distributor, which in turn places orders on behalf of
the Fund involved with issuers, underwriters or other brokers and dealers. The
Distributor receives no commissions, fees or other remuneration from the Funds
for this service.
Allocation of brokerage is supervised by the Adviser.

A Fund's purchases and sales of portfolio securities are generally
placed by the Adviser with the issuer or a primary market maker for these
securities on a net basis, without any brokerage commission being paid by a
Fund. Trading does, however, involve transaction costs. Transactions with
dealers serving as primary market makers reflect the spread between the bid and
asked prices. Transaction costs may also include fees paid to third parties for
information as to potential purchasers or sellers of securities but only if a
Fund would obtain the most favorable net results, including such fee, on a
particular transaction. Purchases of underwritten issues may be made which will
involve an underwriting fee paid to the underwriter. To date, no brokerage
commissions have been paid.

The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Funds is to obtain the most favorable net results
taking into account such factors as price, commission where applicable
(negotiable in the case of U.S. national securities exchange transactions), size
of order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by a Fund to reported commissions paid by others.
The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.

When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
brokers and dealers who supply market quotations to the custodian of the Funds
for appraisal purposes, or who supply research, market and statistical
information to the Funds. The term "research, market and statistical
information" includes advice as to the value of securities, the advisability of
investing in, purchasing or selling securities; and the availability of
securities or purchasers or sellers of securities; and analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. The Adviser is not
authorized when placing portfolio transactions for a Fund to pay a brokerage
commission in excess of that which another broker might have charged for
effecting the same transaction solely on account of the receipt of research,
market or statistical information. The Adviser will not place orders with
brokers or dealers on the basis that a broker or dealer has or has not sold
shares of a Fund. In effecting transactions in over-the-counter securities,
orders will be placed with the principal market-makers for the security being
traded unless, after exercising care, it appears that more favorable results are
available otherwise.

The Adviser may place brokerage transactions through the Custodian and
a credit against the Custodian fee due to State Street Bank and Trust Company
equal to one-half of the commission on any such transaction will be given.
Except for implementing the policy stated above, there is no intention to place
portfolio transactions with particular brokers or dealers or groups thereof.

Although certain research, market and statistical information from
brokers and dealers can be useful to the Funds and to the Adviser, it is the
opinion of the Adviser that such information will only supplement the Adviser's
own research effort, since the information must still be analyzed, weighed, and
reviewed by the Adviser's staff. Such information may be useful to the Adviser
in providing services to clients other than the Funds and not all such
information is used by the Adviser in connection with the Funds. Conversely,
such information provided to the Adviser by brokers and dealers through whom
other clients of the Adviser effect securities transactions may be useful to the
Adviser in providing services to the Funds.

The Trustees of each Fund intend to review from time to time whether
the recapture for the benefit of a Fund of some portion of the brokerage
commissions or similar fees paid by a Fund on portfolio transactions is legally
permissible and advisable.

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Portfolio Turnover

The portfolio turnover rate of SMTTFF (defined by the SEC as the ratio
of the lesser of sales or purchases to the monthly average value of such
securities owned during the year, excluding all securities whose remaining
maturities at the time of acquisition were one year or less) for the fiscal
years ended December 31, 1994 and 1993 were 33.8% and 37.3%,
respectively. The portfolio turnover rate of SLTTFF for the fiscal period
ended October 31, 1994 was 36.3% annualized. The portfolio turnover rate of
SMMB for the fiscal years ended December 31, 1994 and 1993 were 33.7%
and 52.8%, respectively. The portfolio turnover rate of SHYTFF for the
fiscal years ended December 31, 1994 and 1993 were 34.3% and
56.4%, respectively.

NET ASSET VALUE

Scudder Tax Free Money Fund

The net asset value per share of STFMF is determined by STFMF's
custodian, State Street Bank and Trust Company, twice daily as of twelve o'clock
noon and the close of regular trading on the New York Stock Exchange on each day
when the Exchange is open for trading. The Exchange normally is closed on the
following national holidays: New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Net asset
value per share is determined by dividing the total assets of the Fund, less all
of its liabilities, by the total number of shares of the Fund outstanding. The
valuation of STFMF's portfolio securities is based upon their amortized cost
which does not take into account unrealized securities gains or losses. This
method involves initially valuing an instrument at its cost and thereafter
amortizing to maturity any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price STFMF
would receive if it sold the instrument. During periods of declining interest
rates, the quoted yield on shares of STFMF may tend to be higher than a like
computation made by a fund with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices for all of its
portfolio instruments. Thus, if the use of amortized cost by STFMF resulted in a
lower aggregate portfolio value on a particular day, a prospective investor in
the Fund would be able to obtain a somewhat higher yield if he purchased shares
of the Fund on that day, than would result from investment in a fund utilizing
solely market values, and existing investors in the Fund would receive less
investment income. The converse would apply in a period of rising interest
rates. Other securities and assets for which market quotations are not readily
available are valued in good faith at fair value using methods determined by the
Trustees and applied on a consistent basis. For example, securities with
remaining maturities of more than 60 days for which market quotations are not
readily available are valued on the basis of market quotations for securities of
comparable maturity, quality and type. The Trustees review the valuation of
STFMF's securities through receipt of regular reports from the Adviser at each
regular Trustees' meeting. Determinations of net asset value made other than as
of the close of the Exchange may employ adjustments for changes in interest
rates and other market factors.

Scudder Limited Term Tax Free Fund, Scudder Medium Term Tax Free Fund,
Scudder Managed Municipal Bonds and Scudder High Yield Tax Free Fund

The net asset value of shares of SLTTFF, SMTTFF, SMMB and SHYTFF
are computed as of the close of regular trading on the Exchange on each
day the Exchange is open for trading (the "Value Time"). The Exchange is
scheduled to be closed on the following holidays: New Year's Day, Presidents
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. Net asset value per share is determined by dividing the value of the
total assets of a Fund, less all liabilities, by the total number of shares
outstanding.

An exchange-traded equity security (not subject to resale restrictions)
is valued at its most recent sale price. Lacking any sales, the security is
valued at the calculated mean between the most recent bid quotation and the most
recent asked quotation (the "Calculated Mean"). If there are no bid and asked
quotations, the security is valued at the most recent bid quotation. An unlisted
equity security which is traded on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system is valued at the most recent sale
price. If there are no such sales, the security is valued at the high or
"inside" bid quotation. The value of an equity security not quoted on the NASDAQ
System, but traded in another over-the-counter market, is the most recent sale

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price. If there are no such sales, the security is valued at the Calculated
Mean. If there is no Calculated Mean, the security is valued at the most recent
bid quotation.

Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If no such bid quotation is available, the Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.

Option contracts on securities, currencies, futures and other financial
instruments traded on an exchange are valued at their most recent sale price on
the exchange. If no sales are reported, the value is the Calculated Mean, or if
the Calculated Mean is not available, the most recent bid quotation in the case
of purchased options, or the most recent asked quotation in the case of written
options. Option contracts traded over-the-counter are valued at the most recent
bid quotation in the case of purchased options and at the most recent asked
quotation in the case of written options. Futures contracts are valued at the
most recent settlement price. Foreign currency forward contracts are valued at
the value of the underlying currency at the prevailing currency exchange rate.

If a security is traded on more than one exchange, or on one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.

If, in the opinion of the Fund's Valuation Committee, the value of an
asset as determined in accordance with these procedures does not represent the
fair market value of the asset, the value of the asset is taken to be an amount
which, in the opinion of the Valuation Committee, represents fair market value
on the basis of all available information. The value of the funds' other
portfolio holdings is determined in a manner which, in the discretion of the
Valuation Committee most fairly reflects fair market value of the property on
the valuation date.

Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these assets in terms of U.S. dollars is calculated by
converting the Local Currency into U.S. dollars at the prevailing currency
exchange rates on the valuation date.

ADDITIONAL INFORMATION

Experts

The financial highlights of the Funds included in the prospectuses and
the financial statements incorporated by reference in this Statement of
Additional Information have been audited by Coopers & Lybrand LLP, One Post
Office Square, Boston, MA 02109, independent accountants, and have been so
included or incorporated by reference in reliance upon the accompanying reports
of said firm, which reports are given upon their authority as experts in
accounting and auditing.

Shareholder Indemnification

STFMF, STFT and SMT are organizations of the type commonly known as a
Massachusetts business trust. Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Declarations of Trust of each Trust
contain an express disclaimer of shareholder liability in connection with the
Funds' property or the acts, obligations or affairs of the Funds. The
Declarations of Trust also provide for indemnification out of the Funds'
property of any shareholder held personally liable for the claims and
liabilities to which a shareholder may become subject by reason of being or
having been a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which a
Fund itself would be unable to meet its obligations.

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Ratings of Municipal Obligations

The five highest ratings of Moody's for municipal bonds are Aaa, Aa, A,
Baa and Ba. Bonds rated Aaa are judged by Moody's to be of the best quality.
Bonds rated Aa are judged to be of high quality by all standards. Together with
the Aaa group, they comprise what are generally known as high-grade bonds.
Together with securities rated A and Baa, they comprise investment grade
securities. Moody's states that Aa bonds are rated lower than the best bonds
because margins of protection or other elements make long-term risks appear
somewhat larger than for Aaa municipal bonds. Municipal bonds which are rated A
by Moody's possess many favorable investment attributes and are considered
"upper medium grade obligations." Factors giving security to principal and
interest of A rated municipal bonds are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Securities rated Baa are considered medium grade, with factors giving security
to principal and interest adequate at present but may be unreliable over any
period of time. Such bonds have speculative elements as well as investment-grade
characteristics. Securities rated Ba or below by Moody's are considered below
investment grade, with factors giving security to principal and interest
inadequate and potentially unreliable over any period of time. Such securities
are commonly referred to as "junk" bonds and as such they carry a high margin of
risk.

Moody's ratings for municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term and long-term credit risk. Loans bearing the
designation MIG1 are of the best quality, enjoying strong protection by
establishing cash flows of funds for their servicing or by established and
broad-based access to the market for refinancing, or both. Loans bearing the
designation MIG2 are of high quality, with margins of protection ample although
not as large as in the preceding group.

The five highest ratings of S&P for municipal bonds are AAA (Prime), AA
(High-grade), A (Good-grade), BBB (Investment grade) and BB (Below
investment-grade). Bonds rated AAA have the highest rating assigned by S&P to a
municipal obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree. Bonds
rated A have a strong capacity to pay principal and interest, although they are
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions. Bonds rated BBB have an adequate capacity to pay interest
and to repay principal. Adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds of this category than for bonds of higher rated categories.
Securities rated BB or below by S&P are considered below investment grade, with
factors giving security to principal and interest inadequate and potentially
unreliable over any period of time. Such securities are commonly referred to as
"junk" bonds and as such they carry a high margin of risk.

S&P top ratings for municipal notes are SP-1 and SP-2. The designation
SP-1 indicates a very strong capacity to pay principal and interest. A "+" is
added for those issues determined to possess overwhelming safety
characteristics. An "SP-2" designation indicates a satisfactory capacity to pay
principal and interest.

The five highest ratings of Fitch for municipal bonds are AAA, AA, A,
BBB and BB. Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated 'AAA'.
Because bonds rated in the 'AAA' and 'AA' categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated 'f-1+'. Bonds rated A are considered to be investment grade
and of high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher rates.
Bonds rated BBB are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse effects on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings. Securities
rated BB or below by Fitch are considered below investment grade, with factors
giving security to principal and interest inadequate and potentially unreliable
over any period of time. Such securities are commonly referred to as "junk"
bonds and as such they carry a high margin of risk.

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Commercial Paper Ratings

Commercial paper rated A-1 or better by S&P has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management are unquestioned.

The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.

The rating F-1 is the highest rating assigned by Fitch. Among the
factors considered by Fitch in assigning this rating are: (1) the issuer's
liquidity; (2) its standing in the industry; (3) the size of its debt; (4) its
ability to service its debt; (5) its profitability; (6) its return on equity;
(7) its alternative sources of financing; and (8) its ability to access the
capital markets. Analysis of the relative strength or weakness of these factors
and others determines whether an issuer's commercial paper is rated F-1.

Relative strength or weakness of the above factors determine how the
issuer's commercial paper is rated within the above categories.

Recently comparatively short-term obligations have been introduced in
the municipal market. S&P, Moody's and Fitch rate such obligations. While the
factors considered in municipal credit evaluations differ somewhat from those
relevant to corporate credits, the rating designations and definitions used with
respect to such obligations by S&P and Moody's are the same, respectively, as
those used in their corporate commercial paper ratings.

Glossary

1. Bond

A contract by an issuer (borrower) to repay the owner of the contract
(lender) the face amount of the bond on a specified date (maturity
date) and to pay a stated rate of interest until maturity. Interest is
generally paid semiannually in amounts equal to one half the annual
interest rate.

2. Debt Obligation

A general term which includes fixed income and variable rate
securities, obligations issued at a discount and other types of
securities which evidence a debt.

3. Discount and Premium

(a) Market Discount and Premium

A discount (premium) bond is a bond selling in the market at a
price lower (higher) than its face value. The amount of the
market discount (premium) is the difference between market
price and face value.

(b) Original Issue Discount

An original issue discount is the discount from face value at
which the bond is first offered to the public.

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4. Face Value

The value of a bond that appears on the face of the bond, unless the
value is otherwise specified by the issuing company. Face value is
ordinarily the amount the issuing company promises to pay at maturity.
Face value is not an indication of market value.

5. Liquidation

The process of converting securities or other property into cash.

6. Maturity

The date on which the principal amount of a debt obligation comes due
by the terms of the instrument.

7. Municipal Security

Securities issued by or on behalf of states, territories and
possessions of the United States, their political subdivisions,
agencies and instrumentalities and the District of Columbia and other
issuers, the interest from which is, at the time of issuance in the
opinion of bond counsel for the issuers, exempt from federal income
tax, except for the applicability of the alternative minimum tax.

8. Net Asset Value Per Share

The value of each share of each Fund for purposes of sales and
redemptions.

9. Net Investment Income

The net investment income of a Fund is comprised of its interest
income, including accretion of original issue discounts, less
amortization of premiums and expenses paid or accrued computed under
Generally Accepted Accounting Principles (GAAP).

10. Par Value

Par value of a bond is a dollar amount representing the denomination
and assigned value of the bond. It signifies the dollar value on which
interest on the bonds is computed and is usually the same as face value
and maturity value for an individual bond. For example, most bonds are
issued in $1,000 denominations and they have a face value, maturity
value and par value of $1,000. Their market price can of course vary
significantly from $1,000 during their life between issuance and
maturity.

11. Series

SMT is composed of two series: SMMB and SHYTFF. Each Series is
distinct from the other, although both SMMB and SHYTFF are combined in
one investment company--SMT.

STFT is composed of two series: SMTTFF and SLTTFF. Each series is
distinct from the other, although both SMTTFF and SLTTFF are combined
in one investment company--STFT .

Other Information

The CUSIP number for STFMF is 811235-10-0.

The CUSIP number for SLTTFF is 81123Q104.

The CUSIP number for SMTTFF is 811236-20-7.

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The CUSIP number for SMMB is 811170-10-9.

The CUSIP number for SHYTFF is 811170-20-8.

STFMF, SMTTFF, SMMB and SHYTFF have a taxable year ending on
December 31, SLTTFF has a taxable year ending October 31.

Portfolio securities of each Fund and each series of SMT are held
separately, pursuant to a custodian agreement, by the Funds' custodian, State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02101.

Costs of $41,258 incurred by SLTTFF in conjunction with its
organization had been deferred and are being amortized over five years beginning
February 15, 1994.

Costs of $33,777 incurred by SMTTFF in connection with its organization
had been deferred and are being amortized for the five year period beginning
November 1, 1990.

The firm of Willkie Farr & Gallagher is counsel for each Fund.

The name "Scudder Tax Free Money Fund" is the designation of the
Trustees for the time being under an Amended and Restated Declaration of Trust
dated December 9, 1987, the name "Scudder Tax Free Trust" is the designation of
the Trustees for the time being under an Amended and Restated Declaration of
Trust dated December 8, 1987 and the name "Scudder Municipal Trust" is the
designation of the Trustees for the time being under an Amended and Restated
Declaration of Trust dated December 11, 1987, each as amended from time to time,
and all persons dealing with a Fund must look solely to the property of that
Fund for the enforcement of any claims against that Fund as neither the
Trustees, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of a Fund. Upon the initial purchase of
shares, the shareholder agrees to be bound by a Fund's Declaration of Trust, as
amended from time to time. The Declaration of Trust of each Fund is on file at
the Massachusetts Secretary of State's Office in Boston, Massachusetts. All
persons dealing with a Fund must look only to the assets of that Fund for the
enforcement of any claims against such Fund as no other series of a Trust
assumes any liabilities for obligations entered into on behalf of a Fund.

Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a wholly-owned subsidiary of the Adviser, computes
each Fund's net asset value. Each Fund pays Scudder Fund Accounting Corporation
an annual fee equal to 0.025% of the first $150 million of average daily net
assets, 0.0075% of such assets in excess of $150 million, 0.0045% of such assets
in excess of $1 billion, plus holding and transaction charges for this service.
For the period September 27, 1994 to December 31, 1994, the amount charged to
STFMF by Scudder Fund Accounting Corporation aggregated $13,449, of which $4,117
was unpaid on December 31, 1994. The fee incurred by SLTTFF to Scudder Fund
Accounting Corporation for February 15, 1994 (commencement of operations) to
October 31, 1994 would have amounted to $25,393, had the fee been imposed.

Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a wholly-owned subsidiary of Scudder, Stevens
& Clark, Inc., is the transfer and dividend-paying agent for the Funds. Service
Corporation also serves as shareholder service agent for the Funds. SMTTFF, SMMB
and SHYTFF each pay Service Corporation an annual fee of $25.00 for each account
maintained for a shareholder. STFMF pays Service Corporation an annual fee of
$28.90 for each account maintained for a shareholder. $ 268,759 was
charged to STFMF for the year ended December 31, 1994 of which
$ 22,023 is unpaid at December 31, 1994 . A total of $ 391,610
was charged by Service Corporation to SMMB for the calendar year ended December
31, 1994 , $ 30,382 of which is unpaid at December 31, 1994 .
A total of $ 374,557 was charged to SHYTFF for the year ended December 31,
1994 , $ 28,046 of which is unpaid at December 31, 1994 .
$ 554,165 was charged to SMTTFF for the year ended December 31,
1994 , of which $ 40,709 is unpaid at December 31, 1994 .
For SLTTFF for the period February 15, 1994 (commencement of operations) to
October 31, 1994, Service Corporation did not impose its fee amounting to
$27,525.

The Funds' prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement and its amendments
which each Trust has filed with the SEC under the Securities Act of 1933 and
reference is hereby made to the Registration Statements and their amendments for

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further information with respect to the Funds and the securities offered hereby.
The Registration Statements and their amendments are available for inspection by
the public at the SEC in Washington, D.C.

FINANCIAL STATEMENTS

Scudder Tax Free Money Fund

The financial statements, including the investment portfolio, of
Scudder Tax Free Money Fund, together with the Report of Independent
Accountants, Financial Highlights and notes to financial statements
are incorporated by reference and attached hereto on pages 7 through 20 ,
inclusive, in the Annual Report to the Shareholders of the Fund dated
December 31, 1994, and are hereby deemed to be part of this Statement of
Additional Information.

Scudder Limited Term Tax Free Fund

The financial statements, including the investment portfolio of Scudder
Limited Term Tax Free Fund together with the Report of Independent Accountants,
Financial Highlights and notes to financial statements are incorporated by
reference hereto on pages 9 and 20, inclusive, in the Annual Report to the
Shareholders of the Fund dated October 31, 1994, and are hereby deemed to be
part of this Statement of Additional Information.

Scudder Medium Term Tax Free Fund

The financial statements, including the investment portfolio, of
Scudder Medium Term Tax Free Fund, together with the Report of Independent
Accountants, Financial Highlights and notes to financial statements
are incorporated by reference and attached hereto on pages 10 through 28 ,
inclusive, in the Annual Report to the Shareholders of the Fund dated
December 31, 1994, and are hereby deemed to be part of this Statement of
Additional Information.

Scudder Managed Municipal Bonds

The financial statements, including the investment portfolio, of
Scudder Managed Municipal Bonds, together with the Report of Independent
Accountants, Financial Highlights and notes to financial statements
are incorporated by reference and attached hereto on pages 10 through 27 ,
inclusive, in the Annual Report to the Shareholders of the Fund dated
December 31, 1994, and are hereby deemed to be part of this Statement of
Additional Information.

Scudder High Yield Tax Free Fund

The financial statements, including the investment portfolio, of
Scudder High Yield Tax Free Fund, together with the Report of Independent
Accountants, Financial Highlights and notes to financial statements
are incorporated by reference and attached hereto on pages 10 through 25 ,
inclusive, in the Annual Report to the Shareholders of the Fund dated
December 31, 1994, and are hereby deemed to be part of this Statement of
Additional Information.

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Shares of Scudder Tax Free Money Fund are not insured or guaranteed by the
U.S. Government. Scudder Tax Free Money Fund seeks to maintain a constant
net asset value of $1.00 per share, but there can be no assurance that the
stable net asset value will be maintained.

This information must be preceded or accompanied by a current prospectus.

Portfolio changes should not be considered recommendations for action by
individual investors.

Scudder Tax Free Money Fund

Annual Report
December 31, 1994

* A fixed-price money market fund offering opportunities for tax-free
income and stability of principal from high-quality, short-term
tax-exempt securities.

* A pure no-load(tm) fund with no commissions to buy, sell, or exchange
shares.

SCUDDER TAX FREE MONEY FUND

TABLE OF CONTENTS

3 Letter from the Fund's President

4 Portfolio Management Discussion
Your Fund's portfolio management team reviews the period's
investing strategies, financial markets, and economic conditions

7 Investment Portfolio
Itemized list of your Fund's portfolio holdings

13 Financial Statements

16 Financial Highlights

17 Notes to Financial Statements

20 Report of Independent Accountants

21 Tax Information

21 Officers and Trustees

22 Investment Products and Services

23 How to Contact Scudder

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

The world's financial markets were shaken repeatedly in 1994 by a
variety of events. Rising interest rates, losses for investors in highly
leveraged derivatives, municipal bankruptcy in California's Orange County,
and unsettling global developments combined to create a challenging
environment for global stock and bond investors. Not surprisingly, money
funds experienced substantial inflows this past year, as investors sought
to take shelter from the heightened market volatility of longer-term
financial instruments and capture higher yields.

The rise in interest rates in the past year has meant higher income
from fixed-income investments at a time when inflation has remained
relatively stable. As of December 31, Scudder Tax Free Money Fund provided
a federally tax-free 7-day effective yield of 4.22%, compared with 2.25% at
the start of the year. In the coming year, we expect a combination of
factors, including the Federal Reserve's tightening efforts, to keep global
economic activity and inflation on a moderate course in the U.S. and
abroad. Nevertheless, we expect some upward pressure to remain on interest
rates in 1995. Finite savings around the world has meant that capital to
invest in financial markets and growing economies increasingly is in short
supply. As a result, countries most likely will continue to compete for
much-needed global capital through higher rates of interest.

Additional rate increases may spark episodes of difficult adjustment
for financial markets and result in higher yields for money funds.
Regardless of the level of interest rates, however, money funds deserve a
place in most investment programs, either as the conservative foundation
for your overall portfolio or as a ready reserve to meet your needs for
cash.

If you have questions about your Fund or your investments, contact a
Scudder Investor Relations representative at 1-800-225-2470. Page 23
provides more information on how to contact Scudder. Thank you for choosing
Scudder Tax Free Money Fund to help meet your investment needs.

Sincerely,

/s/David S. Lee
David S. Lee
President,
Scudder Tax Free Money Fund

<PAGE>

SCUDDER TAX FREE MONEY FUND
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

The past 12 months have been generally friendly to money market
investors. Interest rates climbed dramatically, as the Federal Reserve
sought to slow the pace of economic growth through higher rates. And
shareholders saw the Scudder Tax Free Money Fund's income distributions
rise as a result. Meanwhile, the Fund maintained a constant share price of
$1.00, consistent with our goal of price stability.

On December 31, 1994, your Fund's 7-day net annualized yield was
4.14%. Factoring in the effect of compounding, the 7-day effective yield
was 4.22%, nearly double its 2.25% yield a year ago. For shareholders in
the 36% and 39.6% federal income tax brackets, the Fund's tax-free compound
yield translates into a taxable yield of 6.59% and 6.99%, respectively. The
Fund's total return, which reflects reinvested distributions of $0.022 per
share, was 2.26% for the 12 months ended December 31, 1994. Of course, past
performance is no guarantee of future results, and the Fund's yield will
fluctuate.

Rising Interest Rates Took Center Stage

Interest rates rose steadily throughout the year, increasing borrowing
costs for mortgages and credit cards and depressing bond prices, which move
in the opposite direction of interest rates. Though persistently higher
rates during 1994 resulted in a poor environment for bonds, Scudder Tax
Free Money Fund benefited from rising rates, since its yield rose while its
share price remained stable.

Money market fund inflows increased in 1994 as investors sought to
capture higher yields and price stability. Although money funds have a
stated goal of providing a constant $1.00 share price, shares of the funds
are not insured or guaranteed by the U.S. government and there can be no
assurance that the stable net asset value will be maintained. As always, we
strive to provide a stable share price so that shareholders can count on
money market funds to return their investment dollars in full whenever they
need them.

Favorable Supply/Demand Dynamics Boosted Performance

For much of the year, municipal bond prices were relatively strong
compared with other income investments, thanks in part to limited supply
and reasonably strong demand. The scanty supply of municipal securities in
1994 stands in stark contrast to the record high levels of the previous
year, which had been fueled by refinancing activity as interest rates fell.
Once rates began to rise and borrowing costs increased for new debt,
refinancing slowed. Moreover, many municipalities had already taken
advantage of the opportunity to refinance existing debt when rates were
low. Limited municipal supply in 1994 was even more pronounced due to
rising demand. Investors were drawn to municipals due in part to the higher
taxes that took effect in 1993, but also because of falling prices on other
types of investments. We believe municipal issuance in 1995 will continue
to be low, while demand remains steady at current levels.

Strategy Emphasizes Flexibility for Higher Yields and Stability

Through the course of the past year, the average maturity of the
Fund's holdings grew gradually shorter. At the start of the year, the Fund
focused on investments both at the longer and shorter ends of the money
market maturity spectrum. Longer-term money market holdings enabled the
Fund to capture higher yields relative to shorter-term holdings. And, in
the event that rates started to rise, shorter-term money market securities
provided the flexibility to quickly deploy proceeds from maturing
investments into higher-yielding instruments. As 1994 progressed, we leaned
more heavily toward shorter maturities, anticipating that upward pressure
on interest rates would persist. As of December 31, the average maturity of
the portfolio stood at 48 days, in contrast to its 65-day average a year
ago.

Throughout the year, the bulk of the portfolio has been devoted to
very liquid issues known as variable-rate demand notes. As the name
suggests, these securities feature fluctuating interest payments, which
reflect current interest-rate levels. As an added feature, investors can
recoup the full face value of an issue at all times. And because the rates
on these securities continually adjust to prevailing market rates, their
prices tend to be very steady.

As the year drew to a close, Orange County, California's bankruptcy
filing took the municipal security market by surprise. The County's
investment pool suffered heavy losses due to a high level of leveraging --
that is, buying large amounts of bonds and other securities with borrowed
money. Scudder Tax Free Money Fund, we are pleased to report, owned neither
direct nor indirect investments in the Orange County investment pool.

Looking ahead, we believe the Federal Reserve may push short-term
interest rates up a bit further if economic growth remains strong. As a
result, we intend to maintain our current strategy of favoring shorter-term
money market securities. While it is impossible to predict accurately when
interest rates will peak -- early in 1995 or later -- any evidence suggesting
that rates could be ready to decline may prompt us to lengthen maturities
to achieve a high relative yield.

Thank you for your continued interest in Scudder Tax Free Money Fund.

Sincerely,

Your Portfolio Management Team

/s/K. Sue Cote /s/Donald C. Carleton
K. Sue Cote Donald C. Carleton

Scudder Tax Free Money Fund: A Team Approach to Investing

Scudder Tax Free Money Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management
process. Team members work together to develop investment strategies and
select securities for the Fund. They are supported by Scudder's large staff
of economists, research analysts, traders, and other investment specialists
who work in our offices across the United States and abroad. Scudder
believes its team approach benefits Fund investors by bringing together
many disciplines and leveraging Scudder's extensive resources.

Lead Portfolio Manager K. Sue Cote assumed responsibility for the
Fund's investment strategy and operations in 1986 and has over 10 years of
experience in short-term tax-free investing. Sue, who joined Scudder in
1983, also is Lead Portfolio Manager of AARP High Quality Tax Free Money
Fund and a Portfolio Manager of Scudder California Tax Free and Scudder New
York Tax Free Money Funds. Donald C. Carleton, Portfolio Manager, has
worked on the Fund since 1986 and has 25 years of experience in tax-free
investing. Don also serves as Lead Portfolio Manager of Scudder Managed
Municipal Bonds, Scudder Medium Term Tax Free Fund, and AARP Insured Tax
Free General Bond Fund. He also is a Portfolio Manager of AARP High Quality
Tax Free Money Fund and Scudder California and New York Tax Free Funds.

INVESTMENT PORTFOLIO as of December 31, 1994
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Value ($)
Amount ($) Rating (b) (Note A)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
100.0% MUNICIPAL INVESTMENTS

ARIZONA Maricopa County, AZ, Industrial Development Authority,
Royal Oaks Sun City Project, Weekly Demand Note,
6.25%, 9/1/02* . . . . . . . . . . . . . . . . . . . . 300,000 MIG1 300,000
Pima County, AZ, Industrial Development Authority,
Tucson Electric Power Co., 1982 Series A,
Weekly Demand Note, 5.625%, 7/1/22* . . . . . . . . . 3,000,000 MIG1 3,000,000
Pinal County, AZ, Pollution Control Revenue,
Magma Copper, Series 1984, Daily Demand Note,
6.05%, 12/1/09* . . . . . . . . . . . . . . . . . . . 400,000 A1+ 400,000
Salt River Project, Agricultural Improvement and
Power District, AZ, Tax Exempt Commercial Paper,
4.35%, 1/10/95 . . . . . . . . . . . . . . . . . . . . 3,600,000 A1+ 3,600,000

CALIFORNIA California Revenue Anticipation Note, Series A,
5%, 6/28/95 . . . . . . . . . . . . . . . . . . . . . . 1,500,000 SP1+ 1,506,179
Lancaster, CA, Willows Project, Green Meadows,
1985 Series A, Weekly Demand Note,
6.125%, 2/1/05* . . . . . . . . . . . . . . . . . . . 8,650,000 A1 8,650,000
Los Angeles County, CA, Tax and Revenue
Anticipation Note:
4.5%, 6/30/95 . . . . . . . . . . . . . . . . . . . . 5,140,000 SP1+ 5,155,861
Unified School District, 4.5%, 7/10/95 . . . . . . . 2,000,000 SP1+ 2,009,038
Riverside, CA, Multi-Family Housing Revenue:
Countrywood Apartments, 1985 Series D,
Weekly Demand Note, 6.125%, 5/1/05* . . . . . . . . . 1,000,000 A1 1,000,000
Polk Apts, Weekly Demand Note, 6.125%, 12/1/05* . . . . . 2,000,000 A1 2,000,000

COLORADO Colorado State Certificate of Participation,
4.2%, 5/1/95 (c) . . . . . . . . . . . . . . . . . . . 2,250,000 AAA 2,252,145
Colorado Student Loan Obligation Bond Authority,
Weekly Demand Note, 1990 Series C,
5.05%, 9/1/99* . . . . . . . . . . . . . . . . . . . . 1,500,000 MIG1 1,500,000
Colorado Tax and Revenue Anticipation Note,
4.5%, 6/27/95 . . . . . . . . . . . . . . . . . . . . 2,725,000 MIG1 2,731,959

CONNECTICUT Connecticut General Obligation, Tender Option Bond,
Weekly Coupon Reset, 5.65%, 1/5/95 . . . . . . . . . . 2,000,000 MIG1 2,000,000

FLORIDA Broward County, FL, Housing Finance Authority,
Weekly Demand Note, Welleby Apartments Project,
5.7%, 12/1/06* . . . . . . . . . . . . . . . . . . . . 1,000,000 MIG1 1,000,000
Dade County, FL, Water and Sewer System Revenue
Bond, Series 1994, Weekly Demand Note,
4.95%, 10/5/22 (c)* . . . . . . . . . . . . . . . . . 2,000,000 A1+ 2,000,000
</TABLE>

The accompanying notes are an integral part of the financial statements.

GEORGIA Burke County, GA, Pollution Control Revenue,
Ogelthorpe Power, Weekly Demand Note,
4.95%, 1/1/19 (c)* . . . . . . . . . . . . . . . . . . 5,000,000 A1+ 5,000,000
DeKalb Private Hospital Authority, Egleston Children's
Hospital at Emory University, 1994 Series B, Weekly
Demand Note, 5.4%, 3/1/24* . . . . . . . . . . . . . . 5,000,000 A1+ 5,000,000
Dekalb County, GA, Wood Brook Project,1985
Series J, Weekly Demand Note, 5.7%, 8/1/07* . . . . . 2,000,000 MIG1 2,000,000

IDAHO Idaho Tax Anticipation Note, 4.5%, 6/29/95 . . . . . . . 2,000,000 SP1+ 2,006,422

ILLINOIS Illinois Development Finance Authority, Molex Inc.
Project, Series 1985, Weekly Demand Note,
5.7%, 7/1/05* . . . . . . . . . . . . . . . . . . . . . 1,000,000 NR 1,000,000
Illinois Educational Facilities Authority, University
Pooled Finance Program, Weekly Demand Note,
5.6%, 12/1/05 (c)* . . . . . . . . . . . . . . . . . . 4,810,000 A1 4,810,000
Illinois Health Facilities Authority:
Rush Presbyterian, Tax Exempt Commercial Paper:
4.35%, 1/10/95 . . . . . . . . . . . . . . . . . . . 1,000,000 MIG1 1,000,000
3.6%, 1/18/95 . . . . . . . . . . . . . . . . . . . . 2,000,000 A1+ 2,000,000
La Grange Memorial Health System, Series 1990,
Daily Demand Note, 6%, 12/1/16* . . . . . . . . . 1,000,000 MIG1 1,000,000
Skokie, IL, Fashion Square, Series 1984, Weekly
Demand Note, 6%, 12/1/14* . . . . . . . . . . . . . . 2,000,000 AA 2,000,000

INDIANA Indiana Bond Bank, Advanced Funding, 1994
Series A-2, 3.03%, 1/17/95 . . . . . . . . . . . . . . 2,000,000 SP1+ 2,000,238

IOWA Iowa School Corporation, 1994 Series A,
General Obligation, 4.25%, 7/17/95 . . . . . . . . . . 1,000,000 SP1+ 1,003,379

KENTUCKY Kentucky Development Finance Authority, Healthcare
System, Appalachian Regional Health Care,
Series 1991, Weekly Demand Note, 5.5%, 9/1/06* . . . . 1,300,000 MIG1 1,300,000

MAINE State of Maine, Series 1994, Tax Anticipation Notes,
4.5%, 6/30/95 . . . . . . . . . . . . . . . . . . . . . 5,000,000 SP1+ 5,017,260

MASSACHUSETTS Massachusetts Bay Transportation Authority,
1984 Series A, Optional Put, 3.75%, 3/1/14 . . . . . . 2,000,000 A1+ 2,000,000
Massachusetts General Obligation, 5.5%, 11/1/95 . . . . 2,000,000 NR 2,012,791

MICHIGAN Michigan Strategic Fund, Dow Chemical Project,
Tax Exempt Commercial Paper, 3.6%, 1/13/95 . . . . . . 1,500,000 P1 1,500,000
</TABLE>

The accompanying notes are an integral part of the financial statements.

MINNESOTA Cottage Grove, MN, Minnesota Mining and
Manufacturing, Series 1982, Weekly Demand Note,
5.5%, 8/1/12* . . . . . . . . . . . . . . . . . . . . . 1,100,000 A1+ 1,100,000

MISSISSIPPI Jackson County, MI, Chevron USA Project, Pollution
Control Revenue Bonds, Daily Demand Notes,
6.15%, 12/1/16* . . . . . . . . . . . . . . . . . . . . 3,255,000 P1 3,255,000

MISSOURI Missouri Health and Educational Facilities Authority,
Sisters of Mercy, Weekly Demand Note,
5.2%, 6/1/19* . . . . . . . . . . . . . . . . . . . . . 3,000,000 MIG1 3,000,000
Missouri State Environmental, Impact and Revenue
Resource Authority, Optional Put, 3.76%, 6/1/14 . . . . 5,000,000 A1+ 5,000,000
St. Charles County, MO, Industrial Development
Authority, Multi-Family Housing, Sun River
Apartments, Weekly Demand Note, 5.7%, 12/1/07* . . . . 3,000,000 MIG1 3,000,000

NEVADA Clark County, NV, Airport Improvement Revenue,
Weekly Demand Note, 4.95%, 7/1/12 (c)* . . . . . . . . 2,000,000 A1+ 2,000,000

NEW JERSEY New Jersey Turnpike Authority, Series D, Weekly
Demand Note, 4.65%, 1/1/18 (c)* . . . . . . . . . . . . 4,000,000 A1+ 4,000,000
Salem County, NJ, Industrial Pollution Control
Authority, E.I. du Pont de Nemours and Co.,
Floating Rate Demand Note, 3.75%, 3/1/12* . . . . . . 11,400,000 P1 11,400,000

NEW MEXICO Farmington, NM, Pollution Control Revenue,
Arizona Public Service, Four Corners Project, 1994
Series A, Daily Demand Note, 5.75%, 5/1/24* . . . . . . 1,400,000 A1+ 1,400,000
NEW YORK New York City Revenue Anticipation Notes, 1994
Series B, 4.75%, 6/30/95 . . . . . . . . . . . . . . . 2,000,000 SP1 2,006,158
New York City, NY, General Obligation, Series 1994 A,
4.5%, 4/12/95 . . . . . . . . . . . . . . . . . . . . 1,600,000 MIG1 1,603,292

NORTH CAROLINA North Carolina Eastern Municipal Power Agency,
Tax Exempt Commercial Paper, 1988 Series B,
3.85%, 2/24/95 . . . . . . . . . . . . . . . . . . . . 2,400,000 A1+ 2,400,000
North Carolina Medical Care Commission, Hospital
Revenue, Pooled Financing Project, 1986 Series A-2,
Weekly Demand Note, 5.55%, 7/1/26 (c)* . . . . . . . . 1,500,000 MIG1 1,500,000

NORTH DAKOTA Mercer County, ND, Pollution Control Revenue,
Cooperative Finance Corp., United Power, Weekly
Demand Note, 5.55%, 8/15/14* . . . . . . . . . . . . . 3,150,000 A1 3,150,000

OHIO Hamilton County, OH, Health Systems Revenue,
Franciscan Sisters of the Poor Health Systems,
Series A, Daily Demand Note, 6.05%, 3/1/17* . . . . . . 400,000 MIG1 400,000

</TABLE>

The accompanying notes are an integral part of the financial statements.

OREGON Klameth Falls, OR, Hydroelectric Facilities Authority,
Salt Caves Project, 1986 Series D, Mandatory Put,
3.75%, 5/1/95 . . . . . . . . . . . . . . . . . . . . . 1,500,000 SP1+ 1,500,000

PENNSYLVANIA Allegheny County, PA, Industrial Development Authority,
Lenmar Realty Project, Weekly Demand Note,
5.55%, 1/1/98* . . . . . . . . . . . . . . . . . . . . 1,110,000 MIG1 1,110,000
Bucks County, PA, Oxford Falls Plaza, Series 1984,
Weekly Demand Note, 5.75%, 10/1/14* . . . . . . . . . 9,000,000 MIG1 9,000,000
City of Philadelphia, PA, Tax and Revenue
Anticipation Notes, 4.75%, 6/15/95 . . . . . . . . . . 2,000,000 SP1 2,007,408
Elk County, PA, Stackpole Corporation, Series 1989,
Weekly Demand Note, 4.25%, 3/1/04* . . . . . . . . . . 1,000,000 NR 1,000,000
Emmaus, PA, General Authority, Local Government
Revenue Bond Pool Program,
Weekly Demand Note:
Series D-5, 5.65%, 3/1/24* . . . . . . . . . . . . 1,800,000 A1 1,800,000
Series D-6, 5.7%, 3/1/24* . . . . . . . . . . . . 800,000 A1 800,000
Series E, 5.65%, 3/1/24* . . . . . . . . . . . . 3,200,000 A1+ 3,200,000
Series G-3, 5.65%, 3/1/24* . . . . . . . . . . . . 9,950,000 A1+ 9,950,000
Series G-4, 5.7%, 3/1/24* . . . . . . . . . . . . 1,650,000 A1 1,650,000
Series H-2, 5.7%, 3/1/24* . . . . . . . . . . . . 1,200,000 A1 1,200,000
Series H-3, 5.7%, 3/1/24* . . . . . . . . . . . . 1,800,000 A1 1,800,000
Pennsylvania Tax Anticipation Notes, 4.75%, 6/30/95 . . 2,500,000 SP1+ 2,509,587
Philadelphia, PA School District, Tax and Revenue
Anticipation Notes, 4.75%, 6/30/95 . . . . . . . . . . 3,000,000 SP1+ 3,008,993

TENNESSEE Clarksville, TN, Series 1990, Weekly Demand Note,
4.9%, 7/1/13 (c)* . . . . . . . . . . . . . . . . . . . 2,000,000 MIG1 2,000,000
Franklin Industrial Development Revenue, Franklin
Oaks Apartments, Weekly Demand Note,
6%, 12/1/07* . . . . . . . . . . . . . . . . . . . . . 3,500,000 MIG1 3,500,000
Tennessee General Obligation, Bond Anticipation Note,
Weekly Demand Note, 1993 Series B, 5.5%, 5/1/96* . . . 700,000 A1+ 700,000
Tennessee State Local Development, Bond
Anticipation Note, 4.5%, 6/1/95 . . . . . . . . . . . 7,000,000 SP1+ 7,020,614

TEXAS Camp County, TX, Industrial Development, Pollution
Control Revenue, Texas Oil & Gas Corp., Floating
Rate Demand Bond, 5.7%, 12/1/13* . . . . . . . . . . . 2,000,000 A1 2,000,000

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Value ($)
Amount ($) Rating (b) (Note A)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Harris County, TX, Health Facilities Development Corp.,
St. Luke's Episcopal Hospital, Daily Demand Note:
1985 Series B, 5.85%, 2/15/16* . . . . . . . . . . . . 2,000,000 A1+ 2,000,000
1985 Series C, 5.85%, 2/15/16* . . . . . . . . . . . . 6,700,000 A1+ 6,700,000
1985 Series D, 5.85%, 2/15/16* . . . . . . . . . . . . 2,850,000 A1+ 2,850,000
North Central Texas Health Facilities
Development Corp., Presbyterian Medical Center,
Daily Demand Note:
Series C, 5.95%, 12/1/15 (c)* . . . . . . . . . . . . . 2,200,000 A1+ 2,200,000
Series D, 5.95%, 12/1/15 (c)* . . . . . . . . . . . . . 4,900,000 A1+ 4,900,000
San Antonio, TX, Industrial Development Authority,
River Center Associates Project, Weekly Demand
Note, 5.5%, 12/1/12* . . . . . . . . . . . . . . . . . . 4,800,000 AA 4,800,000
State of Texas, Tax and Revenue Anticipation Notes,
5%, 8/31/95 . . . . . . . . . . . . . . . . . . . . . . 4,300,000 SP1+ 4,315,199

UTAH Intermountain Power Agency, UT, Refunding Revenue
Series I, Prerefunded Bond, 8.7%, 7/1/99 . . . . . . . . 1,715,000 AAA 1,775,080
Salt Lake City, UT, Pooled Hospital Financing
Program, Tax Exempt Commercial Paper:
3.85%, 1/3/95 . . . . . . . . . . . . . . . . . . . . . 2,000,000 A1+ 2,000,000
4.35%, 1/10/95 . . . . . . . . . . . . . . . . . . . . 3,600,000 A1+ 3,600,000
Utah State Housing, Single Family Mortgage, Weekly
Demand Note, 5.7%, 7/1/16* . . . . . . . . . . . . . . . 2,000,000 SP1+ 2,000,000

VIRGINIA Louisa County, VA, Pollution Control Revenue,
Virginia Electric Power Company, Tax Exempt
Commercial Paper, 3.8%, 3/10/95 . . . . . . . . . . . . . 1,000,000 MIG1 1,000,000

WASHINGTON Washington General Obligation, Various Purpose,
Series B-2, Tender Option Bond, Weekly Coupon
Reset, 5.75%, 1/4/95 . . . . . . . . . . . . . . . . . . 5,000,000 A1+ 5,000,000
Washington Health Care Facilities Authority,
Daily Demand Note:
Fred Hutchinson Cancer Research Center:
Series A, 6%, 1/1/18* . . . . . . . . . . . . . . . . 2,315,000 MIG1 2,315,000
Series B, 6%, 1/1/18* . . . . . . . . . . . . . . . . 2,200,000 MIG1 2,200,000
Sisters of Providence:
1985 Series C, 6%, 10/1/05* . . . . . . . . . . . . . 1,000,000 A1+ 1,000,000
1985 Series E, 6%, 10/1/05* . . . . . . . . . . . . . 1,500,000 A1+ 1,500,000
Washington State Public Power Supply Authority,
Weekly Demand Note, 5.5%, 7/1/17* . . . . . . . . . . . 5,000,000 A1 5,000,000

WISCONSIN Wausau, WI, Pollution Control Revenue,
Minnesota Mining and Manufacturing,
Floating Rate Demand Note:
Series 1982, 5.5%, 8/1/17* . . . . . . . . . . . . . . 2,300,000 A1+ 2,300,000
Series 1983, 5.5%, 12/1/01* . . . . . . . . . . . . . . 800,000 AAA 800,000
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER TAX FREE MONEY FUND
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Value ($)
Amount ($) Rating (b) (Note A)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wisconsin Health Facilities Authority, Franciscan
Memorial Hospital, Weekly Demand Note,
5.4%, 1/1/16* . . . . . . . . . . . . . . . . . . . . . 900,000 A1+ 900,000
-----------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $249,538,041) (a) . . . . . . . . . . . . . . . . 249,538,041
===========
</TABLE>
(a) The cost for federal income tax purposes was
$249,869,104. At December 31, 1994, net unrealized
depreciation for all securities was $331,063. This
consisted of aggregate gross unrealized depreciation
for all securities in which there was an excess of tax
cost over market value of $331,063.

(b) All of the securities held have been determined to be
of appropriate credit quality as required by the
Fund's investment objectives. Credit ratings shown are
assigned by either Standard & Poor's Ratings Group,
Moody's Investors Service, Inc. or Fitch Investors
Service, Inc. Unrated securities (NR) have been
determined to be of comparable quality to rated
eligible securities.

* Floating rate and monthly, weekly, or daily demand
notes are securities whose yields vary with a
designated market index or market rate, such as the
coupon-equivalent of the Treasury Bill rate. Variable
rate demand notes are securities whose yields are
periodically reset at levels that are generally
comparable to tax-exempt commercial paper. These
securities are payable on demand within seven calendar
days and normally incorporate an irrevocable letter of
credit or line of credit from a major bank. These
notes are carried, for purposes of calculating average
weighted maturity, at the longer of the period
remaining until the next rate change or to the extent
of the demand period.

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------

STATEMENT OF ASSETS AND LIABILITIES

DECEMBER 31, 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at value (amortized cost $249,538,041)
(Note A). . . . . . . . . . . . . . . . . . . . . . . . . . . $249,538,041
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,168,624
Receivables:
Fund shares sold. . . . . . . . . . . . . . . . . . . . . . . 4,053,132
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,199,478
Investments sold. . . . . . . . . . . . . . . . . . . . . . . 2,060,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 6,533
------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . 266,025,808
LIABILITIES
Payables:
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . $9,020,791
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . 68,544
Accrued management fee (Note B) . . . . . . . . . . . . . . . 108,047
Other accrued expenses (Note B) . . . . . . . . . . . . . . . 54,278
----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 9,251,660
------------
Net assets, at value . . . . . . . . . . . . . . . . . . . . . $256,774,148
NET ASSETS ============
Net assets consist of:
Accumulated net realized loss . . . . . . . . . . . . . . . . $ (146,017)
Shares of beneficial interest . . . . . . . . . . . . . . . . 2,566,024
Additional paid-in capital . . . . . . . . . . . . . . . . . 254,354,141
------------
Net assets, at value . . . . . . . . . . . . . . . . . . . . . $256,774,148
NET ASSET VALUE, offering and redemption price per share ============
($256,774,148 -:-256,602,378 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) . . . . . . . . . . . . . . . . . . . $1.00
=====
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER TAX FREE MONEY FUND
- ----------------------------------------------------------------------------------------------

STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,348,733

Expenses:
Management fee (Note B) . . . . . . . . . . . . . . . . . . . . $1,222,791
Services to shareholders (Note B) . . . . . . . . . . . . . . . 350,571
Trustees' fees (Note B) . . . . . . . . . . . . . . . . . . . . 36,168
Custodian and Accounting fees (Note B) . . . . . . . . . . . . 94,936
Reports to shareholders . . . . . . . . . . . . . . . . . . . . 40,985
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,822
Auditing . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,926
State registration . . . . . . . . . . . . . . . . . . . . . . 56,386
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,042 1,871,627
---------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . 5,477,106
----------

NET REALIZED LOSS ON INVESTMENT TRANSACTIONS
Net realized loss from investments . . . . . . . . . . . . . . (13,237)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . $5,463,869
==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------

STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------
<CAPTION>

YEARS ENDED DECEMBER 31,
-----------------------------
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . $ 5,477,106 $ 4,435,227
Net realized loss from investment
transactions. . . . . . . . . . . . . . . . . . . . . . . . . (13,237) (28,852)
------------ ------------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . . . . . . . 5,463,869 4,406,375
------------ ------------
Distributions to shareholders from net
investment income ($.022 and $.018 per
share, respectively). . . . . . . . . . . . . . . . . . . . . (5,477,106) (4,435,227)
------------ ------------
Fund share transactions at net asset value of
$1.00 per share:
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . 664,337,035 574,052,666
Shares issued to shareholders in
reinvestment of distributions . . . . . . . . . . . . . . . . 4,888,153 3,926,092
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . (634,890,811) (622,587,583)
------------ ------------
Net increase (decrease) in net assets from
Fund share transactions . . . . . . . . . . . . . . . . . . . 34,334,377 (44,608,825)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . . . . . 34,321,140 (44,637,677)
Net assets at beginning of period . . . . . . . . . . . . . . . 222,453,008 267,090,685
------------ ------------
NET ASSETS AT END OF PERIOD . . . . . . . . . . . . . . . . . . $256,774,148 $222,453,008
============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER TAX FREE MONEY FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.

<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period . . . . . . . $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment
income . . . . . . . .022 .018 .025 .041 .053 .057 .046 .040 .041 .045
Less distributions
from net investment
income . . . . . . . (.022) (.018) (.025) (.041) (.053) (.057) (.046) (.040) (.041) (.045)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period . . . . $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) . . . 2.26 1.86 2.54 4.20 5.44 5.83 4.73 4.03 4.19 4.62
RATIOS AND
SUPPLEMENTAL DATA

<PAGE>

NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

A. SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
Scudder Tax Free Money Fund (the "Fund") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The policies
described below are followed consistently by the Fund in the preparation of its
financial statements in conformity with generally accepted accounting
principles.

SECURITY VALUATION. The Fund values all portfolio securities utilizing the
amortized cost method permitted in accordance with Rule 2a-7 under the
Investment Company Act of 1940, as amended, and pursuant to which the Fund must
adhere to certain conditions. Under this method, which does not take into
account unrealized securities gains or losses, an instrument is initially
valued at its cost and thereafter assumes a constant accretion/amortization to
maturity of any discount/premium.

FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies and to distribute all of its income to its shareholders. The Fund
accordingly paid no federal income taxes and no provision for federal income
taxes was required.

As of December 31, 1994, the Fund had a net tax basis capital loss carryforward
of approximately $170,413, which may be applied against any realized net taxable
gains of each succeeding year until fully utilized or until December 31, 1995
($76,706), December 31, 1996 ($20,404), December 31, 2000 ($6,818), December 31,
2001 ($28,852), and December 31, 2002 ($37,633), the respective expiration
dates, whichever occurs first.

DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of the Fund
is declared as a dividend to shareholders of record as of twelve o'clock noon
each business day and is paid to shareholders monthly. During any particular
year, net realized gains from investment transactions, in excess of available
capital loss carryforwards, would be taxable to the Fund if not distributed
and, therefore, will be distributed to shareholders. An additional distribution
may be made to the extent necessary to avoid the payment of a four percent
federal excise tax.

<PAGE>

SCUDDER TAX FREE MONEY FUND
- -------------------------------------------------------------------------------

The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.

OTHER. Investment transactions are accounted for on a trade date basis (which
in most cases is the same as the settlement date). Interest income is accrued
pro rata to maturity. All premiums and discounts are amortized/accreted for
both tax and financial reporting purposes.

B. RELATED PARTIES
- -------------------------------------------------------------------------------
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment objectives, policies, and
restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides
certain administrative services in accordance with the Agreement. The
management fee payable under the Agreement is equal to an annual rate of 0.50%
on the first $500,000,000 of average daily net assets, and 0.48% of such net
assets in excess of $500,000,000, computed and accrued daily and payable
monthly. The Agreement provides that if the Fund's expenses, exclusive of
taxes, interest, and extraordinary expenses, exceed specified limits, such
excess, up to the amount of the management fee, will be paid by the Adviser.
For the year ended December 31, 1994, the management fee pursuant to the
Agreement aggregated $1,222,791, which was equivalent to an annual effective
rate of 0.50% of the Fund's average daily net assets.

Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
For the year ended December 31, 1994, the amount charged to the Fund by SSC
aggregated $268,759, of which $22,023 is unpaid at December 31, 1994.

Effective September 27, 1994, Scudder Fund Accounting Corporation ("SFAC"), a
wholly-owned subsidiary of the Adviser, assumed responsibility for determining
the daily net asset value per share and maintaining the portfolio and general
accounting records of the Fund. For the period September 27, 1994 to December
31, 1994, the amount charged to the Fund by SFAC aggregated $13,449, of which
$4,117 is unpaid at December 31, 1994.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

The Fund pays each Trustee not affiliated with the Adviser $4,000 annually plus
specified amounts for attended board and committee meetings. For the year ended
December 31, 1994, Trustees' fees and expenses aggregated $36,168.

<PAGE>

SCUDDER TAX FREE MONEY FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------

TO THE TRUSTEES AND SHAREHOLDERS OF THE SCUDDER TAX FREE MONEY FUND:

We have audited the accompanying statement of assets and liabilities of Scudder
Tax Free Money Fund, including the investment portfolio, as of December 31,
1994, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the ten years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Tax Free Money Fund as of December 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the ten years in the period then ended, in conformity with generally accepted
accounting principles.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 3, 1995

<PAGE>

TAX INFORMATION
- -------------------------------------------------------------------------------

By now shareholders should have received their year-end statement and tax
information letter from the Fund.

Of the dividends paid by the Scudder Tax Free Money Fund from net investment
income for the taxable year ended December 31, 1994, 100% were exempt interest
dividends which are tax exempt for purposes of regular federal income tax, and
for purposes of the federal alternative minimum tax.

Please consult a tax adviser 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 Scudder Fund account, please call a Scudder Service
Representative at 1-800-225-5163.

<PAGE>

TAX INFORMATION

By now shareholders should have received their year-end statement and tax
information letter from the Fund.

Of the dividends paid by the Scudder Tax Free Money Fund from net
investment income for the taxable year ended December 31, 1994, 100% were
exempt interest dividends which are tax exempt for purposes of regular
federal income tax, and for purposes of the federal alternative minimum
tax.

Please consult a tax adviser 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 Scudder Fund account, please call a Scudder
Service Representative at 1-800-225-5163.

OFFICERS AND TRUSTEES

David S. Lee*
President and Trustee

Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director

Peter B. Freeman
Trustee; Corporate Director and Trustee

George M. Lovejoy, Jr.
Trustee; Chairman Emeritus, Meredith & Grew, Incorporated

Juris Padegs*
Vice President and Trustee

Jean C. Tempel
Trustee; Director and Executive Vice President, Safeguard Scientifics,
Inc.

Donald C. Carleton*
Vice President

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

Edward J. O'Connell*
Vice President and Assistant Treasurer

Coleen Downs Dinneen*
Assistant Secretary

* Scudder, Stevens & Clark, Inc.

INVESTMENT PRODUCTS AND SERVICES

The Scudder Family of Funds

Tax free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*

Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund

Income
Scudder Emerging Markets Income Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Short Term Global Income Fund
Scudder Zero Coupon 2000 Fund

Growth
Scudder Capital Growth Fund
Scudder Development Fund
Scudder Global Fund
Scudder Global Small Company Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Value Fund
The Japan Fund

Retirement Plans and Tax-Advantaged Investments

IRAs
Keogh Plans
Scudder Horizon Plan+++* (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans

Closed-end Funds#

The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities Fund, Inc.

Institutional Cash Management

Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++

For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from
the tax-free funds may be subject to federal, state and local taxes. *Not
available in all states. +++A no-load variable annuity contract provided by
Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder, Stevens & Clark, Inc., are traded on various stock exchanges.
++For information on Scudder Treasurers Trust(tm), an institutional cash
management service that utilizes certain portfolios of Scudder Fund, Inc.
($100,000 minimum), call: 1-800-541-7703.

HOW TO CONTACT SCUDDER

Account Service and Information

For existing account service and transactions

SCUDDER INVESTOR RELATIONS
1-800-225-5163

For account updates, prices, yields, exchanges and redemptions

SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890

Investment Information

To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions

SCUDDER INVESTOR RELATIONS
1-800-225-2470

For establishing 401(k) and 403(b) plans

SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105

Please address all correspondence to

THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291

Or stop by a Scudder Funds Center

Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can be
found in the following cities:

Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale

For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and
trusts which utilizes certain portfolios of Scudder Fund, Inc.*
($100,000 minimum), call: 1-800-541-7703.

For information on Scudder Institutional Funds,* funds designed to
meet the broad investment management and service needs of banks and
other institutions, call: 1-800-854-8525.

Scudder Investor Relations and Scudder Funds Centers are services
provided through Scudder Investor Services, Inc., Distributor.

* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees
and expenses. Please read it carefully before you invest or send
money.

Celebrating 75 Years of Serving Investors

Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment
counsel firm in the United States. Since its birth, Scudder's pioneering
spirit and commitment to professional long-term investment management have
helped shape the investment industry. In 1928, we introduced the nation's
first no-load mutual fund. Today we offer 36 pure no load(tm) funds,
including the first international mutual fund offered to U.S. investors.

Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped Scudder
become one of the largest and most respected investment managers in the
world. Though times have changed since our beginnings, we remain committed
to our longstanding principles: managing money with integrity and
distinction, keeping the interests of our clients first; providing access
to investments and markets that may not be easily available to individuals;
and making investing as simple and convenient as possible through friendly,
comprehensive service.

<PAGE>

This information must be preceded or accompanied by a current prospectus.

Portfolio changes should not be considered recommendations for action by
individual investors.

Scudder
Limited Term
Tax Free Fund

Annual Report
October 31, 1994

* For investors seeking a high level of tax-free income, exempt from
regular federal income taxes consistent with a high degree of principal
stability.

* A pure no-load(tm) fund with no commissions to buy, sell, or exchange
shares.

CONTENTS

2 Highlights
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
13 Financial Statements
16 Financial Highlights
17 Notes to Financial Statements
20 Report of Independent Accountants
21 Tax Information
21 Officers and Trustees
22 Investment Products and Services
23 How to Contact Scudder

HIGHLIGHTS

* Scudder Limited Term Tax Free Fund provided shareholders with a
federally tax-exempt yield of 5.18% for the 30-day period ending October
31, 1994, equivalent to a taxable yield of 8.58% for shareholders in the
top 39.6% federal income tax bracket.

(BAR CHART TITLE) 30-Day Yield on October 31, 1994

(CHART DATA)
<TABLE>
<CAPTION>
Scudder Limited Taxable IBC/Donoghue
Term Tax Free equivalent Taxable Money
Fund yield Fund Average
----- ------ ------
<C> <C> <C>
5.18% 8.58% 2.68%
</TABLE>

* The Fund invests in high- and medium-quality municipal bonds. As of
October 31, 1994, over 75% of securities in the Fund were rated in the top
two categories: AA and AAA.

* Since the Fund commenced operations in February, assets have grown
steadily and surpassed $67 million by October 31, 1994.

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

The fixed-income markets have endured sharp increases in interest
rates during the past year. But from March through October 1994, the
municipal marketplace was buoyed by a significant decline in the overall
supply of municipal bonds. The scarcity of new bonds helped support prices
compared to Treasury securities as demand for tax-free investments among
investors remained strong.

Even so, interest rates continue to have a profound effect on the
municipal market, as the market's November downturn showed. Rates will
likely remain higher in the months ahead due in part to the global
competition for capital. With limited savings among most of the world's
nations, capital is in short supply to fund economic recoveries underway
here and abroad, the continued development of emerging markets, and
investments in stocks and bonds. Nations are finding they need to maintain
higher interest rates to attract available capital.

What does this mean for tax-free fund investors? In the near term,
interest income will likely make up most of your Fund's total return, and
the pressure on bond prices will probably continue. On the plus side,
because interest rates are now higher, investors are receiving more
tax-free income. Though any additional rise in interest rates could detract
from price performance, your portfolio management team will seek to provide
as high a level of income, exempt from federal income tax, as is consistent
with price stability. Regardless of the investment environment, municipal
bonds and tax-exempt funds remain one of the few shelters for long-term
investors who desire tax-free income.

Please call Scudder Investor Information at 1-800-225-2470 if you have
questions about your Fund or other Scudder investments. Page 23 contains
more information on how to contact Scudder. Thank you for choosing Scudder
Limited Term Tax Free Fund to help meet your investing needs.

Sincerely,

/S/David S. Lee
David S. Lee
President,
Scudder Limited Term
Tax Free Fund

<PAGE>
Scudder Limited Term Tax Free Fund
Performance Update as of October 31, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
Scudder Limited Term Tax Free Fund
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
10/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
Life of
Fund* $10,044 .44% --

LB Municipal Bond Index (3 year)
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
10/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
Life of
Fund* $10,056 .56% --

*The Fund commenced operations on February 15, 1994.
Index comparisons begin on February 28, 1994.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:

Scudder Limited Term Tax Free Fund

Year Amount
- ----------------------
2/94* 10000
3/94 9895
4/94 9965
5/94 10030
6/94 10079
7/94 10154
8/94 10204
9/94 10146
10/94 10099

LB Municipal Bond Index (3 year)
Year Amount
- ----------------------
2/94* 10000
3/94 9880
4/94 9938
5/94 9984
6/94 9987
7/94 10070
8/94 10106
9/94 10081
10/94 10056

The unmanaged Lehman Brothers (LB) Municipal Bond
Index (3 year) is a market value-weighted measure of
the investment grade tax-exempt bond market consisting
of approximately 2,700 municipal bonds with a maturity
of at least one year. Index returns assume dividends are
reinvested, and, unlike Fund returns, do not reflect any
fees or expenses.

- -----------------------------------------------------------------
Returns and Per Share Information
- -------------------------------------------------------------------

A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.

Period ended October 31
- ----------------------------------
<TABLE>
<S> <C>
1994*
---------
Net Asset Value.......... $11.67
Income Dividends......... $ .38
Fund Total
Return (%)............... .44
Index Total
Return (%)............... .56
</TABLE>

All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
If the Adviser had not maintained the Fund's expenses, the total return
would have been approximately -.32%.

Scudder Limited Term Tax Free Fund
Portfolio Summary as of October 31, 1994
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------
General Obligation 35%
Escrow & Collateral 19%
Hospital/Health 12% The Fund is broadly diversified,
Electric Utility 12% with 60 separate investments in
Port/Airport 11% 30 states and the District of
Pollution Control 6% Columbia.
Sales & Special Tax 4%
Other 1%
----
100%
====

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

- --------------------------------------------------------------------------
Quality
- --------------------------------------------------------------------------
AAA 55% As short-term interest rates have
AA 27% risen, the differences in yields
A 14% among municipal bonds of varying
BBB 4% quality ratings have narrowed,
---- making it easier to purchase
100% higher-quality bonds for the Fund's
==== portfolio.

Weighted average quality: AA

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

- --------------------------------------------------------------------------
Effective Maturity
- --------------------------------------------------------------------------
Less than 1 year 9% Municipal securities maturing in
1 < 5 years 52% five- to 10-years have, in our
5 < 10 years 39% judgement, become fully valued.
---- As a result, we are now focusing
100% on municipal securities with shorter
==== maturities.

Weighted average effective maturity: 4.4 years

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
<PAGE>

Dear Shareholders,

We would like to welcome you once again as shareholders of Scudder
Limited Term Tax Free Fund. This annual report covers the Fund's
performance, strategy, and investment environment for the abbreviated
fiscal year, which began at the Fund's inception on February 15, 1994.
Scudder Limited Term Tax Free Fund is designed to deliver tax-free income
with below-average price risk by investing primarily in municipal bonds
with effective maturities between one and 10 years. The Fund seeks higher
income than is typically available from more stable tax-free money market
investments and less share-price fluctuation than is found in
higher-yielding intermediate- and long-term tax-free bonds.

During the Fund's initial annual period ended October 31, 1994,
shareholders received a total of $0.38 per share of income exempt from
federal and state income taxes. On October 31, the Fund provided a net
annualized 30-day yield of 5.18%. For shareholders subject to the top
federal income tax bracket of 39.6%, the Fund's yield translated into an
8.58% taxable yield, significantly higher than current yields provided by
comparable taxable investments. During the year, a portion of the Fund's
expenses were waived by Scudder. Had these expenses not been absorbed, the
Fund's yield would have been 4.19%.

During a period of interest-rate increases and corresponding declines
in the prices of most municipal securities, the Fund's net asset value
declined modestly from $12.00 on February 15, 1994, to $11.67 on October
31. The combination of price changes and reinvested distributions produced
a positive total return of 0.44% for the abbreviated annual period.

Reduction in Supply Aided Municipal Market

During Scudder Limited Term Tax Free Fund's first fiscal year,
interest rates of tax-exempt securities rose across all maturities. Prices
declined as investors focused on signs of future inflation, including
rising commodity prices, the weaker U.S. dollar, and the increasing pace of
global economic expansion. Even though inflation has been relatively
restrained to this point, investors' fears seem to be outweighing that
reality, resulting in persistently negative market sentiment. Municipals
outperformed Treasury securities during the period, however, aided by a 44%
reduction in the supply of municipal bonds in the first three quarters of
1994 compared with the same period in 1993.

Our ongoing strategy is to purchase shorter-maturity bonds that
provide attractive after-tax yields. Lower relative volatility is the goal
of the Fund's maturity restrictions. The Fund will not hold bonds with
effective maturities of more than 10 years, and must maintain an average
effective maturity range of one to five years.

(BAR CHART TITLE) Increases in Yield for Municipal Bonds of
Various Maturities from 1/1/94 to 10/31/94

(CHART DATA)
<TABLE>
<CAPTION>
1-Year 5-Year 10-Year
Maturities Maturities Maturities
------ ------ ------
<C> <C> <C>
+1.70 +1.25 +1.20
</TABLE>

Our first semiannual report on April 30 noted that as we began to
invest the assets of the Fund, we focused primarily on bonds with
maturities ranging from two to 10 years. Bonds we held with five- to
10-year maturities served us well, as intermediate-maturity municipals were
the best-performing sector of the market during the first nine months of
1994. As evident in the above chart, securities maturing in five to 10
years experienced smaller increases in yield and thus smaller declines in
price than those maturing in one year. But this sector has, in our
judgment, become somewhat overvalued, and, with interest rates still
rising, we have begun to refocus on municipal securities with maturities of
one year or less. We will continue to concentrate our new purchases on
these short-term instruments to provide a measure of price stability and
competitive yields until the interest-rate environment becomes more
appropriate for a longer average maturity. The Fund's weighted average
effective maturity was 4.4 years as of October 31, 1994.

Pre-refunded bonds, usually priced at a premium, represented a
significant portion of the Fund's portfolio as of October 31. Bonds are
pre-refunded when issuers sell new debt at lower prevailing interest rates
and use the proceeds to establish an escrow account designated to retire
the original bonds on their future call dates. Typically, when bonds are
pre-refunded, their prices rise because they offer no credit risk (the
escrowed funds are invested in Treasury securities) and less time to
maturity. These bonds offer the highest quality available in the municipal
marketplace, yet they typically have higher yields than similar bonds of
slightly lower quality.

The average-weighted quality of bonds in the Fund was AA as of October
31, 1994, and 96% of the Fund's portfolio was invested in bonds rated A,
AA, and AAA. The differences in yields among municipal bonds with differing
quality ratings has narrowed, making it easier to purchase higher-quality
bonds and maintain a competitive average yield. Ratings for portfolio
holdings are assigned by Moody's Investors Service, Standard & Poor's, or
Fitch Investors Service.

Our Near-Term Outlook

We believe the world economy will continue to grow over the coming
months, but we are cautiously optimistic that inflation will not increase
significantly beyond its current moderate level. We expect that the
tax-exempt bond market, especially intermediate-maturity bonds, will
continue to experience some price volatility in light of investor
uncertainty about inflation and interest rates. The selling pressure that
municipals experienced in November may continue to a lesser degree into
early 1995 as individual and institutional investors sell bonds to book
capital losses for tax purposes, but we expect demand to pick up again in
1995.

We plan to pursue a conservative strategy and focus primarily on
purchases of shorter-term securities. As short-term interest rates continue
to rise, we will seek to maintain as high a yield as possible by being as
fully invested as is appropriate for the Fund. We will establish a
relatively "neutral" average maturity until we once again believe that
purchases of longer-maturity bonds offer attractive value for the Fund's
portfolio. In short, we will work to maximize Scudder Limited Term Tax Free
Fund's income without jeopardizing its relative principal stability.

Sincerely,

Your Portfolio Management Team

/S/M. Ashton Patton /S/Donald C. Carleton
M. Ashton Patton Donald C. Carleton

Scudder Limited Term Tax Free Fund:
A Team Approach to Investing

Scudder Limited Term Tax Free Fund is run by a team of Scudder
investment professionals who each play an important role in the Fund's
management process. Team members work together to develop investment
strategies and select securities for the Fund's portfolio. They are
supported by Scudder's large staff of economists, research analysts,
traders, and other investment specialists who work in our offices across
the United States and abroad. Scudder believes its team approach benefits
Fund investors by bringing together many disciplines and leveraging
Scudder's extensive resources.

M. Ashton Patton, Lead Portfolio Manager, has overseen the Fund's
investment strategy and daily operation since the Fund was introduced.
Ashton is also a Portfolio Manager of the Scudder Medium Term Tax Free
Fund. Donald C. Carleton, Portfolio Manager, has been a member of the
Portfolio team since its inception and has been at Scudder since 1983.
Donald also manages the Scudder Medium Term Tax Free Fund.

<PAGE>

<TABLE>

INVESTMENT PORTFOLIO as of October 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------------
Principal Credit Market
Amount ($) Rating (b) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4.6% SHORT-TERM MUNICIPAL INVESTMENTS

ARIZONA Maricopa County, AZ, Arizona Public Service Palo
Verde Project, Series 1994 B, Daily Demand Note,
3.4%, 5/1/29* . . . . . . . . . . . . . . . . . . . . 900,000 A1+ 900,000
GEORGIA Hapeville, GA, Industrial Development Bond, Hapeville
Hotel, Daily Demand Note, 3.6%, 11/1/15* . . . . . . 900,000 A1+ 900,000
MICHIGAN Michigan Strategic Fund, Pollution Control Revenue
Bond, Consumers Power Company, Series 1988 A,
Daily Demand Note, 3.5%, 4/15/18* . . . . . . . . . . 1,100,000 P1 1,100,000
-----------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $2,900,000) . . . . . . . . . . . . . . . . . . 2,900,000
-----------
95.4% INTERMEDIATE-TERM MUNICIPAL INVESTMENTS

ALABAMA University of South Alabama, Hospital and
Auxiliary Revenue, 7%, 5/15/00 (c) . . . . . . . . . 2,000,000 AAA 2,140,520
ALASKA Alaska State, General Obligation, 5%, 7/1/96 . . . . . 1,000,000 AA 1,004,210
ARIZONA Phoenix, AZ, Municipal Airport Improvement Revenue,
8.5%, 7/1/99 . . . . . . . . . . . . . . . . . . . . 1,000,000 A 1,047,320
CALIFORNIA California State Revenue Anticipation Notes, Series C:
8.47%, 4/25/96 . . . . . . . . . . . . . . . . . . . 500,000 MIG1 518,750
9.66%, 4/25/96 . . . . . . . . . . . . . . . . . . . 500,000 MIG1 518,750
CONNECTICUT Connecticut Development Authority, Airport Facilities,
Windsor Locks, Mandatory Tender:
Series A, 5.8%, 10/1/97 . . . . . . . . . . . . . . 2,000,000 AA 2,008,220
Series B, 5.8%, 10/1/97 . . . . . . . . . . . . . . 2,000,000 AA 2,008,220
DISTRICT OF COLUMBIA District of Columbia, General Obligation, Series A,
5.625%, 6/1/02 (c) . . . . . . . . . . . . . . . . . 1,500,000 AAA 1,457,160
GEORGIA Municipal Electric Authority of Georgia, Power Revenue,
9.875%, 1/1/16, Crossover Refunded 1/1/95**** . . . . 1,000,000 AA 1,029,400
HAWAII Hawaii State, HI, General Obligation, 5.5%, 7/1/01 . . 1,000,000 AA 994,960
ILLINOIS Chicago, IL, General Obligation, 7.5%, 1/1/00,
Prerefunded 1/1/97*** (c) . . . . . . . . . . . . . . 1,000,000 AAA 1,070,950
Chicago, IL, Metropolitan Water, Reclamation
District, ETM, 7.25%, 1/1/99** . . . . . . . . . . . 2,000,000 AAA 2,135,400
Chicago, IL, General Obligation, School
Financing Authority, Series 1994 A, 4.5%, 6/1/02 (c) . 500,000 AAA 445,255

The accompanying notes are an integral part of these financial statements.

</TABLE>

SCUDDER LIMITED TERM TAX FREE FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-------------
Principal Credit Market
Amount ($) Rating (b) Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chicago, IL, General Obligation, Series C,
4.3%, 10/31/97 . . . . . . . . . . . . . . . . . . . . 500,000 AA 482,140
Cook County, IL, General Obligation, Series A,
5.6%, 11/15/98 (c) . . . . . . . . . . . . . . . . . . 1,900,000 AAA 1,923,180
INDIANA Indiana Bond Bank Revenue, State Revolving Fund,
5.25%, 2/1/01 . . . . . . . . . . . . . . . . . . . . . 530,000 A 508,948
Indiana Health Facilities Finance Authority, Hospital
Revenue, Ancilla Systems Inc., Series A,
5.875%, 7/1/02 (c) . . . . . . . . . . . . . . . . . . 1,000,000 AAA 997,160
Madison County, IN, Hospital Authority, Holy Cross
Health System, 6.3%, 12/1/98 (c) . . . . . . . . . . . 1,000,000 AAA 1,034,000
IOWA Cedar Rapids, IA, Hospital Revenue, St. Luke's
Methodist Hospital, 5.65%, 8/15/02 (c) . . . . . . . . 1,250,000 AAA 1,226,000
LOUISIANA Jefferson, LA, Sales Tax, Series A, 6.1%, 12/1/96 (c) . . 1,000,000 AAA 1,027,220
Louisiana State Revenue Refunding, General
Obligation, Series 1987 A, 7%, 8/1/02 . . . . . . . . . 650,000 A 683,306
MAINE Maine State, General Obligation, 6%, 7/1/98 . . . . . . . 2,000,000 AA 2,059,340
MARYLAND Washington Suburban Sanitation District,
MD, 6.9%, 6/1/99 . . . . . . . . . . . . . . . . . . . 675,000 AA 721,217
MASSACHUSETTS Massachusetts Dedicated Income
Tax, Series A, 7.875%, 6/1/97 . . . . . . . . . . . . . 465,000 A 496,295
Massachusetts Water Resources Authority, Series A,
7%, 4/1/18, Prerefunded 4/1/00*** . . . . . . . . . . . 1,200,000 A 1,301,724
MICHIGAN Detroit, MI, General Obligation, Distributable State Aid,
5.375%, 5/1/96 . . . . . . . . . . . . . . . . . . . . 2,375,000 BAA 2,376,853
MISSOURI New Madrid, MO, Power Revenue Bonds, 5.45%,
12/1/01 (c) . . . . . . . . . . . . . . . . . . . . . . 1,000,000 AAA 983,830
NEVADA Clark County, NV, Airport Revenue, 5.15%, 7/1/98 (c) . . 1,400,000 AAA 1,393,896
NEW HAMPSHIRE New Hampshire Higher Education & Health Facilities
Authority, Wentworth-Douglas Hospital, Series 1994,
4.8%, 1/1/01 (c) . . . . . . . . . . . . . . . . . . . 490,000 AAA 460,982
New Hampshire Higher Education & Health
Facilities Authority, St. Joseph Hospital, Connie Lee
Insured, 5.65%, 1/1/04 . . . . . . . . . . . . . . . . 1,095,000 AAA 1,039,319
NEW JERSEY New Jersey State, General Obligation, 7%, 4/1/03 . . . . 2,000,000 AA 2,146,040
NEW YORK New York City, NY, General Obligation, Series H,
5.7%, 8/1/03 . . . . . . . . . . . . . . . . . . . . . 3,000,000 A 2,847,120
New York City, NY, General Obligation, Series C,
7.4%, 8/1/96 . . . . . . . . . . . . . . . . . . . . . 220,000 AAA 228,529
New York City, NY, General Obligation, Series A,
3%, 8/15/02 (c) . . . . . . . . . . . . . . . . . . . . 1,000,000 AAA 816,860

</TABLE>
The accompanying notes are an integral part of these financial statements.

<PAGE>

<TABLE>

INVESTMENT PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
--------------
Principal Credit Market
Amount ($) Rating (b) Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Westchester County, NY, Industrial Development
Authority, Westchester Resco Co. Project, Series
1994 A, 5.2%, 7/1/03 (c) . . . . . . . . . . . . . . . 500,000 AAA 474,520
NORTH CAROLINA North Carolina Municipal Power Agency, Catawaba
Electric Revenue 2, 5.75%, 1/1/02 (c) . . . . . . . . 1,000,000 AAA 1,003,970
OHIO Cincinnati School District, OH, Revenue Anticipation
Note, 5.1%, 6/15/95 . . . . . . . . . . . . . . . . . 600,000 A 601,452
PENNSYLVANIA Philadelphia, PA, Intergovernmental Cooperation
Authority, Special Tax Revenue, 5.6%, 6/15/98 (c) . . 500,000 AAA 505,995
Philadelphia School District, PA,
Non-Callable, Series 1994 A, 5.25%, 7/1/02 (c) . . . . 1,000,000 AAA 960,270
Philadelphia Gas Works Revenue, PA,
7.875%, 7/1/17, Prerefunded 7/1/97*** . . . . . . . . . 500,000 AAA 544,185
SOUTH CAROLINA South Carolina Public Service Authority Revenue,
8%, 7/1/19, Prerefunded 7/1/96*** . . . . . . . . . . 250,000 AAA 270,793
York County, SC, Public Facilities Corp., Certificate of
Participation, Series 1991, Detention Center,
7.5%, 6/1/11, Prerefunded 6/1/01*** . . . . . . . . . . 500,000 AAA 556,865
TENNESSEE Bristol, Health and Education Facilities
Authority, TN, Bristol Memorial Hospital, Refunding
Revenue, 4.9%, 9/1/03 (c) . . . . . . . . . . . . . . . 250,000 AAA 228,125
TEXAS Austin, TX, Utility System Revenue, Series A,
6.3%, 11/15/01 (c) . . . . . . . . . . . . . . . . . . 1,000,000 AAA 1,036,700
Austin, TX, Water, Sewer, & Electric Refunding
Revenue, 14.25%, 11/15/06, Prerefunded 5/15/97*** . . . 1,105,000 AAA 1,348,034
Dallas-Fort Worth, International Airport Revenue, TX,
Series A, 7.75%, 11/1/02 (c) . . . . . . . . . . . . . 525,000 AAA 591,938
NorthEast Independent School District, TX, Series
1985 B, ETM, 9.6%, 2/1/96** . . . . . . . . . . . . . . 300,000 AAA 318,351
VIRGINIA Chesapeake, VA, General Obligation, 6.8%, 7/1/01,
Prerefunded 7/1/97*** (c) . . . . . . . . . . . . . . . 1,215,000 AAA 1,291,095
WASHINGTON Washington Public Power Supply System, Nuclear
Project #2, Refunding Revenue, Series C,
7.3%, 7/1/00 . . . . . . . . . . . . . . . . . . . . . 1,300,000 AA 1,393,535
Washington Public Power Supply System,
Nuclear Project #1, Revenue Refunding,
Series C, 7.3%, 7/1/98 . . . . . . . . . . . . . . . . 1,000,000 AA 1,057,910
Washington State, General Obligation, Series 1991 B,
ETM, 5.9%, 6/1/98** . . . . . . . . . . . . . . . . . . 1,000,000 AA 1,023,870
Washington State, Motor Vehicle Fuel Tax, Series E,
8%, 9/1/09, Prerefunded 9/1/96*** . . . . . . . . . . . 1,000,000 AAA 1,060,290

</TABLE>
The accompanying notes are an integral part of these financial statements.

<PAGE>

<TABLE>

SCUDDER LIMITED TERM TAX FREE FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
----------------
Principal Credit Market
Amount ($) Rating (b) Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WEST VIRGINIA Wayne County, WV, Industrial Development, Atlantic
Richfield Co. Project, 11.75%, 12/1/01 . . . . . . . . 1,000,000 A 1,124,900
WISCONSIN State of Wisconsin, General Obligation,
5.8%, 5/1/01 . . . . . . . . . . . . . . . . . . . . . 1,000,000 AA 1,016,210
State of Wisconsin, General Obligation,
6.4%, 5/1/01, Prerefunded 5/1/99*** . . . . . . . . . . 1,000,000 AAA 1,048,570
Wisconsin State Health Facilities Authority, Madison
General Hospital Association, 8.2%, 12/1/95 (c) . . . . 300,000 AAA 311,847
Wisconsin State Health & Education Facilities Authority,
Wheaton Franciscan Services, 8.2%, 8/15/18,
Prerefunded 8/15/98 ***(c) . . . . . . . . . . . . . . 1,000,000 AAA 1,118,560
-----------
TOTAL INTERMEDIATE-TERM MUNICIPAL INVESTMENTS
(Cost $60,915,620) . . . . . . . . . . . . . . . . . . 60,021,059
===========
==================================================================================================================================
TOTAL INVESTMENT PORTFOLIO -- 100.%
(Cost $63,815,620) (a) . . . . . . . . . . . . . . . . 62,921,059
===========
<FN>
(a) The cost for federal income tax purposes was $63,815,620. At October 31, 1994, net unrealized depreciation for
all securities based on tax cost was $894,561. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost of $25,164 and aggregate gross
unrealized depreciation for all securities in which there was an excess tax cost over market value of $919,725.
(b) All of the securities held have been determined to be of appropriate credit quality as required by the Fund's
investment objectives. Credit ratings shown are assigned by either Standard & Poor's Ratings Group, Moody's
Investors Service, Inc. or Fitch Investors Service, Inc. Unrated securities (NR) have been determined to be of
comparable quality to rated eligible securities.
(c) Bond is insured by one of these companies: AMBAC, FGIC, or MBIA.
* Floating rate and monthly, weekly, or daily demand notes are securities whose yields vary with a designated
market index or market rate, such as the coupon-equivalent of the Treasury bill rate. Variable rate demand
notes are securities whose yields are periodically reset at levels that are generally comparable to tax-exempt
commercial paper. These securities are payable on demand within seven calendar days and normally incorporate an
irrevocable letter of credit or line of credit from a major bank. These notes are carried, for purposes of
calculating average weighted maturity, at the longer of the period remaining until the next rate change or to
the extent of the demand period.
** ETM: Bonds bearing the description ETM (escrowed to maturity) are collateralized by U.S. Treasury securities
which are held in escrow by a trustee and used to pay principal and interest on bonds so designated.
*** Prerefunded: Bonds which are prerefunded are collateralized by U.S. Treasury Securities which are held in
escrow and are used to pay principal and interest on tax-exempt issue and to retire the bonds in full at the
earliest refunding date.
**** Crossover refunded: Bonds which are crossover refunded are secured by an escrow of securities which is used to
pay principal on the tax exempt issue and retire the bonds in full at the earliest refunding date, except in
the case of default by the issuer or inadequacy in the escrow account.

</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>

FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------

<TABLE>
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------
October 31, 1994
- ---------------------------------------------------------------------------

<S> <C> <C>
OCTOBER 31, 1994
ASSETS
Investments, at market (identified
cost $63,815,620) (Note A) . . . . . . . . $62,921,059

Cash . . . . . . . . . . . . . . . . . . . . 233,775
Receivables:
Interest . . . . . . . . . . . . . . . . . 1,340,586
Fund shares sold . . . . . . . . . . . . . 3,331,413
Due from Adviser (Note C) . . . . . . . . 124,328
Deferred organization expenses (Note A) . . . 35,425
-----------
Total assets . . . . . . . . . . . . . . . 67,986,586
LIABILITIES
Payables:
Dividends . . . . . . . . . . . . . . . . $112,279
Fund shares redeemed . . . . . . . . . . . 124,297
Organization fees . . . . . . . . . . . . 41,258
Other accrued expenses (Note C) . . . . . 120,250
--------
Total liabilities . . . . . . . . . . . . 398,084
-----------
Net assets, at market value . . . . . . . . . $67,588,502
===========

NET ASSETS
Net assets consist of:
Unrealized depreciation on investments . . $(894,561)
Accumulated net realized loss . . . . . . (46,497)
Shares of beneficial interest . . . . . . 57,930
Additional paid-in capital . . . . . . . 68,471,630
----------
Net assets, at market value . . . . . . . . . $67,588,502
===========

NET ASSET VALUE, offering and redemption
price per share ($67,588,502/5,792,967
outstanding shares of beneficial
interest, $.01 par value, value,
unlimited number of shares authorized) . . $11.67
======
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>
SCUDDER LIMITED TERM TAX FREE FUND
- --------------------------------------------------------------------------------

<TABLE>

- -------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 15, 1994
(COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,237,032

Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . . $ --
Services to shareholders (Note C) . . . . . . . . . . . . . 8,743
Accounting fees (Note C) . . . . . . . . . . . . . . . . . --
Trustees' fees (Note C) . . . . . . . . . . . . . . . . . . 28,489
Custodian fees . . . . . . . . . . . . . . . . . . . . . . 10,754
Auditing . . . . . . . . . . . . . . . . . . . . . . . . . 21,600
Reports to shareholders . . . . . . . . . . . . . . . . . . 17,682
Federal and state registration . . . . . . . . . . . . . . 22,797
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,601
Amortization of organization expense (Note A) . . . . . . . 5,833
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,829
---------
Total Expenses before reimbursement from Adviser . . . . . 124,328
Reimbursement of expenses from Adviser (Note C) . . . . . . (124,328)
---------
Expenses, net . . . . . . . . . . . . . . . . . . . . . . . --
-----------
Net investment income . . . . . . . . . . . . . . . . . . . 1,237,032
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss from investments . . . . . . . . . . . . (46,497)
Net unrealized depreciation on investments during
the period . . . . . . . . . . . . . . . . . . . . . . (894,561)
-----------
Net loss on investments . . . . . . . . . . . . . . . . . . (941,058)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . $ 295,974
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 15, 1994
(COMMENCEMENT OF
OPERATIONS) TO
INCREASE (DECREASE) IN NET ASSETS OCTOBER 31, 1994
- ----------------------------------------------------------------------------
<S> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . $ 1,237,032
Net realized loss on investments . . . . . . . . . . . . . (46,497)
Net unrealized depreciation on investments
during the period . . . . . . . . . . . . . . . . . . (894,561)
-----------
Net increase in net assets resulting from operations . . . 295,974
-----------
Distributions to shareholders from net investment income
($.38 per share) . . . . . . . . . . . . . . . . . . . (1,237,032)
-----------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . . . . . . . 87,372,265
Net asset value of shares issued to shareholders in
reinvestment of distributions . . . . . . . . . . . . . 736,692
Cost of shares redeemed . . . . . . . . . . . . . . . . . (19,580,597)
-----------
Net increase in net assets from Fund share transactions . . 68,528,360
-----------
INCREASE IN NET ASSETS . . . . . . . . . . . . . . . . . . 67,587,302
Net assets at beginning of period . . . . . . . . . . . . . 1,200
-----------
NET ASSETS AT END OF PERIOD . . . . . . . . . . . . . . . $67,588,502
===========

OTHER INFORMATION
INCREASE IN FUND SHARES
Shares outstanding at beginning of period . . . . . . . . . 100
-----------
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . 7,388,931
Shares issued to shareholders in
reinvestment of distributions . . . . . . . . . . . . . 62,407
Shares redeemed . . . . . . . . . . . . . . . . . . . . . (1,658,471)
-----------
Net increase in Fund shares . . . . . . . . . . . . . . . . 5,792,867
-----------
Shares outstanding at end of period . . . . . . . . . . . . 5,792,967
===========

<FN>
The accompanying notes are an integral part of the financial statements.

</TABLE>

<PAGE>

SCUDDER LIMITED TERM TAX FREE FUND
FINANCIAL HIGHLIGHTS
<TABLE>
- ----------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE
PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.

<CAPTION>
For the Period
February 15, 1994
(commencement
of operations)
to October 31, 1994
-------------------
<S> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . $12.00
------
Income from investment operations:
Net investment income (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Net realized and unrealized loss on investments . . . . . . . . . . . . . . . . . . (.33)
------
Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . .05
------
Less distributions from net investment income . . . . . . . . . . . . . . . . . . . (.38)
------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.67
======
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . . . . . . . . . . . . . . . . . . . . . . 68
Ratio of operating expenses, net to average daily net assets (%) (a) . . . . . . . . --
Ratio of net investment income to average daily net assets (%) . . . . . . . . . . . 4.84*
Portfolio turnover rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.3*
(a) Reflects a per share amount of expenses, exclusive of management fees,
reimbursed by the Adviser of . . . . . . . . . . . . . . . . . . . . . . . . . . $ .04
Reflects a per share amount of management fee and other fees not imposed by the
Adviser of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .06
Operating expense ratio including expenses reimbursed, management fee and
other expenses not imposed (%) . . . . . . . . . . . . . . . . . . . . . . . . . 1.29*
<FN>
* Annualized
** Not annualized
</TABLE>

<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

A. SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------------------
Scudder Limited Term Tax Free Fund (the "Fund") is a diversified series of
Scudder Tax Free Trust, a Massachusetts business trust (the "Trust"), which
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. There are currently two series in the
Trust. The policies described below are followed by the Fund in the preparation
of its financial statements in conformity with generally accepted accounting
principles.

SECURITY VALUATION. Portfolio debt securities with remaining maturities
greater than sixty days are valued by pricing agents approved by the Officers
of the Fund, which quotations reflect broker/dealer-supplied valuations and
electronic data processing techniques. If the pricing agents are unable to
provide such quotations, the most recent bid quotation supplied by a bona fide
market maker shall be used. Short-term investments having a maturity of sixty
days or less are valued at amortized cost. All other debt securities are
valued at their fair value as determined in good faith by the Valuation
Committee of the Trustees.

AMORTIZATION AND ACCRETION. All premiums and original issue discounts are
amortized/accreted for both tax and financial reporting purposes.

FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies and to distribute all of its taxable and tax-exempt income to its
shareholders. The Fund accordingly paid no federal income taxes and no
provision for federal income taxes was required.

At October 31, 1994, the Fund had a net tax basis capital loss carryforward of
approximately $46,000, which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until
October 31, 2002, whichever occurs first.

<PAGE>
SCUDDER LIMITED TERM TAX FREE FUND
- --------------------------------------------------------------------------------

DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of the Fund
is declared as a dividend to shareholders of record as of the close of business
each day and is paid to shareholders monthly. During any particular year, net
realized gains from investment transactions, in excess of available capital
loss carryforwards, would be taxable to the Fund if not distributed and, there-
fore, will be distributed to shareholders. An additional distribution may be
made to the extent necessary to avoid the payment of a four percent federal
excise tax.

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles. As
a result, net investment income (loss) and net realized gain (loss) on
investment transactions for a reporting period may differ significantly from
distributions during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.

The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.

ORGANIZATION COST. Costs incurred by the Fund in connection with its
organization and initial registration of shares have been deferred and are
being amortized on a straight-line basis over a five-year period.

OTHER. Investment transactions are accounted for on a trade date basis.
Distributions of net realized gains to shareholders are re- corded on the
ex-dividend date. Interest income is accrued pro rata to the earlier of call or
maturity date.

B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
For the period February 15, 1994 (commencement of operations) to October 31,
1994, purchases and sales of investments (excluding short-term) aggregated
$70,213,991 and $9,021,583, respectively.

<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a fee
equal to an annual rate of 0.60% of the Fund's average daily net assets,
computed and accrued daily and payable monthly. As manager of the assets of
the Fund, the Adviser directs the investments of the Fund in accordance with
its investment objectives, policies, and restrictions. The Adviser determines
the securities, instruments, and other contracts relating to investments to
be purchased, sold or entered into by the Fund. In addition to portfolio
management services, the Adviser provides certain administrative services in
accordance with the Agreement. The Agreement also provides that if the Fund's
expenses, exclusive of taxes, interest, and extraordinary expenses, exceed
specified limits, such excess, up to the amount of the management fee, will be
paid by the Adviser. The Adviser has agreed not to impose all of its
management fee and to maintain the annualized expenses of the Fund at not more
than 0.0% of average daily net assets until February 28, 1995. For the period
February 15, 1994 (commencement of operations) to October 31, 1994, the
Adviser did not impose its fee amounting to $152,675. Further, due to the
limitation of such Agreement, the Adviser's reimbursement payable for the
period February 15, 1994 (commencement of operations) to October 31, 1994
amounted to $124,328.

Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
For the period February 15, 1994 (commencement of operations) to October 31,
1994, SSC did not impose its fee amounting to $27,525.

Scudder Fund Accounting Corporation ("SFAC"), a wholly-owned subsidiary of the
Adviser, is responsible for determining the daily net asset value per share and
maintaining the portfolio and general accounting records of the Fund. For the
period February 15, 1994 (commencement of operations) to October 31, 1994,
SFAC did not impose its fee amounting to $25,393.

The Fund pays each Trustee not affiliated with the Adviser $4,000 annually
plus specified amounts for attended board and committee meetings. For the
period February 15, 1994 (commencement of operations) to October 31, 1994,
Trustees' fees aggregated $28,489.

<PAGE>
SCUDDER LIMITED TERM TAX FREE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

TO THE TRUSTEES OF SCUDDER TAX FREE TRUST AND TO THE SHAREHOLDERS
OF SCUDDER LIMITED TERM TAX FREE FUND:

We have audited the accompanying statement of assets and liabilities of Scudder
Limited Term Tax Free Fund, including the investment portfolio, as of
October 31, 1994, and the related statements of operations and changes in net
assets, and the financial highlights for the period February 15, 1994
(commencement of operations) to October 31, 1994. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Limited Term Tax Free Fund as of October 31, 1994, the results of its
operations, the changes in its net assets, and the financial highlights for
the period February 15, 1994 (commencement of operations) to October 31, 1994
in conformity with generally accepted accounting principles.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 7, 1994

<PAGE>
TAX INFORMATION
- --------------------------------------------------------------------------------

Of the dividends paid by the Scudder Limited Term Tax Free Fund from net
investment income for the taxable year ended October 31, 1994, 100% constituted
exempt interest dividends for regular federal income tax purposes.

Please consult a tax adviser if you have any questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Service
Representative at 1-800-225-5163.
<PAGE>

TAX INFORMATION

Of the dividends paid by the Scudder Limited Term Tax Free Fund from net
investment income for the taxable year ended October 31, 1994, 100%
constituted exempt interest dividends for regular federal income tax
purposes.

Please consult a tax adviser if you have any questions about federal or
state income tax laws, or on how to prepare your tax returns. If you have
specific questions about your Scudder Fund account, please call a Scudder
Service Representative at 1-800-225-5163.

OFFICERS AND TRUSTEES

David S. Lee*
President and Trustee

Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director

Peter B. Freeman
Trustee; Corporate Director and Trustee

Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University

Juris Padegs*
Trustee

Jean C. Tempel
Trustee; Director and Executive Vice President, Safeguard Scientifics,
Inc.

Donald C. Carleton*
Vice President

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

Edward J. O'Connell*
Vice President and Assistant Treasurer

Coleen Downs Dinneen*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.

INVESTMENT PRODUCTS AND SERVICES

The Scudder Family of Funds

Money market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax free money market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Short Term Global Income Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Development Fund
Scudder Global Fund
Scudder Global Small Company Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Value Fund
The Japan Fund

Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan+++* (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans

Closed-end Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities Fund, Inc.

Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++

For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from
the tax-free funds may be subject to federal, state and local taxes. *Not
available in all states. +++A no-load variable annuity contract provided by
Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder, Stevens & Clark, Inc., are traded on various stock exchanges.
++For information on Scudder Treasurers Trust(tm), an institutional cash
management service that utilizes certain portfolios of Scudder Fund, Inc.
($100,000 minimum), call: 1-800-541-7703.

HOW TO CONTACT SCUDDER

Account Service and Information

For existing account service and transactions

SCUDDER SERVICE CORPORATION
1-800-225-5163

For account updates, prices, yields, exchanges and redemptions

SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890

Investment Information

To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions

SCUDDER INVESTOR INFORMATION
1-800-225-2470

For establishing Keogh, 401(k) and 403(b) plans

SCUDDER GROUP RETIREMENT SERVICES
1-800-323-6105

Please address all correspondence to

THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291

Or stop by a Scudder Funds Center

Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can be
found in the following cities:

Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale

For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts
which utilizes certain portfolios of Scudder Fund, Inc.* ($100,000
minimum), call: 1-800-541-7703.

For information on Scudder Institutional Funds,* funds designed to meet the
broad investment management and service needs of banks and other
institutions, call: 1-800-854-8525.

Scudder Investor Information and Scudder Funds Centers are services
provided through Scudder Investor Services, Inc., Distributor.

* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees
and expenses. Please read it carefully before you invest or send
money.

Celebrating 75 Years of Serving Investors

This year marks the 75th anniversary of the founding of Scudder,
Stevens & Clark, Inc., investment adviser for the Scudder Funds.
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder was the first independent investment counsel firm in the
United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load
mutual fund. Today we offer 36 pure no load(tm) funds, including the first
international mutual fund offered to U.S. investors.

<PAGE>

This information must be preceded or accompanied by a current prospectus.

Portfolio changes should not be considered recommendations for action by
individual investors.

Scudder Medium Term Tax Free Fund
Annual Report
December 31, 1994

* A fund that seeks to provide a high level of tax-free income and
limited principal fluctuation by investing in high-grade municipal
securities of intermediate maturity.

* A pure no-load(tm) fund with no commissions to buy, sell, or exchange
shares.

SCUDDER MEDIUM TERM TAX FREE FUND

CONTENTS

2 Highlights
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Investment Portfolio
21 Financial Statements
24 Financial Highlights
25 Notes to Financial Statements
28 Report of Independent Accountants
29 Tax Information
29 Officers and Trustees
30 Investment Products and Services
31 How to Contact Scudder

HIGHLIGHTS

* Reflecting steadily rising interest rates, the federally tax-free
30-day net annualized yield of Scudder Medium Term Tax Free Fund
increased to 5.29% on December 31, 1994, from 4.46% on December 31,
1993.

(BAR CHART TITLE)
The Fund's 30-Day Yield and Taxable Equivalent Yields on December 31, 1994
(Chart Data)
<TABLE>
<S> <C>
Tax-Free Yield 5.29%
Taxable-Equivalent Yield at 36% Tax Bracket 8.27%
Taxable-Equivalent Yield at 39.6% Tax Bracket 8.76%
</TABLE>

* For investors in the top federal tax brackets of 39.6% and 36%, the
Fund's 5.29% tax-free yield as of December 31, 1994, was equivalent to
an 8.76% and 8.27% taxable yield, respectively.

* Following 10 consecutive years of positive performance, the Fund's
total return for 1994 was -3.50%, during a year of negative returns
for most fixed-income investments.

* Worthy of mention, over the one-, two-, three-, four-, and five-year
periods through December 31, 1994, the Fund outpaced its peer group
average, according to Lipper Analytical Services.

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

In 1994, United States bonds posted their worst returns in over sixty
years. Bond investors faced a number of obstacles during the year. Chief
among them was a nagging fear of inflation due to a strong economy and a
weak dollar, which spurred the Federal Reserve to hike short-term rates
repeatedly and caused rates to rise significantly on longer-term
investments as well. Other market hurdles included political and economic
uncertainties in many regions of the world, including municipal bankruptcy
in Orange County, California, and Mexico's peso devaluation crisis.

After such a year, it's fair to ask where municipal bond funds go from
here. While we will probably not see the double-digit returns of the early
1990s for some time, we believe this year will bring greater stability to
the bond market as well as the opportunity to earn solid income returns.
Fortunately, despite strong economic growth, inflation has remained
relatively quiescent. Continued low inflation should favor bondholders by
taking much of the pressure off of the Fed to raise interest rates in the
future.

But current global economic trends will also bring occasional episodes
of difficult adjustment for the financial markets. At times like these, it
is essential to have a sound investment plan in place that can weather
market storms. For many investors, such a plan includes current income free
from state and/or federal taxes, in addition to the traditional benefits of
mutual funds--diversification, liquidity, dividend reinvestment, and
professional anagement.

If you have questions about your Scudder Fund, please call Scudder
Investor Relations at 1-800-225-2470. Page 31 provides more information on
how to contact Scudder. Thank you for choosing Scudder Medium Term Tax Free
Fund to help meet your investing needs.

Sincerely,

/s/David S. Lee

David S. Lee
President,
Scudder Medium Term Tax Free Fund

<PAGE>

PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

During a difficult period for bond investors, Scudder Medium Term Tax
Free Fund posted a -3.50% total return for its fiscal year ended December
31, 1994. By comparison, the total return of the unmanaged Lehman Brothers
Municipal Bond Index (comprised of long-term, investment-grade bonds) was
- -5.17%. The Fund's total return includes price change and reinvested income
distributions. Consistent with the weakness in the overall municipal
market, the Fund's share price fell to $10.39 at year end, from $11.36 on
December 31, 1993. Offsetting this decline somewhat, the Fund distributed
per share $0.53 in income and $0.05 in capital gain distributions to
shareholders. Reflecting the year's rise in interest rates, Scudder Medium
Term Tax Free Fund provided a 30-day net annualized yield of 5.29% as of
December 31, 1994, versus 4.46% at the close of 1993. For investors in the
36% federal income tax bracket, the Fund's yield was equivalent to an 8.27%
taxable yield.

Though Scudder Medium Term Tax Free Fund's recent performance is well
below returns you have enjoyed in the past, the Fund outpaced the average
performance of similar funds for the one-, two-, three-, four-, and
five-year periods ended December 31, 1994, as compiled by Lipper Analytical
Services. Please turn to the Performance Update on page 4 for more
information on the Fund's long-term progress, including comparisons to the
Lehman Brothers Municipal Bond Index.

(Chart Title)
Scudder Medium Term Tax Free Fund's Average Annual Return Versus That of
All Intermediate-Maturity Municipal Bond Funds (Returns for periods ended
December 31, 1994)
<TABLE>
<S> <C> <C> <C>
Period Scudder Medium Term Lipper Number of Funds
Tax Free Fund Average Tracked
1 year -3.50% -3.53% 82
2 years 3.47 3.28 49
3 years 5.26 4.72 34
4 years 6.94 6.07 31
5 years 6.81 6.17 29
10 years 6.95 7.53 9
Source: Lipper Analytical Services, Inc. Lipper is an independent analyst
of investment performance. Performance is historical and is not indicative
of future results.
</TABLE>

Mixed Market Influences

For municipal bond investors, the market environment in 1994 was
overlaid with a mix of favorable and unfavorable developments. The
favorable news came in two forms: higher income from tax-free investments
and a shrinking supply of bonds. While the 1993 municipal market featured
declining interest rates and a heavy supply of bonds due to a record number
of refinancings, last year's market saw a significant reduction in
refinancing activity due to rising rates. New-issue volume dropped from
$292 billion in 1993 to $163 billion in 1994 -- a 44% decrease. The low
relative supply of new issues helped support municipal bond prices in an
otherwise challenging year. We expect 1995's supply to be even lower than
last year's, some $135 billion, which should also help bolster prices.

On the unfavorable list of developments was the Orange County,
California, financial crisis, which occurred after the county's investment
fund sustained significant losses. In short, the Orange County investment
fund managers borrowed heavily in recent years to purchase bonds on the
belief that long-term interest rates would continue to decline -- even
during 1994, when rates were on the rise. We are pleased to report that the
Orange County crisis had no negative impact on the Fund other than
temporarily pushing down the prices of all California municipal bonds in
general.

(BAR CHART TITLE) Supply of New Municipal Issues (in billions)
<TABLE>
<S> <C>
1993 $292
1994 $163
1995 $135*
*Estimated
</TABLE>

Another challenge for the municipal market in 1994 was the impact of a
recent tax law provision that caused municipal bond funds to owe income
taxes on certain bonds purchased at prices below par (or face value).
Municipal bonds priced at par or at a discount to par have since become
less attractive to tax-wary investors. On the other hand, bonds priced at a
premium are now more attractive to many investors than they were
previously. We are currently working to keep the provision's impact on
Scudder's tax-free portfolios to a minimum.

Portfolio Strategy Review

In conjunction with the Fund's primary goals of maximizing the Fund's
yield while maintaining as much price stability as possible, we continue to
purchase high-grade intermediate-term municipal bonds. During the course of
1994, however, we shortened Scudder Medium Term Tax Free Fund's average
maturity from 7.4 years to 6.9 years to help reduce the Fund's sensitivity
to rising interest rates. Moreover, we plan to de-emphasize bonds with
maturities in the three- to seven-year range during the coming months. If
interest rates do rise further in 1995, these bonds will be impacted most
strongly. Instead, we will focus on bonds within the Fund's maturity
parameters that are both shorter and longer than this three- to seven-year
range and offer attractive yields along with the potential for some price
appreciation.

During the year we maintained the Fund's emphasis on noncallable
bonds, which provide a dependable income stream since their issuers cannot
redeem them before their maturity dates. On December 31, 1994,
approximately 82% of the bonds in the Fund's portfolio were noncallable. In
the current environment of rising rates, we continue to rely on
call-protected bonds for their more stable characteristics, and because at
present we believe they represent good value.

Diversification among our holdings remains an important strategy for
Scudder Medium Term Tax Free Fund, because it allows us to spread the
portfolio's risk over a large number of geographic areas, bond sectors, and
maturities. The Fund held securities issued in 40 states, as well as the
District of Columbia and the Virgin Islands, as of December 31, 1994. In
addition, Fund assets were distributed among general obligation bonds,
electric utility revenue bonds, hospital/healthcare bonds, and several
other sectors. And portfolio quality remains high, with approximately 72%
of Fund assets rated AAA, AA, or the equivalent. In fact, the Fund does not
purchase any bonds rated below investment grade. Securities are rated by
Standard & Poor's, Moody's Investors Service, Fitch Investors Service, or
assigned an equivalent rating by Scudder. The Portfolio Summary on page 5
provides more information about the Fund's holdings, including quality,
maturity, and sector representation.

Outlook for 1995

In this environment, we will continue to search for value and purchase
select noncallable bonds as opportunities present themselves. We will also
maintain a moderate cash position until we are confident that interest
rates have stabilized. At that point we will consider lengthening our
average maturity to take advantage of higher available yields as well as
any potential price appreciation that may result from a decline in rates.
As always, we remain committed to seeking high relative tax-free income and
share-price stability with an emphasis on quality investments.

Sincerely,

Your Portfolio Management Team

/s/Donald C. Carleton /s/M. Ashton Patton
Donald C. Carleton M. Ashton Patton

Scudder Medium Term Tax Free Fund:
A Team Approach to Investing

Scudder Medium Term Tax Free Fund is managed by a team of Scudder
investment professionals who each play an important role in the Fund's
management process. Team members work closely together to develop
investment strategies and select securities for the Fund's portfolio. They
are supported by Scudder's large staff of economists, research analysts,
traders, and other investment specialists who work in our offices across
the United States and abroad. We believe our team approach benefits Fund
investors by bringing together many disciplines and leveraging Scudder's
extensive resources.

Lead Portfolio Manager Donald C. Carleton has had responsibility for
Scudder Medium Term Tax Free Fund's day-to-day operations since he joined
Scudder in 1983. Don, who has worked in the investment industry for more
than 25 years, also serves as Lead Portfolio Manager for Scudder Managed
Municipal Bonds and as a Portfolio Manager of Scudder California and New
York Tax Free Funds and Scudder Tax Free Money Fund. M. Ashton Patton,
Portfolio Manager, became a member of the team in 1989. Ashton, who has
worked with municipal investments since joining Scudder in 1986, focuses on
the Fund's security selection.

<PAGE>

<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
INVESTMENT PORTFOLIO as of December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-----------------------
Principal Credit Market
Amount ($) Rating (e) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1.3% SHORT-TERM MUNICIPAL INVESTMENTS
-----------------------------------------------------------------------------------------------------------

CALIFORNIA Southern California Public Power Authority, Power
Project, Revenue Refunding, Palo Verde, Daily
Demand Note, 3.50%, 7/1/12 (b)* . . . . . . . . . . . 6,000,000 AAA 6,000,000
TEXAS North Central Texas Health Facilities Development Corp.
Methodist Hospital of Dallas, Daily Demand
Note, 5.85%, 10/1/15 (b)* . . . . . . . . . . . . . . 2,300,000 A1 2,300,000
WASHINGTON Washington Health Care Facilities Authority, Sisters of
Providence, Series 1985 E, Variable Rate Demand
Note, 6%, 10/1/05 * . . . . . . . . . . . . . . . . . 500,000 A1+ 500,000
--------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $8,800,000) . . . . . . . . . . . . . . . . . . 8,800,000
--------------
98.7% LONG-TERM MUNICIPAL INVESTMENTS
--------------------------------------------------------------------------------------------------------

ALABAMA University of South Alabama, Hospital and Auxiliary
Revenue, 4.875%, 5/15/04 (b) . . . . . . . . . . . . 6,680,000 AAA 5,956,510
ALASKA North Slope Borough, AK, General Obligation:
Refunding, Series G, 7.5%, 6/30/97 (b) . . . . . . . 2,350,000 AAA 2,457,160
Series A, Zero Coupon, 6/30/02 (b) . . . . . . . . . 5,000,000 AAA 3,168,050
Series A, Zero Coupon, 6/30/03 (b) . . . . . . . . . 7,000,000 AAA 4,139,100
Series I, Refunding, 6.55%, 6/30/95 (b) . . . . . . . 2,000,000 AAA 2,018,540
Series I, Zero Coupon, 6/30/96 (b) . . . . . . . . . 2,800,000 AAA 2,581,124
Series I, 6.6%, 6/30/96 (b) . . . . . . . . . . . . . 4,000,000 AAA 4,069,280
Zero coupon, 6/30/04, Capital Guaranty Insured . . . 19,500,000 AAA 10,700,235
ARIZONA Arizona Health Facilities Authority, Phoenix Baptist
Hospital and Medical Center, 6.1%, 9/1/03 (b) . . . . 2,000,000 AAA 2,018,540
Maricopa County, AZ, School District #28,
Kyrene Elementary, Series B, Zero Coupon:
7/1/02 (b) . . . . . . . . . . . . . . . . . . . . . 3,350,000 AAA 2,133,079
1/1/03 (b) . . . . . . . . . . . . . . . . . . . . . 5,750,000 AAA 3,525,268
7/1/03 (b) . . . . . . . . . . . . . . . . . . . . . 6,000,000 AAA 3,567,720
Maricopa County, AZ, Unified School District #41:
Capital Appreciation Bond, Zero Coupon:
7/1/03 (b) . . . . . . . . . . . . . . . . . . . . . 7,000,000 AAA 4,189,920
1/1/04 (b) . . . . . . . . . . . . . . . . . . . . . 6,000,000 AAA 3,457,260
Zero Coupon:
7/1/04 (b) . . . . . . . . . . . . . . . . . . . . . 7,000,000 AAA 3,911,810
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
------------
Principal Credit Market
Amount ($) Rating (e) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7/1/06 (b) . . . . . . . . . . . . . . . . . . . 5,605,000 AAA 2,719,098
Maricopa County, AZ, Unified School District #97,
Deer Valley, Zero Coupon:
7/1/02 (b) . . . . . . . . . . . . . . . . . . . . 9,120,000 AAA 5,840,995
7/1/05 (b) . . . . . . . . . . . . . . . . . . . . 4,060,000 AAA 2,112,418
ARKANSAS Arkansas Development Finance Authority,
Single-Family Mortgage Revenue, Series 1985 A,
8.3%, 2/1/95 . . . . . . . . . . . . . . . . . . . 470,000 AA 470,000
CALIFORNIA California General Obligation:
5.5%, 4/1/07 (b) . . . . . . . . . . . . . . . . . 3,000,000 AAA 2,787,210
8%, 5/1/03 (b) . . . . . . . . . . . . . . . . . . 8,000,000 AAA 9,058,640
California Housing Finance Agency, Multi-Unit Rental
Housing Revenue, Series A, 7.25%, 8/1/98 . . . . . 2,270,000 A 2,357,872
California State Public Works Lease Board Revenue:
Del Norte Prison, Series C, 4.75%, 12/1/05 . . . . . 4,750,000 A+ 4,040,540
Department of Corrections, Del Norte/Imperial,
Series C, 4.7%, 12/1/03 (b) . . . . . . . . . . . 2,000,000 AAA 1,781,580
California Statewide Communities Development
Authority, Certificate of Participation,
Children's Hospital:
4.8%, 6/1/04 (b) . . . . . . . . . . . . . . . . . 2,790,000 AAA 2,488,652
4.9%, 6/1/05 (b) . . . . . . . . . . . . . . . . . 2,835,000 AAA 2,521,052
Los Angeles County, CA, Transportation Sales Tax,
Series A, 6.9%, 7/1/21 Prerefunded 7/1/01 (c) . . 3,000,000 AAA 3,224,700
COLORADO Colorado Health Facilities Authority, Hospital
Revenue: Rocky Mountain Adventist Healthcare
Project, 6%, 2/1/98 . . . . . . . . . . . . . . . . 3,500,000 BBB 3,406,025
Rose Medical Center Project, 8.5%, 11/1/96 (b) . . 260,000 AAA 274,555
Denver, CO, City and County Airport Revenue:
8.375%, 8/1/96 . . . . . . . . . . . . . . . . . . 1,455,000 BBB 1,458,667
9.75%, 12/1/95 . . . . . . . . . . . . . . . . . . 3,080,000 BBB 3,091,211
10.5%, 12/1/00 . . . . . . . . . . . . . . . . . . 21,040,000 BBB 21,127,526
Larimer, Weld and Boulder Counties, CO,
Thompson School District, General Obligation,
No. R2-J, Zero Coupon, 12/15/95 (b) . . . . . . . . 1,000,000 AAA 953,550
CONNECTICUT Bristol, CT, Resource Recovery, Ogden Martin System,
6.125%, 7/1/03 (f) . . . . . . . . . . . . . . . . 10,635,000 A 10,270,220
Connecticut Development Authority, Airport Facility,
Series A, Windsor Locks Hotel, 5.8%, 10/1/97 . . . 7,610,000 AA 7,585,724
DISTRICT OF COLUMBIA District of Columbia, Certificate of Participation,
Series 1993:
6%, 1/1/97 . . . . . . . . . . . . . . . . . . . . 3,548,000 BBB 3,512,520
6.875%, 9/13/00 . . . . . . . . . . . . . . . . . 2,500,000 BBB 2,461,625
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>

Unaudited
-----------
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
District of Columbia, General Obligation:
5.625%, 6/1/02 (b) . . . . . . . . . . . . . 8,360,000 AAA 8,033,960
5.8%, 6/1/04 . . . . . . . . . . . . . . . . 6,950,000 AAA 6,648,509
8%, 6/1/05, Prerefunded 6/1/96 (c) . . . . . 4,000,000 AAA 4,220,040
Refunding, Series 1993 A, 4.85%, 6/1/04 (b). . 2,000,000 AAA 1,729,380
Refunding, Series B, 5.3%, 6/1/05 (b) . . . . 8,000,000 AAA 7,158,160
Series 1993 A-1, 5.875%, 6/1/05 (b) . . . . . 3,650,000 AAA 3,481,699
Series 1993 A, 4.95%, 6/1/05 (b) . . . . . . 3,940,000 AAA 3,383,436
Series B, 9.4%, 6/1/97, Prerefunded
6/1/95 (c) . . . . . . . . . . . . . . . . . 3,000,000 AAA 3,118,020
Series B, Zero Coupon, 6/1/01 (b) . . . . . . 7,100,000 AAA 4,831,408
Series C, 8.9%, 6/1/96 . . . . . . . . . . . 5,505,000 AAA 5,701,363
Series D, 4.7%, 12/1/99 (b) . . . . . . . . . 8,035,000 AAA 7,466,042
FLORIDA Sunrise, FL, Utility System Revenue, Series A1,
7.375%, 10/1/06 (b) . . . . . . . . . . . . . 2,400,000 AAA 2,498,232
Port Everglades Authority, FL, Port Authority
Improvement Bonds, Series A, Zero Coupon,
9/1/01(b) . . . . . . . . . . . . . . . . . . 4,305,000 AAA 2,940,530
GEORGIA Municipal Electric Authority of Georgia,
Power Revenue:
Series A, 5.1%, 1/1/05(b) . . . . . . . . . 3,750,000 AAA 3,425,025
Series U, 6.6%, 1/1/01 . . . . . . . . . . . 1,000,000 AA 1,043,130
HAWAII Hawaii Airport System Refunding, Series 1993,
5.95%, 7/1/03 (b) . . . . . . . . . . . . . . 3,750,000 AAA 3,772,313
ILLINOIS Alton, IL, Health Facilities Revenue,
6.7%, 2/15/00 . . . . . . . . . . . . . . . . 2,000,000 AAA 2,067,860
Chicago, IL, General Obligation:
6.2%, 1/1/04 (b) . . . . . . . . . . . . . . 1,110,000 AAA 1,130,668
School Finance Authority:
Series A, 4.9%, 6/1/05 (b) . . . . . . . . . 6,000,000 AAA 5,256,420
Series 1994 A, 4.5%, 6/1/02 (b) . . . . . . 4,000,000 AAA 3,521,920
Illinois Development Finance Authority,
Refunding Revenue, Commonwealth Edison,
5.3%, 1/15/04 . . . . . . . . . . . . . . . 5,000,000 BBB 4,471,450
Illinois Educational Facilities Authority
Revenue, Loyola University, Revenue
Refunding 1991 Series A, Zero Coupon,
7/1/02 (b) . . . . . . . . . . . . . . . . . 2,130,000 AAA 1,356,256
Illinois Health Facilities Authority,
Elmhurst Memorial Hospital, Series A:
4.85%, 1/1/02 (b) . . . . . . . . . . . . . 1,185,000 AAA 1,087,676
5.1%, 1/1/04 (b) . . . . . . . . . . . . . . 1,315,000 AAA 1,200,240
Evangelical Hospitals, Series B, 6.1%,
4/15/01 (b) . . . . . . . . . . . . . . . . 1,240,000 AAA 1,255,326
Franciscan Sisters Health Care Corporation,
1992 Series C, 5.5%, 9/1/02 (b) . . . . . . 2,045,000 AAA 1,972,975
Sherman Hospital Project, Revenue Refunding,
6.5%, 8/1/01 (b) . . . . . . . . . . . . . . 1,025,000 AAA 1,058,641

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
--------------------------
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sisters Services, Series C:
6.1%, 6/1/00 (b). . . . . . . . . . . . . . . . . . 1,500,000 AAA 1,526,130
6.2%, 6/1/01 (b). . . . . . . . . . . . . . . . . . 1,900,000 AAA 1,939,102
6%, 6/1/99 (b) . . . . . . . . . . . . . . . . . . 2,500,000 AAA 2,535,575
5.875%, 6/1/98 (b) . . . . . . . . . . . . . . . . 2,400,000 AAA 2,423,832
Kane, Cook, and Du Page Counties, IL, School
District, General Obligation, 6.75%, 1/1/03 (b) . . 1,000,000 AAA 1,051,630
Kendall, Kane and Will Counties, IL, School
District, Zero Coupon, 3/1/03 (b) . . . . . . . . . 1,345,000 AAA 816,240
Macon and Decatur County, IL, Public Building
Commission, Certificate of Participation, General
Obligation, 6.3%, 1/1/00 (b) . . . . . . . . . . . 1,320,000 AAA 1,351,733
McHenry County, IL, Conservation District,
Zero Coupon, 2/1/99 (b) . . . . . . . . . . . . . . 1,515,000 AAA 1,198,592
Metropolitan Pier and Exposition Authority of Illinois,
McCormick Place Expansion Project, Coupon
Receipts, Zero Coupon, 6/15/04 (b) . . . . . . . . 10,500,000 AAA 5,840,730
Rosemont, IL, Tax Increment, Secondary:
Series B, Zero Coupon, 12/1/02 (b) . . . . . . . . 2,785,000 AAA 1,729,401
Series C, Zero Coupon, 12/1/02 (b) . . . . . . . . 3,345,000 AAA 2,077,145
INDIANA Madison County, IN, Hospital Authority, Holy Cross
Health System, 6.7%, 12/1/02 (b). . . . . . . 1,385,000 AAA 1,452,394
Porter County, IN, Hospital Authority, Porter Memorial
Hospital, Series 1993, 5.2%, 6/1/05 (b) . . . . . . 1,500,000 AAA 1,364,565
IOWA Cedar Rapids, IA, Hospital Revenue, St. Luke's
Methodist Hospital, 5.85%, 8/15/04 (b) . . . . . 1,315,000 AAA 1,283,756
Iowa Certificate of Participation, 1992 Series A,
6.25%, 7/1/02 . . . . . . . . . . . . . . . . . . . 5,000,000 AAA 5,077,600
Iowa Lease Purchase Agreement, 7.65%, 6/15/95 621,918 AA 629,692
KANSAS Kansas City, KS, Utility System Revenue, Zero Coupon,
3/1/03 (b) . . . . . . . . . . . . . . . . . . . . 7,000,000 AAA 4,342,345
KENTUCKY Kentucky Turnpike Authority, Toll Road Revenue,
13.375%, 7/1/10, Prerefunded 8/15/95 (c) . . . . . 955,000 AAA 1,013,962
Economic Development, Revenue Refunding,
Series 1986 A, 7.7%, 1/1/00 . . . . . . . . . . . 700,000 A 736,757
LOUISIANA Louisiana State General Obligation, Series A, 7%,
5/1/02 (b) . . . . . . . . . . . . . . . . . . . . 3,000,000 AAA 3,203,010
St. Tammany Parish, LA, Sales Tax Revenue,
District #3, Series A, 11%, 12/1/96 (b) . . . . . . 1,065,000 AAA 1,170,680
MARYLAND Northeast Maryland Waste Disposal Authority,
Southwest Resource Recovery System Revenue,
Series 1993:
6.75%, 1/1/98 (b) . . . . . . . . . . . . . . . . 4,715,000 AAA 4,869,369
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6.85%, 1/1/99 (b) . . . . . . . . . . . . . . . . . 1,500,000 AAA 1,564,725
MASSACHUSETTS Boston, MA, General Obligation, 4.9%, 7/1/07 (b) . . . 3,950,000 AAA 3,376,855
Brockton, MA, General Obligation, 7.75%, 12/15/95 . . . 1,675,000 A 1,729,438
Lawrence, MA, General Obligation, State Qualified
Bond, 5%, 9/15/02 . . . . . . . . . . . . . . . . . . 1,030,000 A 945,015
Massachusetts Bay Transportation Authority,
Series A, 5.3%, 3/1/05 . . . . . . . . . . . . . . . 2,500,000 A 2,284,300
Massachusetts General Obligation:
Refunding, Series A, 6.375%, 8/1/02 . . . . . . . . . 2,150,000 A 2,212,888
Series A, 6.4%, 8/1/03 . . . . . . . . . . . . . . . 1,000,000 A 1,028,480
Series C, 6.9%, 12/1/96 (b) . . . . . . . . . . . . . 1,000,000 AAA 1,028,920
Massachusetts Housing Finance Agency, 1992
Series C, FNMA Collateralized:
6.25%, 5/15/02 . . . . . . . . . . . . . . . . . . . 2,000,000 AAA 2,025,700
6.25%, 11/15/02 . . . . . . . . . . . . . . . . . . 3,420,000 AAA 3,466,307
Massachusetts Industrial Finance Authority:
Resource Recovery, North Andover Solid Waste,
Series A, 6.15%, 7/1/02 . . . . . . . . . . . . . . 3,250,000 BBB 3,194,620
Sturdy Memorial Hospital, 7.9%, 6/1/09 . . . . . . . 2,000,000 BBB 2,033,840
Massachusetts Municipal Wholesale Electric Co.,
Power Supply System Revenue, Series A,
6.625%, 7/1/03 . . . . . . . . . . . . . . . . . . . 3,165,000 BBB 3,229,819
Massachusetts Water Resource Authority, Series A,
7.25%, 4/1/01 . . . . . . . . . . . . . . . . . . . . 1,000,000 A 1,065,290
New England Education Loan Marketing Corp.,
Massachusetts Student Loan Revenue Refunding:
Issue A, 5.8%, 3/1/02 . . . . . . . . . . . . . . . 13,825,000 AAA 13,476,195
Issue E, 5%, 7/1/99 . . . . . . . . . . . . . . . . 8,000,000 A 7,570,880
New England Education Loan Marketing Corp.,
Massachusetts Student Loan Revenue Refunding,
Series C, 4.75%, 7/1/98 . . . . . . . . . . . . . . . 3,500,000 A 3,321,150
MICHIGAN Michigan Municipal Bond Authority Revenue, Local
Government Loan Program, School Improvement,
Zero Coupon:
AD Valorem, 5/15/01 (b) . . . . . . . . . . . . . . 3,065,000 AAA 2,110,743
AD Valorem, Series D, 5/15/02 (b) . . . . . . . . . 2,170,000 AAA 1,400,388
Series D, 12/1/03 (b) . . . . . . . . . . . . . . . 4,870,000 AAA 2,842,570
Michigan State Hospital, Sisters of Mercy:
4.5%, 8/15/01 (b) . . . . . . . . . . . . . . . . . . 2,755,000 AAA 2,455,256
1993 Series P, 4.6%, 8/15/02 (b) . . . . . . . . . . 2,025,000 AAA 1,791,963
MISSISSIPPI Mississippi Higher Education Assistance Corp., Student
Loan Revenue, 1992 Series A, 6.2%, 1/1/02 . . . . . . 1,200,000 A 1,174,068

</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
INVESTMENT PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Market
Amount ($) Rating (e) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISSOURI Jackson County, MO, Industrial Development
Authority, St. Joseph Health Center, Series 1993,
4.8%, 7/1/03 (b) . . . . . . . . . . . . . . . . . . 3,615,000 AAA 3,249,054
NEBRASKA Omaha, NE, Public Power District, Electric Revenue,
4.5%, 2/1/04 . . . . . . . . . . . . . . . . . . . . 9,500,000 AA 8,199,545
NEVADA Nevada Housing Division, Single Family Mortgage,
5.95%, 4/1/05 . . . . . . . . . . . . . . . . . . . . 4,000,000 AA 3,804,320
Nye County, NV, School District, 8.875%, 5/1/96 (b) . . 500,000 AAA 522,325
NEW HAMPSHIRE New Hampshire Higher Education and Health
Facilities Authority, Hospital Revenue, Frisbie
Memorial Hospital, Series 1993, 5.25%, 10/1/99 . . . 3,215,000 BBB 3,076,659
NEW JERSEY New Jersey Economic Development Authority, Bad
Driver's Program, 7%, 7/1/04 (b) . . . . . . . . . . 2,500,000 AAA 2,682,775
NEW YORK Metropolitan Transportation Authority of New York,
Commuter Facilities Revenue:
6.75%, 7/1/00 . . . . . . . . . . . . . . . . . . . 1,200,000 BBB 1,242,768
6.9%, 7/1/01 . . . . . . . . . . . . . . . . . . . . 1,280,000 BBB 1,334,963
Metropolitan Transportation Authority of New York,
Transit Facilities Revenue:
6.75%, 7/1/00 . . . . . . . . . . . . . . . . . . . 2,270,000 BBB 2,350,903
6.9%, 7/1/01 . . . . . . . . . . . . . . . . . . . . 2,415,000 BBB 2,518,700
Series M, 5.3%, 7/1/06 (b) . . . . . . . . . . . . . 4,750,000 AAA 4,380,070
Series M, 5.5%, 7/1/08 (b) . . . . . . . . . . . . . 5,000,000 AAA 4,563,500
New York City Municipal Water Finance Authority,
Zero Coupon:
6/15/96 . . . . . . . . . . . . . . . . . . . . . . 1,000,000 A 958,170
12/15/95 . . . . . . . . . . . . . . . . . . . . . . 1,000,000 A 984,180
New York City General Obligation:
Series A, 7%, 8/1/04 . . . . . . . . . . . . . . . . 5,150,000 A 5,268,502
Series A, 7.2%, 8/15/95 . . . . . . . . . . . . . . . 4,320,000 A 4,357,282
Series 1992 B, 6.4%, 10/1/02 . . . . . . . . . . . . 4,905,000 A 4,880,720
Series B, 6.6%, 10/1/03 . . . . . . . . . . . . . . . 10,200,000 A 10,212,036
Series B, 7%, 2/1/96 . . . . . . . . . . . . . . . . 2,000,000 A 2,023,860
Series C, 6.3%, 8/1/03 (b) . . . . . . . . . . . . . 50,000 AAA 51,295
Series D, 5.5%, 8/15/04 . . . . . . . . . . . . . . . 2,800,000 A 2,521,932
Series D, 5.5% 8/15/04 (b) . . . . . . . . . . . . . 2,650,000 AAA 2,529,770
Series D, ETM, 7.75%, 8/1/95 ** . . . . . . . . . . . 145,000 AAA 147,464
Series D, 7.75%, 8/1/95 . . . . . . . . . . . . . . . 855,000 A 864,456
Series D, 7.875%, 8/1/97 . . . . . . . . . . . . . . 2,025,000 A 2,114,951
Series E, 5.4%, 8/1/04 . . . . . . . . . . . . . . . 3,000,000 A 2,836,620
Series 1994 H, 5.8%, 8/1/04 . . . . . . . . . . . . . 5,000,000 A 4,651,750
Series 1992 H, 6.9%, 2/1/01 . . . . . . . . . . . . . 6,000,000 A 6,157,860

</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Market
Amount ($) Rating (e) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A, ETM, 7.2%, 3/15/95 ** . . . . . . . . . . . . 1,000,000 A 1,005,890
Series C, ETM, 7.4%, 8/1/96 ** . . . . . . . . . . . . 1,560,000 AAA 1,611,652
Series D, ETM, 7.875%, 8/1/97 ** . . . . . . . . . . . 530,000 AAA 561,461
New York Dormitory Authority:
City University, Series A, 5.5%, 7/1/03 . . . . . . . . 9,250,000 BBB 8,664,568
College & University Pooled Capital Program,
7.8%, 12/1/05 (b) . . . . . . . . . . . . . . . . . . 1,390,000 AAA 1,499,143
State University, 6.8%, 5/15/00 (b) . . . . . . . . . . 3,915,000 AAA 4,113,373
New York State Medical Care Facilities,
Finance Agency Revenue, Mount Sinai Hospital,
Series 1983, 5.95%, 8/21/99 . . . . . . . . . . . . . . 10,265,000 AAA 10,136,072
New York State Thruway Authority, Zero
Coupon, 1/1/02 . . . . . . . . . . . . . . . . . . . . 3,155,000 BBB 1,962,726
New York State Urban Development Corporation,
Correctional Facilities Revenue Bond,
Revenue Refunding, Series 1993 A:
5.3%, 1/1/05 . . . . . . . . . . . . . . . . . . . . . 7,000,000 BBB 6,247,010
5.4%, 1/1/06 . . . . . . . . . . . . . . . . . . . . . 3,500,000 BBB 3,119,725
5.3%, 1/1/05 . . . . . . . . . . . . . . . . . . . . . 1,105,000 BBB 986,135
NORTH CAROLINA Charlotte, NC, Equipment Lease Agreement,
6.75%, 9/1/95 . . . . . . . . . . . . . . . . . . . . . 1,200,000 AA 1,213,872
North Carolina, General Obligation, 4.5%, 6/1/03 . . . . 8,000,000 AAA 7,142,320
NORTH DAKOTA Bismarck, ND, Hospital Revenue, St. Alexius
Medical Center, Series 1991, Zero Coupon,
5/1/00 (b) . . . . . . . . . . . . . . . . . . . . . . 2,850,000 AAA 2,086,827
Grand Forks, ND, Health Facilities, United Hospital
Obligation Group, Series A, 6%, 12/1/02 (b) . . . . . . 1,160,000 AAA 1,169,361
OHIO Hamilton County, OH, Health System Revenue,
Franciscan Sisters of the Poor Health System,
Providence Hospital, Series 1992, 6.375%, 7/1/03 . . . 4,495,000 BBB 4,196,172
PENNSYLVANIA Allegheny County, PA, Hospital Development Authority,
6.5%, 7/1/00 (b) . . . . . . . . . . . . . . . . . . . 1,000,000 AAA 1,034,460
Armstrong County, PA, Hospital Authority, St. Frances
Medical Center, Series A, 6.2%, 6/1/03 (b) . . . . . . . 3,090,000 AAA 3,136,288
Erie County, PA, School District,
Zero Coupon, ETM, 6/1/99 ** . . . . . . . . . . . . . . 2,085,000 A 1,619,670
Montgomery County, PA, Redevelopment Authority,
Multi-Family Housing Revenue Refunding,
KBF Associates, LP Pro, 6%, 7/1/04 . . . . . . . . . . 2,685,000 BBB 2,607,538
Pennsylvania Certificate of Participation, Lease
Revenue, 4.9%, 7/1/02 (b) . . . . . . . . . . . . . . . 4,380,000 AAA 4,010,547
Philadelphia, PA, Gas Works Revenue, Fourteenth
Series, 5.5%:
7/1/03 . . . . . . . . . . . . . . . . . . . . . . . . 4,645,000 AAA 4,429,704
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Market
Amount ($) Rating (e) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7/1/04 . . . . . . . . . . . . . . . . . . . . . . . 4,250,000 AAA 4,009,663
Philadelphia, PA, General Obligation, Revenue
Refunding, Series A, 11.5%, 8/1/99 (b) . . . . . . . 1,000,000 AAA 1,223,280
Schuykill County, PA, Redevelopment Authority,
Lease Rental, Series A, 6.55%, 6/1/00 (b) . . . . . . 1,105,000 AAA 1,145,056
Somerset County, PA, General Authority,
Commonwealth Lease Revenue,
6.45%, 10/15/00 (b) . . . . . . . . . . . . . . . . 2,000,000 AAA 2,078,840
RHODE ISLAND Rhode Island Public Building Authority, State Public
Projects Revenue, Series A, 5%, 2/1/04 (b) . . . . . . 2,245,000 AAA 2,040,974
SOUTH CAROLINA South Carolina Jobs Economic Development Authority
Revenue, Franciscan Sisters of the Poor Health
System Inc., St. Francis Hospital, 6.375%, 7/1/03 . . 3,420,000 BBB 3,159,670
Sumter County, SC, Hospital Facility Revenue
Refunding, Tuomey Medical Center,
6.375%, 11/15/99 (b) . . . . . . . . . . . . . . . . 1,000,000 AAA 1,027,000
SOUTH DAKOTA South Dakota Student Loan Assistance Corp.
Revenue, Series A, 7%, 8/1/98 . . . . . . . . . . . . 1,000,000 A 1,029,790
TENNESSEE Knox County, TN, Health, Education and Housing
Facilities Board, Fort Sanders Alliance, 4.8%,
1/1/05 (b) . . . . . . . . . . . . . . . . . . . . . . 6,825,000 AAA 6,050,636
TEXAS Austin, TX, Utility District, Water, Sewer & Electric
Revenue, 11%, 11/15/02, Prerefunded 5/1/97 (c) . . . . 4,180,000 AAA 4,710,985
Austin, TX, Utility System Revenue:
Prior Lien, ETM, 9.25%, 11/15/95 ** . . . . . . . . . . 155,000 A 160,670
9.25%, 11/15/95 . . . . . . . . . . . . . . . . . . . . 895,000 A 924,168
Carrollton, TX, Farmers Branch Independent School
District, ETM, 9.4%, 6/1/96 ** . . . . . . . . . . . . 100,000 AAA 105,615
Dallas County , TX, Hospital District, 9.75%, 4/10/96 . 750,000 A 787,478
Dallas, TX, Civic Center, Senior Lien, 8.6%, 1/1/06 . . 1,115,000 A 1,152,687
Dallas-Fort Worth, TX, International Airport Revenue, .
Series A:
7.7%, 11/1/00 (b) . . . . . . . . . . . . . . . . . 780,000 AAA 850,754
7.75%, 11/1/01 (b) . . . . . . . . . . . . . . . . . 540,000 AAA 595,447
Harris County, TX, Toll Road Authority Revenue:
Senior Lien, 8.1%, 8/15/00 (b) . . . . . . . . . . . . 1,275,000 AAA 1,392,581
Sub Lien, Series A, Zero Coupon, 8/15/01 (b). . . . . . 3,235,000 AAA 2,195,465
Harris County, TX, Unlimited Tax, General Obligation,
8.8%, 10/1/95 . . . . . . . . . . . . . . . . . . . . 100,000 AAA 102,824
Harris County, TX, General Obligation, Flood Control
District, Zero Coupon, 10/1/00 (b) . . . . . . . . . 3,000,000 AAA 2,153,430
Lubbock, TX, Health Facilities Development Corp.,
Methodist Hospital, Series B, 5.3%, 12/1/04 (b) . . . 3,555,000 AAA 3,305,439

</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-------------------
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Harris County, TX, Port of Houston Authority,
8.8%, 10/1/96 . . . . . . . . . . . . . . . . . . . 150,000 AA 154,136
San Antonio, TX, Electric & Gas, Refunding Revenue,
Series A, Zero Coupon, 2/1/02 (b) . . . . . . . . . 4,600,000 AAA 3,034,528
State of Texas, Tax and Revenue Anticipation Notes,
5%, 8/31/95 . . . . . . . . . . . . . . . . . . . . . 2,000,000 MIG1 2,003,520
Texas Municipal Power Agency, Zero Coupon,
9/1/04 (b) . . . . . . . . . . . . . . . . . . . . . 6,870,000 AAA 3,800,209
Travis County, TX, Housing Finance Corp., Series A,
8.625%, 9/1/95 (b) . . . . . . . . . . . . . . . . . 200,000 AAA 205,562

UTAH Intermountain Power Agency, UT, Power
Supply Revenue:
Series B, Zero Coupon, 7/1/01 (b) . . . . . . . . . 10,495,000 AAA 7,173,647
Series B, Zero Coupon, 7/1/02 (b) . . . . . . . . . 2,500,000 AAA 1,601,150
Series H, 9%, 7/1/19, Crossover Refunded
7/1/95 (d) . . . . . . . . . . . . . . . . . . . . 2,200,000 AA 2,273,986
Series I, 9%, 7/1/19, Crossover Refunded
7/1/95 (d) . . . . . . . . . . . . . . . . . . . . 2,500,000 AA 2,584,075
Salt Lake County, UT, Water Conservation District,
Series A, Zero Coupon, 10/1/03 (b) . . . . . . . . . 3,200,000 AAA 1,886,688
Utah Associated Municipal Power System,
Hunter Project, Refunding Revenue, Zero Coupon:
7/1/01 (b) . . . . . . . . . . . . . . . . . . . . . 5,895,000 AAA 4,009,131
7/1/03 (b) . . . . . . . . . . . . . . . . . . . . . 5,900,000 AAA 3,508,258

VIRGIN ISLANDS Virgin Islands, General Obligation, Public Finance
Authority Revenue, Matching Fund Loan, Series A:
6.7%, 10/1/99 . . . . . . . . . . . . . . . . . . . 1,690,000 NR 1,727,603
6.8%, 10/1/00 . . . . . . . . . . . . . . . . . . . 1,035,000 NR 1,059,519

VIRGINIA Southeastern, VA, Public Service Authority, Refunding,
Series A, 4.8%, 7/1/05 (b) . . . . . . . . . . . . . 9,500,000 AAA 8,337,390

WASHINGTON King County, WA, Water District #107,
ETM, 8.7%, 3/1/96 ** . . . . . . . . . . . . . . . . 120,000 AAA 124,692
Seattle, WA, Municipal Light and Power Revenue,
9.7%, 9/1/07, Prerefunded 9/1/95 (c) . . . . . . . . 1,380,000 AAA 1,453,237
Washington Health Care Facilities Authority:
Empire Health Services, Series 1993,
4.35%, 11/1/96 (b) . . . . . . . . . . . . . . . . . 1,760,000 AAA 1,722,336
Franciscan Health System, St. Joseph's/Tacoma,
5.2%, 1/1/04 (b) . . . . . . . . . . . . . . . . . . 2,160,000 AAA 1,984,716
Washington Public Power Power Supply System,
Nuclear Project #1, Refunding Revenue:
Series A, 5.25%, 7/1/03 (b) . . . . . . . . . . . . 10,000,000 AAA 9,310,800
Series A, 7%, 7/1/96 . . . . . . . . . . . . . . . . 1,000,000 AA 1,018,870
Series B, 5%, 7/1/01 . . . . . . . . . . . . . . . . 2,000,000 AA 1,851,980
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
INVESTMENT PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series B, 5.15%, 7/1/02 . . . . . . . . . . . 5,275,000 AA 4,872,254
Series B, 5.25%, 7/1/03 . . . . . . . . . . . 5,555,000 AA 5,100,101
Series D, 15%, 7/17/17,
Prerefunded 7/1/96 (c) . . . . . . . . . . . 2,595,000 AAA 3,034,100
Washington Public Power Supply System,
Nuclear Project #2, Refunding Revenue:
Series A, 6.3%, 7/1/01 . . . . . . . . . . . . 6,000,000 AA 6,063,600
Series A, 4.9%, 7/1/05 . . . . . . . . . . . . 4,000,000 AA 3,409,280
Series B, 5.15%, 7/1/02 . . . . . . . . . . . 6,085,000 AA 5,620,410
Washington Public Power Supply System,
Nuclear Project #3, Refunding Revenue:
Series B, Zero Coupon, 7/1/04 (b) . . . . . . 8,000,000 AAA 4,409,280
Series B, 7.15%, 7/1/01 . . . . . . . . . . . 1,310,000 AA 1,377,884
Series B, 5%, 7/1/01 . . . . . . . . . . . . . 6,210,000 AA 5,750,398
Series B, 5.15%, 7/1/02 . . . . . . . . . . . 3,165,000 AA 2,923,352
Series B, 5.25%, 7/1/03 . . . . . . . . . . . 6,100,000 AA 5,600,471
Series C, 5%, 7/1/05 (g) . . . . . . . . . . . 13,000,000 AA 11,219,910
Snohomish County, WA, Public Utility District #1,
Series 1991 B, 6.4%, 1/1/00 . . . . . . . . . . 2,000,000 A 2,055,800
WISCONSIN Wisconsin Health & Educational Facilities Authority:
Children's Hospital of Wisconsin Inc.,
Series 1993, 5.375%, 8/15/04 (b) . . . . . . . 3,000,000 AAA 2,795,640
Wheaton Franciscan Services:
5.8%, 8/15/04 (b) . . . . . . . . . . . . . . 2,425,000 AAA 2,355,281
6%, 8/15/02 (b) . . . . . . . . . . . . . . . 1,000,000 AAA 1,007,200
Columbia Hospital Inc., 6.125%, 11/15/01 (b) . . 1,000,000 AAA 1,013,600
WYOMING Wyoming Community Development Authority,
Single Family Mortgage Revenue, FHA Insured,
Zero Coupon, 6/1/96 . . . . . . . . . . . . . . 2,150,000 AA 1,937,118
-----------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(Cost $714,681,012) . . . . . . . . . . . . . . 690,847,413
-----------
===============================================================================================================
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $723,481,012) (a) . . . . . . . . . . . 699,647,413
===========
<FN>

(a) The cost for federal income tax purposes was $723,481,012. At December 31, 1994, net
unrealized depreciation for all securities was $23,833,599. This consisted of
aggregate gross unrealized appreciation for all securities in which there was an excess
of market value over tax cost of $5,499,984 and aggregate gross unrealized
depreciation for all investment securities in which there was an excess of tax cost
over market value of $29,333,583.

(b) Bond is insured by one of these companies: AMBAC, FGIC, or MBIA.

</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
SCUDDER MEDIUM TERM TAX FREE FUND
- -----------------------------------------------------------------------

- -----------------------------------------------------------------------

(c) Prerefunded: Bonds which are prerefunded are
collateralized by U.S. Treasury securi- ties which
are held in escrow and are used to pay principal
and interest on tax-exempt issue and to retire the
bonds in full at the earliest refunding date.

(d) Crossover refunded: Bonds which are crossover
refunded are secured by an escrow of securities
which is used to pay principal on the tax exempt
issue and retire the bonds in full at the earliest
refunding date, except in the case of default by
the issuer or inadequacy in the escrow account.

(e) All of the securities held have been determined to
be of appropriate credit quality as required by
the Fund's investment objectives. Credit ratings
are either Standard & Poor's Corporation, Moody's
Investors Service, Inc. or Fitch Investors
Service, Inc. Unrated securities (NR) have been
determined to be of comparable quality to rated
eligible securities.

(f) When-issued or forward delivery securities (See
Note A in Notes to Financial Statements).

(g) At December 31, 1994, this security, in whole, has
been segregated to cover when-issued or forward
delivery securities.

* Floating rate and monthly, weekly, or daily demand
notes are securities whose yields vary with a
designated market index or market rate, such as
the coupon-equivalent of the Treasury bill rate.
Variable rate demand notes are securities whose
yields are periodically reset at levels that are
generally comparable to tax-exempt commercial
paper. These securities are payable on demand
within seven calendar days and normally
incorporate an irrevocable letter of credit or
line of credit from a major bank. These notes are
carried, for purposes of calculating average
weighted maturity, at the longer of the period
remaining until the next rate change or to the
extent of the demand period.

** ETM: Bonds bearing the description ETM (escrowed
to maturity) are collateralized by U.S. Treasury
securities which are held in escrow by a
trustee and used to pay principal and interest on
bonds so designated.

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------

STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------------------

DECEMBER 31, 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $723,481,012)
(Note A) . . . . . . . . . . . . . . . . . . . . . . $ 699,647,413
Cash . . . . . . . . . . . . . . . . . . . . . . . . . 3,287,219
Receivables:
Investments sold . . . . . . . . . . . . . . . . . . 5,693,914
Interest . . . . . . . . . . . . . . . . . . . . . . 11,694,670
Fund shares sold . . . . . . . . . . . . . . . . . . 1,142,665
-------------
Total assets . . . . . . . . . . . . . . . . . . 721,465,881
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . $ 3,229,846
When-issued and forward delivery securities (Note A) 10,555,238
Dividends . . . . . . . . . . . . . . . . . . . . . 1,327,105
Fund shares redeemed . . . . . . . . . . . . . . . . 4,456,684
Accrued management fee (Note C) . . . . . . . . . . 309,717
Accrued expenses (Note C) . . . . . . . . . . . . . 150,278
------------
Total liabilities . . . . . . . . . . . . . . . . 20,028,868
-------------
Net assets, at market value . . . . . . . . . . . . . . $ 701,437,013
=============
NET ASSETS
Net assets consist of:
Net unrealized depreciation on investments . . . . . $ (23,833,599)
Accumulated net realized loss . . . . . . . . . . . (85,031)
Shares of beneficial interest . . . . . . . . . . . 674,861
Additional paid-in capital . . . . . . . . . . . . . 724,680,782
-------------
Net assets, at market value . . . . . . . . . . . . . . $ 701,437,013
=============
NET ASSET VALUE, offering and redemption price per
share ($701,437,013 -:- 67,486,134 outstanding
shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) . . . . . . $10.39
======
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- --------------------------------------------------------------------------------
<CAPTION>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . $ 49,170,281

Expenses:
Management fee (Note C) . . . . . . . . . . . $4,150,246
Services to shareholders (Note C) . . . . . . 744,148
Trustees' fees (Note C) . . . . . . . . . . . 36,460
Custodian fees . . . . . . . . . . . . . . . 234,977
Reports to shareholders . . . . . . . . . . . 158,229
Legal . . . . . . . . . . . . . . . . . . . . 25,015
Auditing . . . . . . . . . . . . . . . . . . 47,713
State registration . . . . . . . . . . . . . 46,902
Other . . . . . . . . . . . . . . . . . . . . 82,617 5,526,307
---------- ------------
Net investment income . . . . . . . . . . . . 43,643,974
------------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS
Net realized gain on investments . . . . . . 1,334,624
Net unrealized depreciation on investments
during the period . . . . . . . . . . . . (81,623,664)
------------
Net loss on investments . . . . . . . . . . . (80,289,040)
------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS . . . . . . . . . . . . . . . . $(36,645,066)
============
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . $ 43,643,974 $ 47,547,165
Net realized gain from investments . . . . . . 1,334,624 7,169,142
Net unrealized appreciation (depreciation)
on investments during the period . . . . . . (81,623,664) 35,118,275
-------------- --------------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . (36,645,066) 89,834,582
Distributions to shareholders: -------------- --------------
From net investment income ($.53 and $.60 per
share, respectively) . . . . . . . . . . . . (43,643,974) (47,547,165)
From net realized gains from investment -------------- --------------
transactions ($.05 and $.06 per share,
respectively) . . . . . . . . . . . . . . . (3,856,845) (5,211,174)
-------------- --------------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . 242,143,475 642,445,394
Net asset value of shares issued to
shareholders in reinvestment of
distributions . . . . . . . . . . . . . . . 30,767,915 32,691,411
Cost of shares redeemed . . . . . . . . . . . . (504,752,983) (355,778,251)
-------------- --------------
Net increase (decrease) in net assets from
Fund share transactions . . . . . . . . . . (231,841,593) 319,358,554
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . (315,987,478) 356,434,797
Net assets at beginning of period . . . . . . . 1,017,424,491 660,989,694
-------------- --------------
NET ASSETS AT END OF PERIOD . . . . . . . . . . $ 701,437,013 $1,017,424,491
============== ==============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . . 89,545,863 60,842,736
-------------- -------------
Shares sold . . . . . . . . . . . . . . . . . . 22,098,846 57,535,746
Shares issued to shareholders in reinvestment
of distributions . . . . . . . . . . . . . . 2,858,978 2,916,150
Shares redeemed . . . . . . . . . . . . . . . . (47,017,553) (31,748,769)
-------------- -------------
Net increase (decrease) in Fund shares. . . . . (22,059,729) 28,703,127
-------------- -------------
Shares outstanding at end of period . . . . . . 67,486,134 89,545,863
============== =============

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
FINANCIAL HIGHLIGHTS

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.

<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period. . . . $11.36 $10.86 $10.62 $10.11 $10.04 $10.02 $10.07 $10.34 $10.03 $ 9.67
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income (a) .53 .60 .65 .67 .54 .56 .54 .54 .62 .68
Net realized and
unrealized gain
(loss) on investments. . (.92) .56 .27 .52 .07 .02 (.05) (.22) .41 .36
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations . . . . . . . (.39) 1.16 .92 1.19 .61 .58 .49 .32 1.03 1.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
From net investment
income . . . . . . . . . (.53) (.60) (.65) (.67) (.54) (.56) (.54) (.54) (.62) (.68)
From net realized
gains on investments . . (.05) (.06) (.03) (.01) -- -- -- (.05) (.10) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions. . . . (.58) (.66) (.68) (.68) (.54) (.56) (.54) (.59) (.72) (.68)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period. . . . . . $10.39 $11.36 $10.86 $10.62 $10.11 $10.04 $10.02 $10.07 $10.34 $10.03
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

<PAGE>

NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------

A. SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------------------------------------
Scudder Medium Term Tax Free Fund (the "Fund") is a diversified series of
Scudder Tax Free Trust, a Massachusetts business trust (the "Trust"), which is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The policies described below are followed
consistently by the Fund in the preparation of its financial statements in
conformity with generally accepted accounting principles.

SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the Officers of the
Fund, which prices reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. All other debt securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Trustees. Short-term
investments having a maturity of sixty days or less are valued at amortized
cost.

WHEN-ISSUED AND FORWARD DELIVERY SECURITIES. The Fund may purchase securities
on a when-issued or forward delivery basis, for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
take place at a later time. At the time the Fund makes the commitment to
purchase a security on a when-issued or forward delivery basis, it will record
the transaction and reflect the value of the security in determining its net
asset value. During the period between purchase and settlement, no payment is
made by the Fund to the issuer and no interest accrues to the Fund. At the time
of settlement, the market value of the security may be more or less than the
purchase price.

AMORTIZATION AND ACCRETION. All premiums and original issue discounts are
amortized/accreted for both tax and financial reporting purposes.

FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies and to distribute all of its taxable and tax-exempt income to its
shareholders. The Fund accordingly paid no federal income taxes and no
provision for federal income taxes was required.

<PAGE>
SCUDDER MEDIUM TERM TAX FREE FUND
- ------------------------------------------------------------------------------

DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of the Fund
is declared as a dividend to shareholders of record as of the close of business
each day and is paid to shareholders monthly. During any particular year, net
realized gains from investment transactions, in excess of available capital
loss carryforwards, would be taxable to the Fund if not distributed and,
therefore, will be distributed to shareholders. An additional distribution may
be made to the extent necessary to avoid the payment of a four percent federal
excise tax.

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.
These differences relate primarily to investments in futures and certain
securities sold at a loss. As a result, net investment income and net realized
gain (loss) on investment transactions for a reporting period may differ
significantly from distributions during such period. Accordingly, the Fund may
periodically make reclassifications among certain of its capital accounts
without impacting the net asset value of the Fund.

The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.

OTHER. Investment transactions are accounted for on a trade date basis.
Interest income is accrued pro rata to the earlier of call or maturity.

B. PURCHASES AND SALES OF SECURITIES
- ------------------------------------------------------------------------------
For the year ended December 31, 1994 purchases and sales of investments
(excluding short-term) aggregated $289,648,447 and $518,018,713, respectively.

C. RELATED PARTIES
- ------------------------------------------------------------------------------
Under the Management Agreement (the "Management Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment objective, policies, and
restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides
certain administrative services in accordance with the Management Agreement.

<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

The management fee payable under the Management Agreement is equal to an annual
rate of 0.60% of the first $500,000,000 of the Fund's average daily net assets
and 0.50% of such assets in excess of $500,000,000 computed and accrued daily
and payable monthly. The Management Agreement provides that if the Fund's
expenses, exclusive of taxes, interest, and extraordinary expenses, exceed
specified limits, such excess, up to the amount of the management fee, will be
paid by the Adviser. In addition, for the period January 1, 1994 to April 30,
1994 the Adviser voluntarily agreed to maintain the total annualized expenses
of the Fund at 0.50% of average daily net assets of the Fund. Effective May 1,
1994, the Adviser agreed to maintain the annualized expenses at 0.70% until
April 30, 1995. For the year ended December 31, 1994, the management fee
aggregated $4,920,420 of which $770,174 was not imposed and $309,717 is unpaid
at December 31, 1994.

Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
For the year ended December 31, 1994 the amount charged to the Fund by SSC
amounted to $554,165 of which $40,709 is unpaid at December 31, 1994.

The Fund pays each Trustee not affiliated with the Adviser $4,000 annually,
plus specified amounts for attended board and committee meetings. For the year
ended December 31, 1994, Trustees' fees aggregated $36,460.

<PAGE>
SCUDDER MEDIUM TERM TAX FREE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------

TO THE TRUSTEES OF SCUDDER TAX FREE TRUST AND THE SHAREHOLDERS OF SCUDDER
MEDIUM TERM TAX FREE FUND:

We have audited the accompanying statement of assets and liabilities of Scudder
Medium Term Tax Free Fund, including the investment portfolio, as of December
31, 1994, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the ten years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Medium Term Tax Free Fund as of December 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the ten years in the period then ended in conformity with generally accepted
accounting principles.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 10, 1995

<PAGE>
TAX INFORMATION
- ------------------------------------------------------------------------------

By now shareholders for whom year-end tax reporting is required by the IRS
should have received their Form 1099-DIV and tax information letter from the
Fund.

Of the dividends paid from net investment income for the fiscal year ended
December 31, 1994, $43,643,974 were exempt interest dividends which are tax
exempt for regular federal income tax purposes, and are not an item of tax
preference for purposes of the federal alternative minimum tax, if applicable.

Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$1,734,414 as capital gain dividends for the year ended December 31, 1994.

<PAGE>

OFFICERS AND TRUSTEES

David S. Lee*
President and Trustee

Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director

Peter B. Freeman
Trustee; Corporate Director and Trustee

Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern
University College of Business Administration

Juris Padegs*
Trustee

Jean C. Tempel
Trustee; Director and Executive Vice President, Safeguard
Scientifics, Inc.

Donald C. Carleton*
Vice President

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

Edward J. O'Connell*
Vice President and Assistant Treasurer

Coleen Downs Dinneen*
Assistant Secretary

* Scudder, Stevens & Clark, Inc.

INVESTMENT PRODUCTS AND SERVICES

The Scudder Family of Funds

Money market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund

Tax free money market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*

Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan+++* (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans

Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++

For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus.
Read it carefully before you invest or send money. +A portion of the
income from the tax-free funds may be subject to federal, state and
local taxes. *Not available in all states. +++A no-load variable
annuity contract provided by Charter National Life Insurance Company
and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark,
Inc., are traded on various stock exchanges. ++For information on
Scudder Treasurers Trust(tm), an institutional cash management service
that utilizes certain portfolios of Scudder Fund, Inc. ($100,000
minimum), call: 1-800-541-7703.

HOW TO CONTACT SCUDDER

Account Service and Information

For existing account service and transactions

SCUDDER INVESTOR RELATIONS
1-800-225-5163

For account updates, prices, yields, exchanges and redemptions

SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890

Investment Information

To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions

SCUDDER INVESTOR RELATIONS
1-800-225-2470

For establishing 401(k) and 403(b) plans

SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105

Please address all correspondence to

THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291

Or stop by a Scudder Funds Center

Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can
be found in the following cities:

Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale

For information on Scudder Institutional Funds,* funds designed to
meet the broad investment management and service needs of banks and
other institutions, call:
1-800-854-8525.

Scudder Investor Relations and Scudder Funds Centers are services
provided through Scudder Investor Services, Inc., Distributor.

* Contact Scudder Investor Services, Inc., Distributor, to receive
a prospectus with more complete information, including management
fees and expenses. Please read it carefully before you invest or
send money.

Celebrating 75 Years of Serving Investors

Established in 1919 by Theodore Scudder, Sidney Stevens, and F.
Haven Clark, Scudder, Stevens & Clark was the first independent
investment counsel firm in the United States. Since its birth,
Scudder's pioneering spirit and commitment to professional long-term
investment management have helped shape the investment industry. In
1928, we introduced the nation's first no-load mutual fund. Today we
offer 36 pure no load(tm) funds, including the first international
mutual fund offered to U.S. investors.

Over the years, Scudder's global investment perspective and
dedication to research and fundamental investment disciplines have
helped Scudder become one of the largest and most respected investment
managers in the world. Though times have changed since our beginnings,
we remain committed to our longstanding principles: managing money
with integrity and distinction, keeping the interests of our clients
first; providing access to investments and markets that may not be
easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
<PAGE>

This information must be preceded or accompanied by a current prospectus.

Portfolio changes should not be considered recommendations for action by
individual investors.

Scudder Managed Municipal Bonds

Annual Report
December 31, 1994

* Offers opportunity for tax-free income by investing primarily in
high-grade, long-term municipal securities.

* A pure no-load(tm) fund with no commissions to buy, sell, or exchange
shares.

CONTENTS

2 Highlights
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Investment Portfolio
20 Financial Statements
23 Financial Highlights
24 Notes to Financial Statements
27 Report of Independent Accountants
28 Tax Information
29 Officers and Trustees
30 Investment Products and Services
31 How to Contact Scudder

HIGHLIGHTS

* Reflecting steadily rising interest rates, the federally tax-free
(30-day net annualized) yield of Scudder Managed Municipal Bonds
increased to 5.79% on December 31, 1994, from 4.66% on December 31,
1993.

The Fund's Yield and Taxable Equivalent Yields as of December 31, 1994

Taxable-Equivalent
Tax-Free Yield at 36% Tax Taxable-Equivalent Yield at
Yield Bracket 39.6% Tax Bracket
------ ------------------ ---------------------------
5.79% 9.05% 9.59%

* For investors in the top federal tax brackets of 39.6% and 36%, the
Fund's 5.79% tax-free yield as of December 31, 1994, was equivalent to
a 9.59% and 9.05% taxable yield, respectively.

* Following 12 consecutive years of positive performance, the Fund's
total return for 1994 was -6.04%, during a year of negative returns
for most fixed-income investments.

* Worthy of mention, the Fund outpaced its peer group average over the
one-, two-, three-, four-, five-, and 10-year periods through December
31, 1994, according to Lipper Analytical Services. Please see page 6
for additional Lipper performance information.

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

But current global economic trends also will bring occasional episodes
of difficult adjustment for the financial markets. At times like these, it
is essential to have a sound investment plan in place that can weather
market storms. For many investors, such a plan includes current income free
from state and/or federal taxes, in addition to the traditional benefits of
mutual funds -- diversification, liquidity, dividend reinvestment, and
professional management.

If you have questions about your Scudder fund, please call Scudder
Investor Relations at 1-800-225-2470. Page 31 provides more information on
how to contact Scudder. Thank you for choosing Scudder Managed Municipal
Bonds to help meet your investing needs.

Sincerely,

/s/David S. Lee
David S. Lee
President,
Scudder Managed Municipal Bonds

<PAGE>

PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,

During a difficult period for bond investors, Scudder Managed
Municipal Bonds posted a -6.04% total return for its fiscal year ended
December 31, 1994. By comparison, the total return of the unmanaged Lehman
Brothers Municipal Bond Index was -5.17%. The Fund's total return includes
price change and reinvested distributions. Consistent with the weakness in
the overall municipal market, the Fund's share price fell to $8.07 at year
end, from $9.09 on December 31, 1993. Offsetting this decline somewhat, the
Fund distributed per share $0.46 in income and $0.02 in capital gain
distributions to shareholders. Reflecting the year's rise in interest
rates, Scudder Managed Municipal Bonds provided a 30-day net annualized
yield of 5.79% as of December 31, 1994, versus 4.66% at the close of 1993.
For investors in the 36% federal income tax bracket, the Fund's yield was
equivalent to a 9.05% taxable yield.

Though Scudder Managed Municipal Bonds' recent performance is well
below returns you have enjoyed in the past, the Fund has consistently
outpaced the average performance of similar funds, as compiled by Lipper
Analytical Services. Please turn to the Performance Update on page 4 for
more information on the Fund's long-term progress, including comparisons to
the Lehman Brothers Municipal Bond Index.

Scudder Managed Municipal Bonds' Average Annual Return Versus That of All
General Municipal Bond Funds
(Returns for periods ended December 31, 1994)

<TABLE>
<CAPTION>
Scudder
Managed
Municipal Number of Funds
Period Bonds Lipper Average Tracked
- -------- --------- ---------------- ---------------
<S> <C> <C> <C>
1 year -6.04% -6.53% 184
2 years 3.19 2.58 127
3 years 5.08 4.59 110
4 years 6.82 6.43 100
5 years 6.81 6.33 88
10 years 9.10 8.95 51
</TABLE>

Source: Lipper Analytical Services, Inc. Lipper is an independent analyst
of investment performance. Performance is historical and not indicative of
future results.

Mixed Market Influences

(BAR CHART TITLE) Supply of New Municipal Issues (in billions)
(CHART DATA)
<TABLE>
<CAPTION>
<S> <C>
1993 292
1994 163
1995 135*
</TABLE>

*Estimated

On the unfavorable list of developments was the Orange County,
California, financial crisis, which occurred after the county's investment
fund sustained significant losses. In short, Orange County's investment
fund managers had borrowed heavily in recent years to purchase bonds in the
belief that long-term interest rates would continue to decline -- even
during 1994 when rates were on the rise. We are pleased to report that
Scudder Managed Municipal Bonds held no direct or indirect investments in
Orange County when the County declared bankruptcy. The crisis therefore had
no major impact on the Fund, other than temporarily pushing down the prices
of California municipal bonds in general.

Portfolio Review

Scudder Managed Municipal Bonds' overall investment strategy hasn't
changed, despite the challenges of the past year. In conjunction with our
primary goals -- maximizing the Fund's yield while maintaining as much price
stability as possible -- we have continued to purchase high-grade,
longer-term municipal bonds. On December 31, bonds with effective
maturities between 10 and 20 years represented approximately 56% of the
Fund's portfolio. We believe bonds in this maturity range offer attractive
value, providing nearly as much yield as bonds with longer (30-year)
maturities -- and with less price volatility. Also, we are in the process of
making some shifts in maturity structure to de-emphasize shorter-term bonds
in the coming months, especially those in the three- to seven-year range.
If interest rates do rise further in 1995, these bonds will be impacted
most strongly.

Diversification among our holdings remains an important strategy for
Scudder Managed Municipal Bonds, because it allows us to spread the
portfolio's risk over a large number of geographic areas, bond sectors, and
maturities. The Fund held securities issued in 29 states plus the District
of Columbia as of December 31, 1994. In addition, Fund assets were
distributed among electric utility revenue bonds, general obligation bonds,
lease rentals, and several other sectors. And portfolio quality remains
high, with approximately 73% of Fund assets rated AAA, AA, or the
equivalent. In fact, the Fund does not hold any bonds rated below
investment grade. Securities are rated by Standard & Poor's, Moody's
Investors Service, Fitch Investors Service, or assigned an equivalent
rating by Scudder. The Portfolio Summary on page 5 provides more
information about the Fund's holdings, including quality, maturity, and
sector representation.

Call protection also remains part of our long-term strategy for the
Fund. When long-term interest rates on municipal bonds are declining, as
they were in the three years prior to 1994, we believe it is important that
a significant portion of the Fund's bonds be protected from being called in
by their issuers before maturity. (Generally, a bond is called in by its
issuer so that it can be refinanced at a lower prevailing rate.) We feel
our call-protection strategy provides a more reliable income stream than
would exist if the portfolio held significant amounts of high-yielding
bonds that could be called in before their stated maturity date. In the
current environment of rising rates, we continue to rely on call-protected
bonds for their more stable characteristics, and because at present we
believe they represent good value.

Outlook for 1995

We believe a combination of continued economic growth and restrained
inflation will characterize 1995. Even so, the Federal Reserve will be
watching carefully for economic statistics that carry additional
inflationary warning signs. As of this writing, the Fed seems prepared to
increase short-term interest rates one or two more times in 1995 as needed.
Additional Fed actions increase the likelihood that economic growth will be
subdued as early as 1996 -- a scenario that historically has boded well for
bonds. Though there is room in 1995 for short- and intermediate-term rates
to rise further, we believe long-term interest rates will stabilize and
remain within a fairly tight range for most of this year. Such an
environment would enable the Fund to capture higher long-term tax-free bond
yields with less share price volatility than was the case last year. Our
strategy reflects our ongoing commitment to seek high relative tax-free
income and competitive total returns.

Sincerely,

Your Portfolio Management Team

/s/Donald C. Carleton /s/Philip G. Condon
Donald C. Carleton Philip G. Condon

Scudder Managed Municipal Bonds: A Team Approach to Investing

Scudder Managed Municipal Bonds is managed by a team of Scudder
investment professionals who each play an important role in the Fund's
management process. Team members work together to develop investment
strategies and select securities for the Fund's portfolio. They are
supported by Scudder's large staff of economists, research analysts,
traders, and other investment specialists who work in our offices across
the United States and abroad. We believe our team approach benefits Fund
investors by bringing together many disciplines and leveraging Scudder's
extensive resources.

Lead Portfolio Manager Donald C. Carleton has had responsibility for
Scudder Managed Municipal Bonds' day-to-day operations since 1986 and
joined Scudder in 1983. Don, who has more than 25 years of experience in
the investment industry, also serves as Lead Portfolio Manager for Scudder
Medium Term Tax Free Fund and as a Portfolio Manager of Scudder California
and New York Tax Free Funds and Scudder Tax Free Money Fund. Philip G.
Condon, Portfolio Manager, became a member of the team in 1988 and has
worked at Scudder since 1983. Phil, who has more than 15 years of
experience in municipal investing, also is Lead Portfolio Manager of
Scudder High Yield Tax Free Fund and Scudder Massachusetts Tax Free Fund,
and is a Portfolio Manager of Scudder Ohio and Pennsylvania Tax Free Funds.

<PAGE>

<TABLE>
SCUDDER MANAGED MUNICIPAL BONDS
INVESTMENT PORTFOLIO as of December 31, 1994
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Market
Amount ($) Rating (c) Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0.5% SHORT-TERM MUNICIPAL INVESTMENTS
-----------------------------------------------------------------------------------------
CALIFORNIA Southern California Public Power Authority,
Power Project Revenue Refunding, Palo Verde,
Auction Reset, 3.5%, 7/1/12* (b) (d)
(Cost $3,350,000) . . . . . . . . . . . . . . . 3,350,000 AAA 3,350,000
-----------
99.5% LONG-TERM MUNICIPAL INVESTMENTS
-----------------------------------------------------------------------------------------
ALASKA North Slope Borough, AK, General Obligation:
Series B, Zero Coupon, 1/1/03 (d) . . . . . . . 8,000,000 AAA 4,878,085
Series B, Zero Coupon, 6/30/04 (d) . . . . . . 15,000,000 AAA 8,230,948
Series B, Zero Coupon, 6/30/05 (d) . . . . . . 18,200,000 AAA 9,341,878
Series I, 6.6%, 6/30/96 (d) . . . . . . . . . . 1,000,000 AAA 1,017,320

ARIZONA Maricopa County, AZ, School District #28,
Kyrene Elementary School, Series B,
Zero Coupon, 1/1/06 (d) . . . . . . . . . . . . 4,905,000 AAA 2,434,695
Paradise Valley, AZ, Unified School District #69,
Maricopa County, Zero Coupon, 7/1/02 (d) . . . 2,100,000 AAA 1,344,966

ARKANSAS Arkansas Development Finance Authority,
Single Family Mortgage Revenue, Series B,
7.7%, 12/1/14 . . . . . . . . . . . . . . . . . 2,870,000 A 2,909,175

CALIFORNIA California General Obligation:
6.25%, 10/1/07 (d) . . . . . . . . . . . . . . 4,000,000 AAA 4,027,440
6.25%, 4/1/08 (d) . . . . . . . . . . . . . . . 5,000,000 AAA 4,999,300
6.6%, 2/1/09 (d) . . . . . . . . . . . . . . . 15,600,000 AAA 15,972,996
California Housing Finance Agency, Multi-Unit
Rental Housing, Series A, 7.7%, 8/1/10 . . . . 1,000,000 A 1,053,890
California State Public Works Board Lease Revenue:
Department of Corrections, Del Norte/Imperial,
Series C, 4.875%, 12/1/06 (d) . . . . . . . . 10,250,000 AAA 8,805,980
Regents of The University of California,
Series A, 5.5%, 6/1/14 . . . . . . . . . . . . 9,350,000 A 7,829,036
California Statewide Community Development
Corporation, Certificate of Participation,
Lutheran Homes, 5.5%, 11/15/08 . . . . . . . . 2,250,000 A 1,953,247
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
INVESTMENT PORTFOLIO
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Market
Amount ($) Rating (c) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Los Angeles County, CA, Certificate of Participation,
Disney Package:
Zero Coupon, 9/1/07 . . . . . . . . . . . . . . . . 4,030,000 A 1,644,764
Zero Coupon, 9/1/09 . . . . . . . . . . . . . . . . 5,425,000 A 1,895,007
Los Angeles County, CA, Public Works Financing
Authority, Capital Construction, 5%, 3/1/06. . . . . . 5,850,000 AA 5,168,826
San Joaquin, CA, Certificate of Participation,
County Public Facilities Project, 5.5%, 11/15/13 (d) . 3,895,000 AAA 3,316,748
San Jose, CA, Redevelopment Agency, Merged
Area Redevelopment Project, Tax Allocation, 6%,
8/1/08 (d) . . . . . . . . . . . . . . . . . . . . . 1,500,000 AAA 1,461,870

COLORADO Colorado Housing Finance Authority Revenue,
Series A:
8.1%, 10/1/05 . . . . . . . . . . . . . . . . . . . 2,030,000 AA 2,252,346
8.15%, 10/1/06 . . . . . . . . . . . . . . . . . . . 2,145,000 AA 2,384,983
8.25%, 10/1/10 . . . . . . . . . . . . . . . . . . . 1,940,000 AA 2,141,197
8.25%, 10/1/11 . . . . . . . . . . . . . . . . . . . 1,680,000 AA 1,848,874
8.25%, 10/1/12 . . . . . . . . . . . . . . . . . . . 1,945,000 AA 2,134,307
Colorado Housing Finance Authority Revenue,
Multi-Family Mortgage, Series A:
8.2%, 10/1/08 . . . . . . . . . . . . . . . . . . . 2,510,000 AA 2,788,610
8.2%, 10/1/09 . . . . . . . . . . . . . . . . . . . 2,725,000 AA 3,008,209
8.15%, 10/1/07 . . . . . . . . . . . . . . . . . . . 2,320,000 AA 2,578,054
Colorado Tax and Revenue Anticipation Note,
4.5%, 6/27/95 . . . . . . . . . . . . . . . . . . . . 3,500,000 MIG1 3,495,765
Denver, CO, City and County Airport Revenue,
8.875%, 8/1/15 . . . . . . . . . . . . . . . . . . . 1,200,000 BBB 1,220,280

CONNECTICUT Connecticut Development Authority, Airport Facilities,
Windsor Locks Hotel, Series A, 5.8%, 10/1/25. . . . . 3,000,000 AA 2,990,430

DISTRICT OF COLUMBIA District of Columbia, Certificate of Participation,
Series 1993, 6.875%, 1/1/03 . . . . . . . . . . . . . 2,500,000 BBB 2,461,625
District of Columbia, General Obligation:
Series B, Zero Coupon, 6/1/03 (d) . . . . . . . . . . 2,000,000 AAA 1,183,680
5.3%, 6/1/05 (d) . . . . . . . . . . . . . . . . . . 1,350,000 AAA 1,207,939
Series A,5.875%, 6/1/05 (d) . . . . . . . . . . . . . 3,300,000 AAA 3,147,837
Series B, 5.5%, 6/1/07 (d) . . . . . . . . . . . . . 1,000,000 AAA 910,050

FLORIDA Dade County, FL, Aviation Department,
Series K, 9.6%, 10/1/05 . . . . . . . . . . . . . . . 2,500,000 A 2,506,800
Florida Housing Finance Revenue, Home
Ownership Mortgage Revenue, GNMA Backed, "A",
8.595%, 8/1/95 . . . . . . . . . . . . . . . . . . . 3,020,000 AAA 3,110,600
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
SCUDDER MANAGED MUNICIPAL BONDS
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Market
Amount ($) Rating (c) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GEORGIA Burke County, GA, Development Authority, Pollution
Control Revenue, Ogelthorpe Power Corp.,
Vogtle Project, 7.7%, 1/1/06 (d) . . . . . . . . . 11,000,000 AAA 12,312,520
Monroe County, GA, Development Authority,
Pollution Control, Ogelthorpe Power Corporation,
Scherer Project, 6.7%, 1/1/09 . . . . . . . . . . . 3,255,000 AA 3,260,826
Municipal Electric Authority of Georgia,
Power Revenue:
Series V, 6.5%, 1/1/12 . . . . . . . . . . . . . . 5,000,000 AA 5,005,100
4th Crossover, Series X, Project #1, 6.5%, 1/1/12. 3,500,000 AA 3,408,790

HAWAII City and County of Honolulu, HI, General Obligation,
Series 1990 A,Refunding Bond, 7.25%, 7/1/02 . . . . 1,500,000 AA 1,629,810

ILLINOIS Central Lake County, IL, Joint Action Water System
Revenue, Zero Coupon, 5/1/04 (d) . . . . . . . . . 2,445,000 AAA 1,370,398
Chicago, IL, General Obligation, Emergency
Telephone System, 5.6%, 1/1/09 (d) . . . . . . . . 7,200,000 AAA 6,505,920
Chicago, IL, General Obligation Lease, Board of
Education, Series A, 6.25%, 1/1/15 (d) . . . . . . 2,725,000 AAA 2,599,568
Chicago, IL, Motor Fuel Tax Revenue,
5.375%, 1/1/14 (d) . . . . . . . . . . . . . . . . 5,000,000 AAA 4,260,500
Chicago, IL, Public Building Commission, Building
Revenue, Series A:
5.25%, 12/1/07 (d) . . . . . . . . . . . . . . . . 5,000,000 AAA 4,467,050
5.25%, 12/1/08 (d) . . . . . . . . . . . . . . . . 2,655,000 AAA 2,336,134
Chicago, IL, Wastewater Transmission,
5.375%, 1/1/13 (d) . . . . . . . . . . . . . . . . 2,000,000 AAA 1,728,980
Du-Page, IL, Industrial Development Revenue,
Weyerhaeuser Company Project, Series 1983,
8.65%, 11/1/08 . . . . . . . . . . . . . . . . . . 3,600,000 NR 3,705,984
Illinois Development Finance Authority Refunding
Revenue, Commonwealth Edison Company,
5.85%, 1/15/14 . . . . . . . . . . . . . . . . . . 5,000,000 BBB 4,206,050
Illinois Educational Facilities Authority,
Loyola University, Zero Coupon, 7/1/05 (d) . . . . . 3,100,000 AAA 1,599,879
Illinois Health Facilities Authority:
Delnor Community Hospital, 5.5%, 5/15/13 (d) . . . . 1,500,000 AAA 1,297,020
Memorial Medical Center-Springfield,
5.25%, 10/1/09 (d) . . . . . . . . . . . . . . . . 1,000,000 AAA 859,450
Illinois State Sales Tax Revenue, Series P,
6.5%, 6/15/13 . . . . . . . . . . . . . . . . . . . 2,100,000 AAA 2,055,795
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
INVESTMENT PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
----------
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Northern Illinois University, Board of Regents,
Series 1992, Zero Coupon:
4/1/05 (d) . . . . . . . . . . . . . . . . . . 1,865,000 AAA 977,782
10/1/05 (d) . . . . . . . . . . . . . . . . . 1,865,000 AAA 947,457
4/1/06 (d) . . . . . . . . . . . . . . . . . . 1,865,000 AAA 911,108
10/1/06 (d) . . . . . . . . . . . . . . . . . 1,865,000 AAA 882,555
4/1/07 (d) . . . . . . . . . . . . . . . . . . 1,865,000 AAA 847,829
10/1/07 (d) . . . . . . . . . . . . . . . . . 1,865,000 AAA 820,973
Northwest Suburban Municipal Joint Action Water
Agency, IL, ETM, 6.5%, 5/1/15** . . . . . . . . 2,000,000 AAA 1,966,560
Oak Lawn, IL, Water and Sewer Revenue,
Series A, Zero Coupon:
10/1/03 (d) . . . . . . . . . . . . . . . . . 1,295,000 AAA 758,352
10/1/04 (d) . . . . . . . . . . . . . . . . . 1,295,000 AAA 707,316
10/1/05 (d) . . . . . . . . . . . . . . . . . 1,295,000 AAA 657,886
10/1/06 (d) . . . . . . . . . . . . . . . . . 1,295,000 AAA 612,820
Rosemont, IL, Zero Coupon:
Tax Increment, 12/1/04 (d) . . . . . . . . . . 6,000,000 AAA 3,243,480
Tax Increment-3, Series C, 12/1/05 (d) . . . . 7,060,000 AAA 3,549,203
State University Retirement System, IL, Special
Revenue, Zero Coupon, 10/1/05 (d) . . . . . . . 7,000,000 AAA 3,556,140
University of Chicago, IL, Hospital Refunding,
5.5%, 8/15/08 (d) . . . . . . . . . . . . . . . 2,500,000 AAA 2,242,700
Will County, IL, School District #201-U, Crete
Monee, Zero Coupon, 12/15/06 (d) . . . . . . . . 3,725,000 AAA 1,739,799
Winnebago County, IL, School District #122:
6.55%, 6/1/09 (d) . . . . . . . . . . . . . . . 1,675,000 AAA 1,695,150
6.55%, 6/1/10 (d) . . . . . . . . . . . . . . . 1,825,000 AAA 1,837,173

INDIANA Indiana Health Facilities Finance Authority,
Hospital Revenue, Ancilla Systems Inc.,
Series A, 6%, 7/1/18 (d) . . . . . . . . . . . 3,965,000 AAA 3,591,100
Indiana Municipal Power Agency, Power Supply
System, Series B:
6%, 1/1/12 (d) . . . . . . . . . . . . . . . . 1,750,000 AAA 1,647,047
5.5%, 1/1/16 (d) . . . . . . . . . . . . . . . 24,860,000 AAA 21,447,717
Indiana Transportation Finance Authority, Highway
Revenue, Series A:
5.75%, 6/1/12 (d) . . . . . . . . . . . . . . 5,000,000 AAA 4,544,300
5.25%, 6/1/15 (d) . . . . . . . . . . . . . . 10,330,000 AAA 8,625,653
Porter County, IN, Hospital Authority, Porter
Memorial Hospital, Series 1993:
5.3%, 6/1/06 (d) . . . . . . . . . . . . . . . 1,570,000 AAA 1,437,445
5.4%, 6/1/07 (d) . . . . . . . . . . . . . . . 1,660,000 AAA 1,509,886
5.4%, 6/1/08 (d) . . . . . . . . . . . . . . . 1,750,000 AAA 1,569,155
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER MANAGED MUNICIPAL BONDS
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------------
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOUISIANA Bastrop, LA, Industrial Development Board Pollution
Control Revenue, International Paper Company
Project, 6.9%, 3/1/07 . . . . . . . . . . . . . . . 16,750,000 A 17,204,931
New Orleans, LA, General Obligation, Zero Coupon:
9/1/05 (d) . . . . . . . . . . . . . . . . . . . . 7,500,000 AAA 3,862,050
9/1/06 (d) . . . . . . . . . . . . . . . . . . . . 15,775,000 AAA 7,572,947
West Feliciana Parish, LA, Pollution Control
Revenue, Gulf States Utility Project,
Series A, 10.625%, 5/1/14 . . . . . . . . . . . . . 6,500,000 AA 6,715,410

MAINE Maine Housing Authority, Mortgage Purchase
Revenue, 1987 Series A2, 7.65%, 11/15/15 . . . . . . 2,345,000 A 2,372,061

MARYLAND Northeast Maryland Waste Disposal Authority,
Southwest Resource Recovery System Revenue:
6.85%, 1/1/99 (d) . . . . . . . . . . . . . . . . 1,925,000 AAA 2,008,064
6.9%, 1/1/00 (d) . . . . . . . . . . . . . . . . . 3,195,000 AAA 3,345,708
7.2%, 1/1/06 (d) . . . . . . . . . . . . . . . . . 3,440,000 AAA 3,699,961
7.2%, 1/1/07 (d) . . . . . . . . . . . . . . . . . 3,390,000 AAA 3,618,350

MASSACHUSETTS Lowell, MA, Bond Anticipation Note,
4.625%, 3/1/95 . . . . . . . . . . . . . . . . . . . 2,550,000 AA 2,551,071
Massachusetts Bay Transportation Authority,
General Transportation System:
5.25%, 3/1/06 (d) . . . . . . . . . . . . . . . . 7,500,000 AAA 6,868,950
6.2%, 3/1/16 . . . . . . . . . . . . . . . . . . . 2,500,000 A 2,359,375
Massachusetts College Building Authority, Series A:
7.5%, 5/1/10 . . . . . . . . . . . . . . . . . . . 4,110,000 A 4,433,827
7.5%, 5/1/14 . . . . . . . . . . . . . . . . . . . 3,750,000 A 4,119,450
Massachusetts General Obligation:
6.5%, 5/1/05 (d) . . . . . . . . . . . . . . . . . 1,000,000 AAA 1,020,630
Series B, 5.3%, 11/1/06 (d) . . . . . . . . . . . . 4,000,000 AAA 3,663,200
Massachusetts Port Authority, Series B,
9.375%, 7/1/15 . . . . . . . . . . . . . . . . . . 1,155,000 AA 1,201,061
Massachusetts Water Resource Authority:
Series A, 6.5%, 7/15/09 . . . . . . . . . . . . . . 7,625,000 A 7,589,239
Series A, 6.5%, 7/15/19 . . . . . . . . . . . . . . 13,445,000 A 12,981,685
Series C, 6%, 12/1/11 . . . . . . . . . . . . . . . 10,000,000 A 9,344,900
New England Education Loan Marketing Corporation,
Student Loan Revenue Refunding,
Series F, 4.75%, 7/1/98 . . . . . . . . . . . . . . 5,000,000 A 4,744,500

MICHIGAN Michigan Strategic Fund, Limited Obligation,
Revenue Refunding, Ford Motor Company Project,
Series A, 7.1%, 2/1/06 . . . . . . . . . . . . . . . 3,000,000 A 3,104,430
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MONTANA Montana Board of Housing, Single-Family Program,
Federally Insured or Guaranteed Mortgage Loans,
Zero Coupon, 6/1/10 . . . . . . . . . . . . . . . 27,940,000 AA 5,484,902

NEVADA Nevada Housing Division:
Series A, Zero Coupon, 10/15/96 . . . . . . . . . 43,320,000 AA 4,151,356
Single Family Program, Series R, 5.95%, 4/1/05 . . 5,005,000 AA 4,760,155

NEW YORK Metropolitan Transportation Authority of New York,
Transit Facilities Revenue:
7%, 7/1/02 . . . . . . . . . . . . . . . . . . . 1,595,000 BBB 1,670,603
Service Contract, Series O, 5.75%, 7/1/13 . . . 6,775,000 BBB 5,903,667
New York City, General Obligation:
Series A, 6.37%, 8/1/04 . . . . . . . . . . . . . 5,000,000 A 4,886,050
Series B, 7.1%, 2/1/97 . . . . . . . . . . . . . 2,695,000 A 2,754,694
Series D, 7%, 8/1/02 . . . . . . . . . . . . . . 3,000,000 A 3,054,960
Series D, 7%, 8/1/02 (d) . . . . . . . . . . . . 3,250,000 AAA 3,450,330
Series E, 5.5%, 8/1/05 . . . . . . . . . . . . . 6,000,000 A 5,392,560
Series G, 5.25%, 8/1/03 . . . . . . . . . . . . . 1,250,000 A 1,115,000
Series H, 7.2%, 8/1/01 (d) . . . . . . . . . . . 2,260,000 AAA 2,453,230
Series H, 5.8%, 8/1/04 . . . . . . . . . . . . . 5,000,000 A 4,651,750
Series H, 7%, 2/1/05 . . . . . . . . . . . . . . 4,000,000 A 4,069,400
New York State Development Corporation,
Correctional Facilities Revenue Refunding,
Series A, 5.4%, 1/1/06 . . . . . . . . . . . . . 1,000,000 BBB 891,350
New York State Dormitory Authority:
City University System, Consolidated Revenue:
Series A, 5.75%, 7/1/06 . . . . . . . . . . . . 9,000,000 BBB 8,342,280
Series E, 5.75%, 7/1/06 . . . . . . . . . . . . 5,255,000 BBB 4,870,965
College and University Pooled Capital Program,
7.8%, 12/1/05 (d) . . . . . . . . . . . . . . . 4,955,000 AAA 5,344,067
State University Educational Facility Revenue:
Series A, 5.375%, 5/15/07 (d) . . . . . . . . . 5,000,000 AAA 4,576,100
Series B, 5.25%, 5/15/10 (d) . . . . . . . . . . 5,000,000 AAA 4,342,800
New York State Medical Care Facilities, Finance
Agency Revenue, Mount Sinai Hospital, Series 1983,
5.95%, 8/15/09 . . . . . . . . . . . . . . . . . 5,870,000 AAA 5,796,273
New York State Mortgage Agency Revenue, Home
Owner Mortgage, Series 00, 7.9%, 10/1/98 . . . . 415,000 AA 419,698
New York State Urban Development Corporation
Lease Revenue, Correctional Facilities, Series A:
5.3%, 1/1/05 . . . . . . . . . . . . . . . . . . 2,625,000 BBB 2,342,629
5.4%, 1/1/06 . . . . . . . . . . . . . . . . . . 5,000,000 BBB 4,456,750
5.45%, 1/1/07 . . . . . . . . . . . . . . . . . 6,475,000 BBB 5,736,526
5.1%, 1/1/08 . . . . . . . . . . . . . . . . . . 6,735,000 AAA 5,872,987
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
SCUDDER MANAGED MUNICIPAL BONDS
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Market
Amount ($) Rating (c) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NORTH CAROLINA North Carolina Eastern Municipal Power Agency:
Series A, 6.5%, 1/1/18 . . . . . . . . . . . . 4,000,000 A 3,645,840
Series C, 7%, 1/1/07 . . . . . . . . . . . . . 7,965,000 A 8,035,729
North Carolina Municipal Power Agency #1,
Catawba Electric Refunding Revenue:
5.25%, 1/1/09 . . . . . . . . . . . . . . . . 8,500,000 A 7,377,660
6.25%, 1/1/17 . . . . . . . . . . . . . . . . 2,700,000 A 2,502,819
5%, 1/1/18 (d) . . . . . . . . . . . . . . . . 7,805,000 AAA 6,220,975

RHODE ISLAND Rhode Island Convention Center Authority,
Refunding Revenue, 1993 Series B,
5.25%, 5/15/15 (d) . . . . . . . . . . . . . . 2,250,000 AAA 1,861,785
Rhode Island Housing and Mortgage Finance Corp.,
Home Ownership Opportunity Bond, Series 2,
7.5%, 9/1/95 . . . . . . . . . . . . . . . . . 2,690,000 AA 2,704,418

SOUTH CAROLINA Piedmont Municipal Power Agency, SC, Electric
Revenue, 5.5%, 1/1/10 (d) . . . . . . . . . . . 2,600,000 AAA 2,316,600

TENNESSEE Knox County, TN, Health, Education and Housing
Facilities Board, Fort Sanders Alliance,
7.25%, 1/1/09 (d) . . . . . . . . . . . . . . . 3,250,000 AAA 3,515,492

TEXAS Austin TX, Utility System Revenue Refunding,
Series A, Zero Coupon, 5/15/03 (d) . . . . . . 2,890,000 AAA 1,743,219
Dallas Fort Worth, International Airport, TX,
Revenue, Series A:
7.8%, 11/1/07 (d) . . . . . . . . . . . . . . 2,390,000 AAA 2,690,065
7.375%, 11/1/09 (d) . . . . . . . . . . . . . 4,500,000 AAA 4,837,905
7.375%, 11/1/11 (d) . . . . . . . . . . . . . 5,000,000 AAA 5,333,950
Harris County, TX, Toll and Sub Lien, Series A,
Zero Coupon, 8/15/04 (d) . . . . . . . . . . . 4,050,000 AAA 2,246,373
Harris County, Texas, Toll Road Revenue,
Subordinate Lien, General Obligation, Series A,
6.5%, 8/15/13 (d) . . . . . . . . . . . . . . . 4,000,000 AAA 3,982,520
Houston, TX, Water and Sewer System Authority,
Zero Coupon, 12/1/07 (d) . . . . . . . . . . . 3,400,000 AAA 1,495,626
Houston, TX, Water Conveyance System Contract,
Certificate of Participation, Series J, 6.125%,
12/15/05 (d) . . . . . . . . . . . . . . . . . 2,500,000 AAA 2,502,850
Lower Colorado River Authority, TX, Revenue
Refunding, Zero Coupon, 1/1/03 (d) . . . . . . 8,900,000 AAA 5,490,410
San Antonio, TX, Airport Systems Revenue
Refunding, 7%, 7/1/02 (d) . . . . . . . . . . . 1,695,000 AAA 1,811,972
San Antonio, TX, Electric and Gas, Revenue
Refunding, Series A, Zero Coupon, 2/1/05 (d) . . 7,000,000 AAA 3,763,480
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTAH Intermountain Power Agency, UT, Power Supply
Revenue:
Series C, 5.25%, 7/1/14 . . . . . . . . . . . . . 4,000,000 AA 3,320,640
Series I, Crossover Refunded, 9%, 7/1/19 . . . . . 2,175,000 AA 2,248,145
Salt Lake City, UT, Hospital Revenue,
Intermountain Health Care, Series 1992,
Inversed Inflow, 5.46%, 2/15/12*** . . . . . . . . 1,500,000 AA 1,318,440

VIRGINIA Virginia Beach, VA, Development Authority, Virginia
Beach General Hospital Project,
5.125%, 2/15/18 (d) . . . . . . . . . . . . . . . . 3,000,000 AAA 2,409,330

WASHINGTON Washington Healthcare Facilities Authority:
Empire Health Services-Spokane,
5.8%, 11/1/08 (d) . . . . . . . . . . . . . . . . 3,865,000 AAA 3,613,466
Franciscan Health System-St. Joseph's/Tacoma:
5.4%, 1/1/07 (d) . . . . . . . . . . . . . . . . . 2,000,000 AAA 1,831,080
5.4%, 1/1/08 (d) . . . . . . . . . . . . . . . . . 2,645,000 AAA 2,387,932
Sisters of St. Joseph of Peace, 5.3%, 3/1/09 (d) . . 4,315,000 AAA 3,778,085
Washington Public Power Supply System,
Nuclear Project #1, Revenue Refunding:
Series A, 7.15%, 7/1/02 (d) . . . . . . . . . . . 2,550,000 AAA 2,706,340
Series A, Zero Coupon, 7/1/07 (d) . . . . . . . . 8,570,000 AAA 3,833,704
Series A, 7%, 7/1/11 . . . . . . . . . . . . . . . 4,725,000 AA 4,765,966
Series B, 7.25%, 7/1/09 . . . . . . . . . . . . . 11,350,000 AA 11,763,026
Series B, 5.5%, 7/1/06 . . . . . . . . . . . . . . 4,915,000 AA 4,447,240
Washington Public Power Supply System,
Nuclear Project #2, Refunding Revenue:
Series A, 7.25%, 7/1/06 . . . . . . . . . . . . . 7,000,000 AA 7,420,630
Series A, 6%, 7/1/07 . . . . . . . . . . . . . . . 7,000,000 AA 6,646,220
Series B, 5.5%, 7/1/06 . . . . . . . . . . . . . . 4,000,000 AA 3,619,320
Series B, 7%, 7/1/12 . . . . . . . . . . . . . . . 11,385,000 AA 11,417,675
Series C, 7.2%, 7/1/99 . . . . . . . . . . . . . . 5,000,000 AA 5,239,550
Washington Public Power Supply System,
Nuclear Project #3, Refunding Revenue:
Series A, Zero Coupon, 7/1/06 (d) . . . . . . . . 1,380,000 AAA 663,518
Series B, 7.2%, 7/1/99 . . . . . . . . . . . . . . 1,000,000 AA 1,047,910
Series B, Prerefunded, 7.25%, 1/1/00 (e) . . . . . 5,000,000 AAA 5,417,600
Series B, Zero Coupon, 7/1/02 (d) . . . . . . . . 11,925,000 AAA 7,593,124
Series B, 7.375%, 7/1/04 . . . . . . . . . . . . . 750,000 AA 796,672
Series B, Zero Coupon, 7/1/06 (d) . . . . . . . . 5,555,000 AAA 2,666,511
Series B, 5.5%, 7/1/06 . . . . . . . . . . . . . . 10,160,000 AA 9,193,073
Series B, 5.65%, 7/1/08 . . . . . . . . . . . . . 3,000,000 AA 2,698,350
Series C, 5%, 7/1/06 . . . . . . . . . . . . . . . 10,000,000 AA 8,508,500
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER MANAGED MUNICIPAL BONDS
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WISCONSIN Green Bay, WI, Industrial Development Revenue,
Weyerhaeuser Company Project,
Series A, 9%, 9/1/06 . . . . . . . . . . . . . . . . . 1,700,000 A 1,731,008
Wisconsin Health and Educational Facilities Authority:
Lutheran Hospital, Lacrosse, L. Benevolent,
5.6%, 2/15/09 (d) . . . . . . . . . . . . . . . . . . 2,000,000 AAA 1,780,820
Hospital Sisters Services Inc., Obligated Group:
5.25%, 6/1/10 (d) . . . . . . . . . . . . . . . . . . 3,250,000 AAA 2,764,905
5.375%, 6/1/13 (d) . . . . . . . . . . . . . . . . . 1,500,000 AAA 1,275,885

WYOMING Wyoming Community Development Authority,
Single Family Mortgage, 5.85%, 6/1/13 . . . . . . . . 3,000,000 AA 2,681,280
-----------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(Cost $705,704,341) . . . . . . . . . . . . . . . . . 691,432,632
-----------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $709,054,341) (a) . . . . . . . . . . . . . . . 694,782,632
===========

(a) The cost for federal income tax purposes was $709,054,341. At December 31, 1994, net unrealized depreciation for all
securities based on tax cost was $14,271,709. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of $14,571,264 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost over market value of $28,842,973.

(b) At December 31, 1994 these securities, in part, have been pledged to cover initial margin requirements for open
futures contracts.

AT DECEMBER 31, 1994, OPEN FUTURES CONTRACTS SOLD SHORT WERE AS FOLLOWS (NOTE A):
</TABLE>

<TABLE>
<CAPTION>
Aggregate
Futures Expiration Contracts Face Value ($) Market Value ($)
------- ---------- --------- -------------- ----------------
<S> <C> <C> <C> <C>
Muni Bond Index Mar. 1995 150 12,248,500 12,735,936

30 Year U.S.
Treasury Bonds Mar. 1995 100 9,939,625 9,915,625
--- ---------- ----------
250 22,188,125 22,651,561
=== ========== ==========
Total net unrealized depreciation on open futures contracts sold short . . (463,436)
==========

(c) All of the securities held have been determined to be of appropriate credit quality as required by the Fund's
nvestment objectives. Credit ratings are either Standard & Poor's Ratings Group, Moody's Investors Service, Inc. or
Fitch Investors Service, Inc. Unrated securities (NR) have been determined to be of comparable quality to rated
eligible securities.

(d) Bond is insured by one of these companies: AMBAC, Capital Guaranty, FGIC, FSA or MBIA.
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
INVESTMENT PORTFOLIO
- -------------------------------------------------------------------------------

(e) Prerefunded: Bonds which are prerefunded are collateralized
by U.S. Treasury securities which are held in escrow and are
used to pay principal and interest on tax-exempt issue and to
retire the bonds in full at the earliest refunding date.

* Floating rate and monthly, weekly, or daily demand notes are
securities whose yields vary with a designated market index or
market rate, such as the coupon-equivalent of the Treasury bill
rate. Variable rate demand notes are securities whose yields
are periodically reset at levels that are generally comparable
to tax-exempt commercial paper. These securities are payable on
demand within seven calendar days and normally incorporate an
irrevocable letter of credit or line of credit from a major bank.
These notes are carried, for purposes of calculating average
weighted maturity, at the longer of the period remaining until
the next rate change or to the extent of the demand period.

** ETM: Bonds bearing the description ETM (escrowed to maturity)
are collateralized by U.S. Treasury securities which are held
in escrow by a trustee and used to pay principal and interest
on bonds so designated.

*** Inverse floating rate notes are instruments whose yields have an
inverse relationship to benchmark interest rates. These securities
are shown at their rates as of December 31, 1994.

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER MANAGED MUNICIPAL BONDS
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------------

STATEMENT OF ASSETS AND LIABILITIES
- ----------------------------------------------------------------------------------------------------

DECEMBER 31, 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>

Investments, at market (identified cost $709,054,341)
(Note A) . . . . . . . . . . . . . . . . . . . . . . $ 694,782,632
Cash . . . . . . . . . . . . . . . . . . . . . . . . . 442,247
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . . . 13,951,764
Investments sold . . . . . . . . . . . . . . . . . . 18,272,500
Fund shares sold . . . . . . . . . . . . . . . . . . 629,036
Daily variation margin on open futures contracts
(Note A) . . . . . . . . . . . . . . . . . . . . 61,171
Other assets . . . . . . . . . . . . . . . . . . . . . 10,366
-------------
Total assets . . . . . . . . . . . . . . . . . . 728,149,716

LIABILITIES
Payables
Investments purchased . . . . . . . . . . . . . . . $ 15,687,240
Dividends . . . . . . . . . . . . . . . . . . . . . 1,623,992
Fund shares redeemed . . . . . . . . . . . . . . . . 1,889,824
Accrued management fee (Note C) . . . . . . . . . . 305,782
Other accrued expenses (Note C) . . . . . . . . . . 94,189
-----------
Total liabilities . . . . . . . . . . . . . . . . 19,601,027
--------------
Net assets, at market value . . . . . . . . . . . . . . $ 708,548,689
==============
NET ASSETS
Net assets consist of:
Unrealized depreciation on:
Investments . . . . . . . . . . . . . . . . . . . $ (14,271,709)
Futures . . . . . . . . . . . . . . . . . . . . . (463,436)
Accumulated net realized loss . . . . . . . . . . . (6,673,038)
Shares of beneficial interest . . . . . . . . . . . 878,390
Additional paid-in capital . . . . . . . . . . . . . 729,078,482
--------------
Net assets, at market value . . . . . . . . . . . . . . $ 708,548,689
==============
NET ASSET VALUE, offering and redemption price per
share ($708,548,689 -:- 87,839,034 outstanding
shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) . . . . . . . $8.07
=====
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------------

STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 48,874,765
Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . $ 4,119,589
Services to shareholders (Note C) . . . . . . . . . . . . 520,157
Trustees' fees (Note C) . . . . . . . . . . . . . . . . . 46,491
Custodian fees . . . . . . . . . . . . . . . . . . . . . 192,276
Reports to shareholders . . . . . . . . . . . . . . . . . 79,956
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . 24,493
Auditing . . . . . . . . . . . . . . . . . . . . . . . . 53,368
State registration . . . . . . . . . . . . . . . . . . . 15,157
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 60,970 5,112,457
------------------------------------
Net investment income . . . . . . . . . . . . . . . . . . 43,762,308
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . (2,021,424)
Futures . . . . . . . . . . . . . . . . . . . . . . . 181,861 (1,839,563)
-------------
Net unrealized depreciation during
the period on:
Investments . . . . . . . . . . . . . . . . . . . . . (95,472,086)
Futures . . . . . . . . . . . . . . . . . . . . . . . (515,311) (95,987,397)
------------------------------------
Net loss on investment transactions . . . . . . . . . . . (97,826,960)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $ (54,064,652)
=============

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
SCUDDER MANAGED MUNICIPAL BONDS
- ----------------------------------------------------------------------------------------------------

STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . . $ 43,762,308 $ 46,552,598
Net realized gain (loss) from investment
transactions . . . . . . . . . . . . . . . . . (1,839,563) 27,884,563
Net unrealized appreciation (depreciation)
on investment transactions
during the period . . . . . . . . . . . . . . (95,987,397) 35,631,436
------------- -------------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . . (54,064,652) 110,068,597
------------- -------------
Distributions to shareholders:
From net investment income ($.46 and $.47 per
share, respectively) . . . . . . . . . . . . . (43,762,308) (46,552,598)
------------- -------------
From net realized gains from investment
transactions ($.29 per share) . . . . . . . . -- (27,858,435)
------------- -------------
In excess of net realized gains ($.02 per share). (1,966,549) --
------------- -------------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . . 131,369,207 162,473,484
Net asset value of shares issued to
shareholders in reinvestment
of distributions . . . . . . . . . . . . . . . 25,132,815 45,760,164
Cost of shares redeemed . . . . . . . . . . . . . (258,254,784) (163,363,165)
------------- -------------
Net increase (decrease) in net assets from
Fund share transactions . . . . . . . . . . . (101,752,762) 44,870,483
------------- -------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . (201,546,271) 80,528,047
Net assets at beginning of period . . . . . . . . 910,094,960 829,566,913
------------- -------------
NET ASSETS AT END OF PERIOD . . . . . . . . . . . $ 708,548,689 $ 910,094,960
============= =============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . . . 100,151,558 95,109,417
------------- -------------
Shares sold . . . . . . . . . . . . . . . . . . . 15,825,513 17,920,103
Shares issued to shareholders in
reinvestment of distributions . . . . . . . . 2,768,673 5,077,030
Shares redeemed . . . . . . . . . . . . . . . . . (30,906,710) (17,954,992)
------------- -------------
Net increase (decrease) in Fund shares. . . . . . (12,312,524) 5,042,141
------------- -------------
Shares outstanding at end of period . . . . . . . 87,839,034 100,151,558
============= =============
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.

<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period. . . . . $ 9.09 $ 8.72 $8.80 $ 8.45 $8.54 $ 8.60 $ 8.24 $8.93 $ 8.40 $ 7.69
------ ------ ----- ------ ----- ------ ------ ----- ------ ------
Income from investment
operations:
Net investment
income . . . . . . . . . . .46 .47 .51 .53 .55 .59 .60 .61 .61 .59
Net realized and
unrealized gain
(loss) on
investment
transactions . . . . . . . (1.00) .66 .25 .47 -- .33 .38 (.58) .77 .71
------ ------ ----- ------ ----- ------ ------ ----- ------ ------
Total from investment
operations . . . . . . . . (.54) 1.13 .76 1.00 .55 .92 .98 .03 1.38 1.30
------ ------ ----- ------ ----- ------ ------ ----- ------ ------
Less distributions:
From net investment
income . . . . . . . . . . (.46) (.47) (.51) (.53) (.55) (.59) (.60) (.61) (.61) (.59)
From net realized
gains on investment
transactions . . . . . . . -- (.29) (.33) (.12) (.09) (.39) (.02) (.11) (.24) --
In excess of net
realized gains . . . . . . (.02) -- -- -- -- -- -- -- -- --
------ ------ ----- ------ ----- ------ ------ ----- ------ ------
Total distributions . . . . . (.48) (.76) (.84) (.65) (.64) (.98) (.62) (.72) (.85) (.59)
------ ------ ----- ------ ----- ------ ------ ----- ------ ------
Net asset value,
end of period . . . . . . . $ 8.07 $ 9.09 $8.72 $ 8.80 $8.45 $ 8.54 $ 8.60 $8.24 $ 8.93 $ 8.40
====== ====== ===== ====== ===== ====== ====== ===== ====== ======
TOTAL RETURN (%) . . . . . . (6.04) 13.32 8.98 12.23 6.77 11.19 12.27 .34 16.84 17.37
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions). . . . . 709 910 830 796 719 691 635 592 663 574
Ratio of operating
expenses to average
daily net assets (%) . . . . .63 .63 .63 .64 .61 .62 .61 .63 .58 .58
Ratio of net investment
income to average
daily net assets (%) . . . . 5.41 5.21 5.76 6.16 6.61 6.78 7.13 7.20 6.88 7.27
Portfolio turnover
rate (%) . . . . . . . . . 33.7 52.8 59.6 32.4 72.1 89.8 75.5 73.5 78.0 98.2
</TABLE>

<PAGE>
SCUDDER MANAGED MUNICIPAL BONDS
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------

A. SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------------------------------------
Scudder Managed Municipal Bonds (the "Fund") is organized as a diversified
series of Scudder Municipal Trust, a Massachusetts business trust, registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company. The policies described below are followed consistently by
the Fund in the preparation of its financial statements in conformity with
generally accepted accounting principles.

SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the officers of the
Fund, which quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Short-term investments having a maturity of sixty days or less
are valued at amortized cost. All other securities are valued at their fair
value as determined in good faith by the Valuation Committee of the Board of
Trustees.

FUTURES CONTRACTS. The Fund may enter into interest rate and securities index
futures contracts for bona fide hedging purposes. Upon entering into a futures
contract, the Fund is required to deposit with a broker an amount ("initial
margin") equal to a certain percentage of the purchase price indicated in the
futures contract. Subsequent payments ("variation margin") are made or received
by the Fund each day, dependent on 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, for book purposes, 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
from the contingency of imperfect market conditions.

AMORTIZATION AND ACCRETION. All premiums and original issue discounts are
amortized/accreted for both tax and financial reporting purposes.

<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies and to distribute all of its taxable and tax-exempt income to its
shareholders. The Fund accordingly paid no federal income taxes and no
provision for federal income taxes was required.

At December 31, 1994, the Fund had a net tax basis capital loss carryforward
of approximately $2,638,000 which may be applied against any realized net
taxable capital gains of each succeeding year until fully utilized or until
December 31, 2002, the expiration date.

In addition, from November 1, 1994 through December 31, 1994, the Fund incurred
approximately $2,687,000 of net realized capital losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat them as
arising in the fiscal year ended December 31, 1995.

DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of the Fund
is declared as a dividend to shareholders of record as of the close of business
each day and is paid to shareholders monthly. During any particular year, net
realized gains from investment transactions, in excess of available capital
loss carryforwards, would be taxable to the Fund if not distributed and,
therefore, will be distributed to shareholders. An additional distribution may
be made to the extent necessary to avoid the payment of a four percent federal
excise tax. Distributions of net realized capital gains to shareholders are
recorded on the ex-dividend date.

The timing and characterization of certain income and capital gains
distributions are determined in accordance with federal tax regulations which
may differ from generally accepted accounting principles. These differences
relate primarily to investments 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.

The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax
reporting purposes.

<PAGE>
SCUDDER MANAGED MUNICIPAL BONDS
- --------------------------------------------------------------------------------

OTHER. Investment transactions are accounted for on a trade date basis.
Interest income is accrued pro rata to the earlier of call or maturity.

B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
During the year ended December 31, 1994, purchases and sales of municipal
securities (excluding short-term investments) aggregated $262,289,663
and $350,515,283, respectively.

The aggregate face value of futures contracts opened and closed during the
year ended December 31, 1994 was $190,787,571 and $182,023,197, respectively.

C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment objectives, policies, and
restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides
certain administrative services in accordance with the Agreement. The
management fee payable under the Agreement is equal to an annual rate of 0.55%
on the first $200,000,000 of average daily net assets, 0.50% on the next
$500,000,000 of such net assets and 0.475% on such net assets in excess of
$700,000,000, computed and accrued daily and payable monthly. The Agreement
also provides that if the Fund's expenses, exclusive of taxes, interest, and
extraordinary expenses, exceed specified limits, such excess, up to the amount
of the management fee, will be paid by the Adviser. For the year ended
December 31, 1994, the fee pursuant to the agreement amounted to $4,119,589,
which was equivalent to an annualized effective rate of .51% of the Fund's
average daily net assets.

Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
During the year ended December 31, 1994, the amount charged to the Fund by SSC
aggregated $391,610, of which $30,382 is unpaid at December 31, 1994.

The Fund pays each Trustee not affiliated with the Adviser $4,000 annually plus
specified amounts for attended board and committee meetings. During the year
ended December 31, 1994, Trustees' fees aggregated $46,491.

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

TO THE TRUSTEES OF SCUDDER MUNICIPAL TRUST AND TO THE SHAREHOLDERS OF
SCUDDER MANAGED MUNICIPAL BONDS:
- -------------------------------------------------------------------------------

We have audited the accompanying statement of assets and liabilities of Scudder
Managed Municipal Bonds including the investment portfolio, as of December 31,
1994, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the ten years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Scudder Managed Municipal Bonds as of December 31, 1994, the results of
its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial
highlights for each of the ten years in the period then ended in conformity
with generally accepted accounting principles.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 10, 1995

<PAGE>
SCUDDER MANAGED MUNICIPAL BONDS
TAX INFORMATION
- -----------------------------------------------------------------------------

By now shareholders to whom year-end tax reporting is required by the IRS
should have received their Form 1099-DIV and tax information letter from the
Fund. For corporate shareholders no amount of the dividends paid by the Fund
qualified for the dividends received deduction.

Of the dividends paid from net investment income for the year ended December
31, 1994, 100% are tax exempt for purposes of the federal alternative minimum
tax, if applicable. Pursuant to section 852 of the Internal Revenue Code, the
Fund designates $44,333,000 as exempt-interest dividends for the fiscal year
ended December 31, 1994.

<PAGE>

OFFICERS AND TRUSTEES

David S. Lee*
President and Trustee

Daniel Pierce*
Vice President and Trustee

Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation

Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director

Peter B. Freeman
Trustee; Corporate Director and Trustee

Dudley H. Ladd*
Trustee

George M. Lovejoy, Jr.
Trustee; Chairman Emeritus, Meredith & Grew, Incorporated

Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
College of Business Administration

Juris Padegs*
Trustee

Donald C. Carleton*
Vice President

Cuyler W. Findlay*
Vice President

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

Edward J. O'Connell*
Vice President and Assistant Treasurer

Coleen Downs Dinneen*
Assistant Secretary

* Scudder, Stevens & Clark, Inc.

INVESTMENT PRODUCTS AND SERVICES

The Scudder Family of Funds

Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan+++* (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans

Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++

For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from
the tax-free funds may be subject to federal, state and local taxes. *Not
available in all states. +++A no-load variable annuity contract provided by
Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder, Stevens & Clark, Inc., are traded on various stock exchanges.
++For information on Scudder Treasurers Trust(tm), an institutional cash
management service that utilizes certain portfolios of Scudder Fund, Inc.
($100,000 minimum), call: 1-800-541-7703.

HOW TO CONTACT SCUDDER

Account Service and Information

For existing account service and transactions

SCUDDER INVESTOR RELATIONS
1-800-225-5163

For account updates, prices, yields, exchanges and redemptions

SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890

Investment Information

To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions

SCUDDER INVESTOR RELATIONS
1-800-225-2470

For establishing 401(k) and 403(b) plans

SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105

Please address all correspondence to

THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291

Or stop by a Scudder Funds Center

Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you_they can be
found in the following cities:

Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale

For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts
which utilizes certain portfolios of Scudder Fund, Inc.* ($100,000
minimum), call: 1-800-541-7703.

For information on Scudder Institutional Funds,* funds designed to meet the
broad investment management and service needs of banks and other
institutions, call: 1-800-854-8525.

Scudder Investor Relations and Scudder Funds Centers are services
provided through Scudder Investor Services, Inc., Distributor.

* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees
and expenses. Please read it carefully before you invest or send
money.

Celebrating 75 Years of Serving Investors

This information must be preceded or accompanied by a current prospectus.

Portfolio changes should not be considered recommendations for action by
individual investors.

Scudder High Yield Tax Free Fund

Annual Report
December 31, 1994

* Offers convenient access to high tax-free yields by investing
primarily in investment-grade municipal securities.

* A pure no-load(tm) fund with no commissions to buy, sell, or exchange
shares.

CONTENTS

2 Highlights

3 Letter from the Fund's President

4 Performance Update

5 Portfolio Summary

6 Portfolio Management Discussion

10 Investment Portfolio

17 Financial Statements

20 Financial Highlights

21 Notes to Financial Statements

25 Report of Independent Accountants

26 Tax Information

29 Officers and Trustees

30 Investment Products and Services

31 How to Contact Scudder

HIGHLIGHTS

* Reflecting persistently rising interest rates, Scudder High Yield Tax
Free Fund's 30-day net annualized yield increased to 6.52% as of
December 31, 1994, from 5.06% a year earlier. For investors in the top
federal tax brackets of 39.6% and 36%, the Fund's 6.52% tax-free yield
was equivalent to taxable yields of 10.79% and 10.19%, respectively.

The Fund's Yield and Taxable Equivalent Yields as of December 31, 1994

Tax-Free Yield Taxable-Equivalent Taxable-Equivalent Yield at
Yield at 36% Tax 39.6% Tax Bracket
Bracket

6.52% 10.19% 10.79%

* Following six years of positive performance, the Fund's total return
for 1994 was -8.38%, during a year of falling prices for most
fixed-income investments.

* Over the three-, four-, and five-year periods through December 31,
1994, the Fund outpaced its peer group average, according to Lipper
Analytical Services. Please see page 6 for additional Lipper
performance information.

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

In 1994, U.S. bonds posted their worst total returns in decades. Bond
investors faced a number of obstacles, chief among them the nagging fear of
inflation due to a strong economy and a weak dollar, which spurred the
Federal Reserve to hike short-term rates repeatedly and caused rates on
longer-term securities to rise as well. Other market hurdles included
municipal bankruptcy in Orange County, California, and Mexico's peso
devaluation crisis.

After such a year, it's fair to ask where municipal bond funds go from
here. While we will probably not see the double- digit returns of the early
1990s for some time, we believe this year will bring greater stability to
the bond market as well as the opportunity to earn solid income returns.
Fortunately, despite strong economic growth, inflation has remained
relatively quiescent. Continued low inflation should favor tax-exempt
bondholders by taking much of the pressure off of the Fed to raise interest
rates in the future.

But current global economic trends will also bring occasional episodes
of difficult adjustment for the financial markets. At times like these, it
is essential to have a sound investment plan in place that can weather
market storms. For many investors, such a plan includes current income free
from state and/or federal taxes, in addition to the traditional benefits of
mutual funds -- diversification, liquidity, dividend reinvestment, and
professional management.

If you have questions about your fund or your investments, please call
Scudder Investor Relations at 1-800-225-2470. Page 31 provides more
information on how to contact Scudder. Thank you for choosing Scudder High
Yield Tax Free Fund to help meet your investing needs.

Sincerely,

/s/David S. Lee
David S. Lee
President,
Scudder High Yield Tax Free Fund
<PAGE>
Scudder High Yield Tax Free Fund
Performance Update as of December 31, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
Scudder High Yield Tax Free Fund
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,162 -8.38% -8.38%
5 Year $13,912 39.12% 6.83%
Life of
Fund* $16,405 64.05% 6.45%

Lehman Brothers Municipal Bond Index
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,483 -5.17% -5.17%
5 Year $13,940 39.40% 6.87%
Life of
Fund* $16,765 67.65% 6.75%

* The Fund commenced operations on January 22, 1987.
Index comparisons begin January 31, 1987.

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:

Yearly periods ended December 31

Scudder High Yield Tax Free Fund
Year Amount
- ----------------------
1/31/87 10000
87 9419
88 10689
89 11792
90 12502
91 14185
92 15728
93 17906
94 16405

Lehman Brothers Municipal Bond Index
Year Amount
- ----------------------
1/31/87 10000
87 9854
88 10855
89 12026
90 12903
91 14469
92 15745
93 17679
94 16765

Lehman Brothers Municipal Bond Index is a market value weighted
measure of approximately 15,000 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.

- -------------------------------------------------------------------
Returns and Per Share Information
- -------------------------------------------------------------------

A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.

Yearly periods ended December 31
- ----------------------------------
<TABLE>
<S>
<C> <C> <C> <C> <C> <C> <C> <C>
1987* 1988 1989 1990 1991 1992 1993 1994
------------------------------------------------------------------
Net Asset Value... $10.52 $11.06 $11.35 $11.19 $11.67 $11.90 $12.55 $10.86
Income Dividends.. $ .78 $ .83 $ .76 $ .77 $ .76 $ .72 $ .67 $ .66
Capital Gains
Distributions..... $ -- $ -- $ .06 $ .05 $ .21 $ .27 $ .28 $ --
Fund Total
Return (%)........ -5.81 13.48 10.32 6.02 13.36 10.88 13.85 -8.38
Index Total
Return (%)........ -1.46 10.16 10.79 7.29 12.14 8.82 12.28 -5.17
</TABLE>

Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
Total returns may have been higher due to maintenance of the Fund's expenses.
See Financial Highlights on page 20.

Portfolio Summary as of December 31, 1994
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------
Hospital/Health 25%
Port/Airport Revenue 14% Broad diversification allows
General Obligation 12% us to spread risk over a large
Electric Utility Revenue 11% number of geographic areas
Toll Revenue 9% and bond sectors.
Housing Finance Authority 8%
Lease Rentals 4%
Pollution Control Revenue 4%
Sales & Special Tax 2%
Miscellaneous Municipal 11%
----
100%
====

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

- --------------------------------------------------------------------------
Quality
- --------------------------------------------------------------------------
AAA 18%
AA 12% The Fund emphasizes investment-
A 13% grade longer-term bonds to provide
BBB 40% high relative yields.
Not Rated 17%
----
100%
====

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

- --------------------------------------------------------------------------
Effective Maturity
- --------------------------------------------------------------------------
Less than 1 year 4%
1 < 5 years 3% We are currently shifting out
5 < 10 years 11% of five- to seven-year bonds
10 < 20 years 58% because these bonds would be
Greater than 20 years 24% impacted most negatively by
---- short-term rate increases.
100%
====
Weighted average effective maturity: 16 years

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

<PAGE>

PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

During a difficult period for bond investors, Scudder High Yield Tax
Free Fund posted a -8.38% total return for its fiscal year ended December
31, 1994. By comparison, the total return of the unmanaged Lehman Brothers
Municipal Bond Index was -5.17%. The Fund's total return includes price
change and reinvested distributions. Reflecting price declines in the
municipal market, the Fund's share price fell to $10.86 on December 31,
1994, from $12.55 a year earlier. However, shareholders of the Fund
received $0.66 per share in tax-free income distributions, which helped
offset the price decline somewhat. Mirroring the rise in bond yields,
Scudder High Yield Tax Free Fund provided a 30-day net annualized yield of
6.52% on December 31, 1994, up significantly from 5.06% at the close of
1993. For investors in the 36% federal income tax bracket, the Fund's yield
was equivalent to a taxable yield of 10.19%.

Though Scudder High Yield Tax Free Fund's one-year return is well
below those you have enjoyed in the past, the Fund has outpaced the average
performance of similar funds over the three-, four-, and five-year periods
ended December 31, 1994, according to Lipper Analytical Services. The
Fund's peer group during these three periods consisted of 24, 23, and 22
funds, respectively. Lipper is an independent analyst of investment
performance. Please turn to the Performance Update on page 4 for more
information on the Fund's long-term performance, including comparisons to
the Lehman Brothers Municipal Bond Index.

Mixed Market Influences

For municipal bond investors, the market environment in 1994 was
overlaid with a mix of favorable and unfavorable developments. The
favorable news came in two forms: higher income from tax-free investments
and a shrinking supply of bonds. While the 1993 municipal market featured
declining interest rates and a heavy supply of bonds due to a record number
of refinancings, last year's market saw a significant reduction in
refinancing activity due to rising rates. New issue volume dropped from
$292 billion in 1993 to $163 billion in 1994 -- a 44% decrease. The low
relative supply of new issues helped support municipal bond prices in an
otherwise challenging year. We expect 1995's supply to be even lower than
last year's, which should also help bolster prices.

(BAR CHART TITLE) SUPPLY OF NEW MUNICIPAL ISSUES (in billions)

(CHART DATA)
1993 1994 1995
$292 $163 $135*
* Estimated

On the unfavorable list of developments was the Orange County,
California, financial crisis, which occurred after the county's investment
fund sustained significant losses. In short, the county's municipal
investment managers had borrowed heavily to purchase bonds in the belief
that interest rates would continue to decline -- even during 1994 when rates
were on the rise. We are pleased to report that Scudder High Yield Tax Free
Fund had only indirect exposure to the Orange County pool through San
Joaquin Hills Toll Road Revenue Bond holdings. Despite declines in the
prices of these bonds, we are confident that the agency overseeing the toll
road construction has adequate funds on hand to complete the project.

Another challenge for the municipal market in 1994 was the impact of
the "market discount" rule. This recent tax law provision states that if a
municipal bond trading at a market discount is subsequently sold at a
profit, part of the income must now be treated as ordinary income rather
than as capital gains, which for many investors is taxed at a lower rate.
This provision has caused volatility in municipal bonds priced at a
discount. We are currently working to keep the provision's impact on
Scudder's tax-free portfolios to a minimum.

Portfolio Review

Three factors negatively affected the Fund's total return in 1994:
First, the Fund's slightly longer-than-average effective maturity, while
enhancing performance in recent years, made the Fund more sensitive to
rising interest rates. The second negative influence was the market
discount rule, discussed above. Third, the performance of certain
high-yield bond holdings late in 1994 was disappointing. We believe the
prices of these bonds were unduly affected by year-end selling activity, as
individual and institutional investors booked losses on bond holdings for
tax purposes. Consequently, we expect them to recover in the near future.

Despite the challenges of the past year, we remain committed to
Scudder High Yield Tax Free Fund's basic investment strategy, which
emphasizes investment-grade, long-term municipal bonds to provide high
relative yields. The Fund had an average portfolio quality of BBB+ on
December 31, with roughly 30% of Fund assets rated AAA, AA, or the
equivalent. Securities are rated by Standard & Poor's, Moody's Investors
Service, Fitch Investors Service, or assigned an equivalent rating by
Scudder. Although the Fund is composed primarily of investment-grade
securities, we gradually increased our holdings of select higher-yielding,
non-rated and below- investment-grade securities during the year to
generate high income and potential share-price appreciation. Non-rated
bonds and issues rated below investment grade accounted for approximately
17% of the Fund's portfolio on December 31, 1994.

An important component of the Fund's strategy is the active management
of portfolio securities. At year end, bonds with effective maturities
between 10 and 25 years represented approximately 67% of the Fund's
portfolio. We believe that over the coming year bonds in this maturity
range will offer good value, providing a yield comparable to bonds with the
longest (30-year) maturities but with less price volatility. At the same
time, we are making some shifts in the Fund's maturity structure to
de-emphasize shorter-term bonds in the coming months, especially those in
the five- to seven-year range. If short-term interest rates rise further in
1995, we believe these bonds will be impacted most strongly.

Diversification among our holdings remains an important strategy for
the Fund, because it allows us to spread the portfolio's risk over a large
number of geographic areas, bond sectors, and maturities. As of December
31, 1994, the portfolio held securities issued in 27 states, plus the
District of Columbia and the Virgin Islands. In addition, Fund assets were
distributed among hospital/ healthcare, airport revenue, general
obligation, and several other sectors. As for our Denver Airport System
bonds, which represented approximately 10% of the Fund's portfolio as of
December 31, 1994, we are able to relate better news than we were in the
June 1994 report. These bonds, after suffering significant price declines
over the course of the year, have recovered substantially. Moreover, the
new Airport is expected to open soon.

Call protection also remains part of our long-term strategy for the
Fund. When long-term interest rates on municipal bonds were declining in
the three years prior to 1994, we held a significant number of
call-protected bonds to help protect the portfolio's income stream.
(Generally, a bond is called in by its issuer so that it can be refinanced
at a lower prevailing rate.) In the current era of rising rates, we
continue to rely on call-protected bonds for their stable characteristics,
and because at present we believe they represent good value. The Portfolio
Summary on page 5 provides more information about the Fund's holdings,
including quality, maturity, and sector representation.

(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - Scudder High Yield Tax Free
Fund: A Team Approach to Investing

Scudder High Yield Tax Free Fund is managed by a team of Scudder
investment professionals who each play an important role in the Fund's
management process. Team members work together to develop investment
strategies and select securities for the Fund's portfolio. They are
supported by Scudder's large staff of economists, research analysts,
traders, and other investment specialists who work in our offices across
the United States and abroad. We believe our team approach benefits Fund
investors by bringing together many disciplines and leveraging Scudder's
extensive resources.

Lead Portfolio Manager Philip G. Condon has had responsibility for
Scudder High Yield Tax Free Fund's day-to-day operations since its
inception in 1987, after joining Scudder in 1983. Phil, who has worked in
the investment industry since 1977, also serves as Lead Portfolio Manager
for Scudder Massachusetts Tax Free Fund and is a Portfolio Manager of
Scudder Managed Municipal Bonds and Scudder Ohio and Pennsylvania Tax Free
Funds. Kimberley R. Manning, Portfolio Manager, became a member of the team
in 1987 when she came to Scudder. Kim, who assists in implementing
investment strategy, has 10 years of experience in municipal investing.

Outlook for 1995

We believe a combination of continued economic growth and restrained
inflation will characterize 1995. Even so, the Federal Reserve will be
watching carefully for economic statistics that carry additional
inflationary warning signs. As of this writing, the Fed seems prepared to
increase short-term interest rates one or two more times in 1995 as needed.
Additional Fed actions increase the likelihood that economic growth will be
subdued as early as 1996 -- a scenario that historically has boded well for
bonds. Though there is room in 1995 for short- and intermediate-term rates
to rise further, we believe long-term interest rates will stabilize and
remain within a fairly tight range for most of this year. Such an
environment would enable the Fund to capture higher long-term, tax-free
bond yields with less share price volatility than was the case last year.
Our strategy reflects our ongoing commitment to seek high relative tax-free
income and competitive total returns.

Sincerely,

Your Portfolio Management Team

/s/Philip G. Condon /s/Kimberley R. Manning
Philip G. Condon Kimberley R. Manning

<PAGE>
<TABLE>
SCUDDER HIGH YIELD TAX FREE FUND
INVESTMENT PORTFOLIO as of December 31, 1994
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
------------
Principal Credit Market
Amount ($) Rating (d) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3.1% SHORT-TERM MUNICIPAL INVESTMENTS
--------------------------------------------------------------------------------------------
LOUISIANA Louisiana Offshore Terminal Authority Port
Revenue, Series 1992, Daily Demand Note,
6.15%, 9/1/08* . . . . . . . . . . . . . . . . . . . 400,000 A1+ 400,000
NORTH DAKOTA Oliver County, ND, Pollution Control Revenue,
4.1%, 12/1/20 (c)* . . . . . . . . . . . . . . . . . 1,000,000 NR 1,000,000
TEXAS North Central Texas, Health Facilities Development
Corp., Presbyterian Medical Center, Series D, Daily
Demand Note, 5.95%, 12/1/15 (c)* . . . . . . . . . . 1,900,000 A1+ 1,900,000
State of Texas, Tax and Revenue Anticipation Notes,
5%, 8/31/95 . . . . . . . . . . . . . . . . . . . . . 2,000,000 SP1+ 2,003,520
VIRGINIA Alexandria, VA, Resource Recovery, Waste to Energy
Facility, Daily Demand Note, 6.1%, 12/1/16* . . . . . 600,000 A1+ 600,000
WASHINGTON Washington Health Care Facilities Authority,
Sisters of Providence, Daily Demand Note:
1985 Series B, 6%, 10/1/05* . . . . . . . . . . . . 1,100,000 A1+ 1,100,000
1985 Series E, 6%, 10/1/05* . . . . . . . . . . . . 1,000,000 A1+ 1,000,000
---------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $8,011,735) . . . . . . . . . . . . . . . . . . 8,003,520
---------
96.9% LONG-TERM MUNICIPAL INVESTMENTS
--------------------------------------------------------------------------------------------
ALASKA North Slope Borough, AK, General Obligation,
Zero Coupon, 6/30/05 (c) . . . . . . . . . . . . . . 7,600,000 AAA 3,901,004
ARIZONA McDowell Mountain Ranch, AZ, General Obligation,
8.25%, 7/15/19 . . . . . . . . . . . . . . . . . . . 3,000,000 NR 2,922,690
Salt River Project, AZ, Agricultural Improvement and
Power District, Electric Systems, 6%, 1/1/09 . . . . . 5,000,000 AA 4,843,750
CALIFORNIA California State Public Works Board Lease Revenue,
Regents of The University of California, Series A,
5.5%, 6/1/14 . . . . . . . . . . . . . . . . . . . . 3,000,000 A 2,511,990
Los Angeles County, CA, Certificate of Participation,
Marina Del Ray, Series A, 6.25%, 7/1/03 . . . . . . . 3,000,000 NR 2,917,320
San Joaquin Hills, CA, Transportation Corridor
Agency, Orange County, Senior Lien Toll Road
Revenue:
Zero Coupon to 1/1/02, 7.6% to 1/1/11 (b). . . . . . 5,000,000 BBB 2,529,600
Zero Coupon to 1/1/02, 7.65% to 1/1/12 . . . . . . . 15,000,000 BBB 7,522,350
Zero Coupon to 1/1/02, 7.65% to 1/1/13 . . . . . . . 4,000,000 BBB 1,995,640
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-------------
Principal Credit Market
Amount ($) Rating (d) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
San Jose, CA, Redevelopment Authority,
Tax Allocation, 6%, 8/1/08 (c) . . . . . . . . . . . . 3,000,000 AAA 2,923,740
COLORADO Colorado Health Facilities Authority Revenue, Rocky
Mountain Adventist Healthcare Project,
Series 1993, 6.625%, 2/1/13 . . . . . . . . . . . . . . 3,500,000 BBB 3,086,125
Denver, CO, Airport System Revenue:
Series A, Zero Coupon, 11/15/00 . . . . . . . . . . . . 1,140,000 BBB 719,682
Series A, Zero Coupon, 11/15/01 . . . . . . . . . . . . 5,120,000 BBB 2,979,942
Series A, Zero Coupon, 11/15/03 . . . . . . . . . . . . 3,050,000 BBB 1,504,474
Series A, Zero Coupon, 11/15/04 . . . . . . . . . . . . 3,130,000 BBB 1,419,330
Series A, Zero Coupon, 11/15/05 . . . . . . . . . . . . 1,855,000 BBB 772,533
6.75%, 11/15/13 . . . . . . . . . . . . . . . . . . . . 8,650,000 BBB 7,604,734
1991 Series D, 7.75%, 11/15/13 (b) . . . . . . . . . . 9,775,000 BBB 9,537,467
1992 Series C, 6.125%, 11/15/25 . . . . . . . . . . . . 3,000,000 BBB 2,345,010
DISTRICT OF COLUMBIA District of Columbia, Hospital Refunding Revenue:
Medlantic Healthcare Group Inc.,
Series 1993 A, 5.5%, 8/15/06 (c) . . . . . . . . . . . 1,305,000 AAA 1,198,577
Metlantic Washington Hospital Center,
1992 Series A, 7.125%, 8/15/19 . . . . . . . . . . . . 1,000,000 BBB 915,310
District of Columbia, Certificate of Participation,
Series 1993, 7.3%, 1/1/13 . . . . . . . . . . . . . . . 4,500,000 BBB 4,267,665
District of Columbia, General Obligation:
Series A, 5.875%, 6/1/05 (c) . . . . . . . . . . . . . 4,300,000 AAA 4,101,727
Series A3, 5.6%, 6/1/07 (c) . . . . . . . . . . . . . . 3,300,000 AAA 2,986,698
FLORIDA Broward County, FL, Housing Finance Authority,
Single Family Mortgage Revenue, Zero Coupon,
4/1/14 . . . . . . . . . . . . . . . . . . . . . . . . 6,285,000 BBB 886,625
ILLINOIS Chicago, IL, General Obligation Lease, Board of
Education, Series A, 6%, 1/1/16 (c) . . . . . . . . . . 5,000,000 AAA 4,587,400
Illinois Development Finance Authority:
Commonwealth Edison, 5.7%, 1/15/09 . . . . . . . . . . 3,000,000 BBB 2,637,690
Solid Waste Revenue, Ford Heights Waste Tire
Project, 7.875%, 4/1/11 . . . . . . . . . . . . . . . 3,000,000 NR 2,881,590
Illinois Health Facilities Authority, Edward Hospital,
Series A, 5.75%, 2/15/09 . . . . . . . . . . . . . . . 1,000,000 A 898,000
Metropolitan Pier and Exposition Authority, IL,
McCormick Place Expansion Project, Series A,
6.5%, 6/15/22 . . . . . . . . . . . . . . . . . . . . . 2,115,000 A 1,996,475
Winnebago County, IL, School District #122,
6.45%, 6/1/08 (c) . . . . . . . . . . . . . . . . . . . 1,500,000 AAA 1,513,290
INDIANA Fishers, IN, Economic Development Revenue,
First Mortgage/United Student Aid Inc. Project,
Series 1989, 8.25%, 9/1/09 . . . . . . . . . . . . . . 2,000,000 NR 2,031,100
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-------------
Principal Credit Market
Amount ($) Rating (d) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Indiana Health Facilities Finance Authority, Hospital
Refunding Revenue, Floyd Memorial Hospital,
6.625%, 2/15/13 . . . . . . . . . . . . . . . . . . . 3,000,000 A 2,829,450
Indiana Municipal Power Agency, Power Supply
System Refunding Revenue, 1983 Series B,
5.875%, 1/1/09 (c) . . . . . . . . . . . . . . . . . 2,300,000 AAA 2,173,155
Indianapolis, IN, Economic Development, Refunding
and Improvement Revenue, Robin Run Village
Project, Series 1992, 7.625%, 10/1/22 . . . . . . . . 1,500,000 BBB 1,447,050
LOUISIANA Bastrop, LA, Industrial Development Board, Pollution
Control Revenue, International Paper Co. Project,
6.9%, 3/1/07 . . . . . . . . . . . . . . . . . . . . 4,750,000 A 4,879,010
MARYLAND Northeast Maryland, Waste Disposal Authority,
Southwest Resource Recovery System:
7.15%, 1/1/04 (c) . . . . . . . . . . . . . . . . . 2,400,000 AAA 2,562,264
7.2%, 1/1/05 (c) . . . . . . . . . . . . . . . . . . 1,000,000 AAA 1,071,390
Prince George's County, MD, Greater Southeast
Health Care, 6.2%, 1/1/08 . . . . . . . . . . . . . . 1,000,000 BBB 888,650
MASSACHUSETTS Lowell, MA, General Obligation, 8.3%, 2/15/05 . . . . . 365,000 BBB 395,507
Massachusetts Bay Transportation Authority, General
Transportation System, Series A, 5.4%, 3/1/07 . . . . 4,000,000 A 3,624,160
Massachusetts Health and Educational
Facilities Authority:
Cooley Dickson Hospital Inc., 7.125%, 11/15/18 . . . 1,955,000 BBB 1,743,508
Falmouth Hospital, 5.5%, 7/1/08 (c) . . . . . . . . 1,000,000 AAA 912,700
Massachusetts Housing Finance Agency,
Multi-Family Housing Project Revenue:
1988 Series A, 8.8%, 8/1/21 . . . . . . . . . . . . 665,000 A 701,934
1993 Series A, 6.375%, 4/1/21 . . . . . . . . . . . 4,000,000 A 3,719,000
Massachusetts Industrial Finance Authority:
Resource Recovery, North Andover Solid Waste,
Series A, 6.3%, 7/1/05 . . . . . . . . . . . . . . . 2,750,000 BBB 2,655,950
Solid Waste Peabody Monofil Project, 9%, 9/1/05 . . . 3,000,000 NR 3,000,000
Massachusetts Municipal Wholesale Electric
Company, Power Supply System Revenue, Series A,
5.1%, 7/1/07 (c) . . . . . . . . . . . . . . . . . . 3,840,000 AAA 3,357,811
MICHIGAN Detroit, MI, Unlimited Tax, General Obligation,
Distributable State Aid, Refunding,
5.25%, 5/1/09 (c) . . . . . . . . . . . . . . . . . . 2,450,000 AAA 2,150,316
Michigan Hospital Finance Authority Revenue,
Gratiot Community Hospital, 1988 Series A,
8.75%, 10/1/07 . . . . . . . . . . . . . . . . . . . 2,000,000 B 2,002,040
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------------
Principal Credit Market
Amount ($) Rating (d) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michigan Strategic Fund, Limited Obligation,
Revenue Refunding, Ford Motor Company Project,
Series A, 7.1%, 2/1/06 . . . . . . . . . . . . . . . 1,000,000 A 1,034,810
MINNESOTA St. Paul, MN, Housing and Redevelopment Authority,
Healtheast Hospital Project, Series 1993 A,
6.625%, 11/1/17 . . . . . . . . . . . . . . . . . . . 3,500,000 BBB 3,097,885
NEVADA Las Vegas, NV, Downtown Redevelopment Agency,
Tax Increment Revenue, Subordinate Lien,
6.1%, 6/15/14 . . . . . . . . . . . . . . . . . . . . 1,500,000 BBB 1,320,000
Nevada Housing Single Family Mortgage,
FHA insured, 5.95%, 4/1/05 . . . . . . . . . . . . . 2,500,000 AA 2,377,700
NEW HAMPSHIRE New Hampshire Health and Educational Authority,
New Hampshire Catholic Charity, 8.4%, 8/1/11 . . . . . 600,000 BBB 613,362
New Hampshire Higher Education and Health
Facilities Authority:
Exeter Hospital, Series 1993, 6%, 10/1/13 . . . . . 2,000,000 A 1,753,020
Hospital Revenue, Frisbie Memorial Hospital,
Series 1993, 6.125%, 10/1/13 . . . . . . . . . . . 2,750,000 BBB 2,321,110
Monadnok Community Hospital, Series 1990,
9.125%, 10/1/20 . . . . . . . . . . . . . . . . . 1,470,000 NR 1,657,278
St. Joseph's Hospital, 7.5%, 1/1/07 . . . . . . . . 1,490,000 BBB 1,493,516
St. Joseph's Hospital, 7.5%, 1/1/16 . . . . . . . . 2,600,000 BBB 2,509,624
NEW JERSEY New Jersey Turnpike Authority, Series C:
6.5%, 1/1/08 . . . . . . . . . . . . . . . . . . . . 1,000,000 A 1,024,700
6.5%, 1/1/16 . . . . . . . . . . . . . . . . . . . . 5,000,000 A 4,929,650
NEW YORK Metropolitan Transportation Authority of New York,
7%, 7/1/09 . . . . . . . . . . . . . . . . . . . . . 1,000,000 BBB 1,008,890
OHIO Gateway Economic Development Corporation of
Cleveland, OH, Stadium Revenue, 6.5%, 9/15/14 . . . . 4,000,000 NR 3,690,880
Hamilton County, OH, Health System Revenue,
Franciscan Sisters of the Poor Health System,
Providence Hospital, Series 1992, 6.8%, 7/1/08 . . . 5,485,000 BBB 5,074,942
PENNSYLVANIA Clearfield, PA, Hospital Authority Revenue,
Clearfield Hospital, 6.875%, 6/1/16 . . . . . . . . . 4,480,000 NR 4,116,628
Montgomery County, PA, Redevelopment Authority,
Multi-Family Housing Revenue Refunding,
6.375%, 7/1/12 . . . . . . . . . . . . . . . . . . . 5,500,000 BBB 5,124,735
Pennsylvania Higher Education Authority,
Medical College of Pennsylvania, Series B,
7.25%, 3/1/05 . . . . . . . . . . . . . . . . . . . . 1,000,000 BBB 1,030,220
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-------------
Principal Credit Market
Amount ($) Rating (d) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Philadelphia, PA, Health and Higher Education
Authority, Hospital Revenue, Graduate Health
System Obligated Group, 6.25%, 7/1/13 . . . . . . . . . 5,000,000 BBB 4,286,750
Philadelphia, PA, Hospital and Higher Educational
Facilities Authority, Hospital Revenue, Albert
Einstein Medical Center, 7.625%, 4/1/11 . . . . . . . . 2,500,000 A 2,527,275
Pottsville Pennsylvania Hospital Authority,
7.25%, 7/1/24 . . . . . . . . . . . . . . . . . . . . . 2,000,000 BBB 1,769,920
Shenango Valley, PA, Osteopathic Hospital
Authority, Shenango Valley Medical Center,
7.875%, 4/1/10 . . . . . . . . . . . . . . . . . . . . 1,350,000 BBB 1,367,402
SOUTH CAROLINA South Carolina Jobs Economic Development
Authority, Hospital Revenue, South Carolina
Baptist Hospital, Inverse Floater, 6.92%, 8/1/09**. . . 4,000,000 AAA 2,920,000
SOUTH DAKOTA South Dakota Health and Educational Facilities
Authority Revenue, Prairie Lakes Health Care
System:
7.125%, 4/1/10 . . . . . . . . . . . . . . . . . . . . 1,000,000 BBB 960,850
7.25%, 4/1/22 . . . . . . . . . . . . . . . . . . . . 1,000,000 BBB 921,250
South Dakota Housing Development Authority, Home
Ownership Mortgage, Series A, 6.4%, 5/1/12 . . . . . . . 3,500,000 AA 3,337,775
TEXAS Austin, TX, Convention Center Revenue, 1989
Series B, Prerefunded, 8.25%, 11/15/99*** . . . . . . . 3,050,000 NR 3,387,086
Dallas-Fort Worth, TX, International Airport,
American Airlines:
7.5%, 11/1/25 . . . . . . . . . . . . . . . . . . . . 3,910,000 BBB 3,640,601
7.25%, 11/1/30 . . . . . . . . . . . . . . . . . . . . 5,000,000 BBB 4,499,700
Midland County, TX, Hospital District,
Midland Memorial Hospital, 7.5%, 6/1/16 . . . . . . . . 1,500,000 BBB 1,499,850
Retama Development Corporation, Special Facilities
Revenue, Retama Park Racetrack Project,
Series 1993, 8.75%, 12/15/18 . . . . . . . . . . . . . 5,000,000 NR 4,850,000
Rio Grande Valley, TX, Health Facilities Development
Corp., Retirement Facility Revenue,
6.2%, 8/1/06 (c) . . . . . . . . . . . . . . . . . . . 1,600,000 AAA 1,597,280
UTAH Salt Lake City, UT, Hospital Revenue, Intermountain
Healthcare Systems, 6.65%, 2/15/12 . . . . . . . . . . 2,000,000 AA 1,821,060
VERMONT Swanton, VT, Electric System Revenue, Series 1993,
6.7%, 12/1/23 . . . . . . . . . . . . . . . . . . . . . 1,155,000 BBB 1,065,961
Vermont Housing Finance Agency, Multi-Family
Housing Revenue, Northgate Housing Project,
8.25%, 6/15/20 . . . . . . . . . . . . . . . . . . . . 1,080,000 NR 1,084,990
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
- -------------------------------------------------------------------------------

(a) The cost for federal income tax purposes was $271,298,551. At
December 31, 1994, net unrealized depreciation for all
securities was $15,218,827. This consisted of aggregate gross
unrealized appreciation for all securities in which there was
an excess of market value over tax cost of $2,105,069 and
aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of
$17,323,896.

<TABLE>
(b) At December 31, 1994 these securities, in part, have been pledged to
cover initial margin requirements for open futures contracts. AT
DECEMBER 31, 1994, OPEN FUTURES CONTRACTS SOLD SHORT WERE AS
FOLLOWS (NOTE A):

<CAPTION>
Aggregate
Futures Expiration Contracts Face Value ($) Market Value ($)
------- ---------- --------- -------------- ----------------
<S> <C> <C> <C> <C>
Muni Bond Index Mar. 1995 350 28,108,438 29,717,188
--- ---------- ----------
Total net unrealized depreciation on open futures contracts
sold short ............................................... (1,608,750)
===========
</TABLE>

(d) All of the securities held have been determined to be of the
appropriate credit quality as required by the Fund's investment
objectives. Credit ratings are either Standard & Poor's Ratings
Group, Moody's Investors Service, Inc. or Fitch Investors
Service, Inc. Unrated securities (NR) have been determined to
be of comparable quality to rated eligible securities.

* Floating rate and monthly, weekly, or daily demand notes are
securities whose yields vary with a designated market index or
market rate, such as the coupon-equivalent of the Treasury bill
rate. Variable rate demand notes are securities whose yields are
periodically reset at levels that are generally comparable to
tax-exempt commercial paper. These securities are payable on
demand within seven calendar days and normally incorporate an
irrevocable letter of credit or line of credit from a major bank.
These notes are carried, for purposes of calculating average
weighted maturity, at the longer of the period remaining until the
next rate change or to the extent of the demand period.

** Inverse floating rate notes are instruments whose yields have an
inverse relationship to benchmark interest rates. These securities
are shown at their rate as of December 31, 1994.

*** Prerefunded: Bonds which are prerefunded are collateralized by U.S.
Treasury securities which are held in escrow and are used to pay
principal and interest on the tax-exempt issue and to retire the
bonds in full at the earliest refunding date.

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------

STATEMENT OF ASSETS AND LIABILITIES

DECEMBER 31, 1994
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $271,298,551)
(Note A) . . . . . . . . . . . . . . . . . . . . . . . $256,079,724

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 18,136
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . . . . 5,064,255
Fund shares sold . . . . . . . . . . . . . . . . . . . 649,246
Daily variation margin on open futures contracts
(Note A) . . . . . . . . . . . . . . . . . . . . . 86,540
------------
Total assets . . . . . . . . . . . . . . . . . . . 261,897,901
LIABILITIES
Payables:
Dividends . . . . . . . . . . . . . . . . . . . . . . $ 429,190
Fund shares redeemed . . . . . . . . . . . . . . . . . 1,458,388
Accrued management fee (Note C) . . . . . . . . . . . 142,211
Other accrued expenses (Note C) . . . . . . . . . . . 90,882
----------
Total liabilities . . . . . . . . . . . . . . . . . 2,120,671
------------
Net assets, at market value . . . . . . . . . . . . . . . $259,777,230
============
NET ASSETS
Net assets consist of:
Undistributed net investment income . . . . . . . . . $ 969,296
Unrealized depreciation on:
Investments . . . . . . . . . . . . . . . . . . . . (15,218,827)
Futures . . . . . . . . . . . . . . . . . . . . . . (1,608,750)
Accumulated net realized loss . . . . . . . . . . . . (2,915,503)
Shares of beneficial interest . . . . . . . . . . . . 239,101
Additional paid-in capital . . . . . . . . . . . . . . 278,311,913
------------
Net assets, at market value . . . . . . . . . . . . . . . $259,777,230
============
NET ASSET VALUE, offering and redemption price per share
($259,777,230 -:- 23,910,066 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) . . . . . . . . . . . . . . . . $10.86
======
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER HIGH YIELD TAX FREE FUND
- ------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 20,148,609

Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . $ 1,526,385
Services to shareholders (Note C) . . . . . . . . . . . . 502,425
Trustees' fees (Note C) . . . . . . . . . . . . . . . . . 46,639
Custodian fees . . . . . . . . . . . . . . . . . . . . . 113,497
Reports to shareholders . . . . . . . . . . . . . . . . . 65,879
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . 10,704
Auditing . . . . . . . . . . . . . . . . . . . . . . . . 38,881
State registration . . . . . . . . . . . . . . . . . . . 38,838
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 25,186 2,368,434
----------- ------------
Net investment income . . . . . . . . . . . . . . . . . . 17,780,175
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investments . . . . . . . . . . . . . . . . . . . . . (1,082,983)
Futures . . . . . . . . . . . . . . . . . . . . . . . 59,125 (1,023,858)
-----------
Net unrealized depreciation during the period on:
Investments . . . . . . . . . . . . . . . . . . . . . (41,412,737)
Futures . . . . . . . . . . . . . . . . . . . . . . . (1,617,088) (43,029,825)
----------- ------------
Net loss on investments . . . . . . . . . . . . . . . . . (44,053,683)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $(26,273,508)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . $ 17,780,175 $ 14,828,169
Net realized gain (loss) from investment
transactions . . . . . . . . . . . . . . . . . . (1,023,858) 4,969,517
Net unrealized appreciation (depreciation)
on investments during the period . . . . . . . . (43,029,825) 14,696,169
------------- ------------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . . . (26,273,508) 34,493,855
------------- ------------
Distributions to shareholders:
From net investment income ($.66 and $.67
per share) . . . . . . . . . . . . . . . . . . . (16,810,879) (14,828,169)
------------- ------------
From net realized gains from investment
transactions ($.21 per share) . . . . . . . . . -- (4,987,337)
------------- ------------
In excess of net realized gains from
investment transactions ($.07 per share) . . . . -- (1,840,038)
------------- ------------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . . . 126,895,781 166,336,215
Net asset value of shares issued to
shareholders in reinvestment of
distributions . . . . . . . . . . . . . . . . . 10,306,439 15,789,918
Cost of shares redeemed . . . . . . . . . . . . . . (151,370,479) (81,609,781)
------------- ------------
Net increase (decrease) in net assets from
Fund share transactions . . . . . . . . . . . . (14,168,259) 100,516,352
------------- ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . (57,252,646) 113,354,663
Net assets at beginning of period . . . . . . . . . 317,029,876 203,675,213
------------- ------------
NET ASSETS AT END OF PERIOD (including
undistributed net investment income
of $969,296 at December 31, 1994) . . . . . . . $ 259,777,230 $317,029,876
============= ============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . . . . 25,261,001 17,112,783
------------- ------------
Shares sold . . . . . . . . . . . . . . . . . . . . 10,881,281 13,421,387
Shares issued to shareholders in
reinvestment of distributions . . . . . . . . . 974,025 1,267,853
Shares redeemed . . . . . . . . . . . . . . . . . . (13,206,241) (6,541,022)
------------- ------------
Net increase (decrease) in Fund shares . . . . . . (1,350,935) 8,148,218
------------- ------------
Shares outstanding at end of period . . . . . . . . 23,910,066 25,261,001
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER HIGH YIELD TAX FREE FUND
FINANCIAL HIGHLIGHTS

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.

<CAPTION>
FOR THE PERIOD
JANUARY 22, 1987
(COMMENCEMENT
YEARS ENDED DECEMBER 31, OF OPERATIONS) TO
-------------------------------------------------------- DECEMBER 31,
1994 1993 1992 1991 1990 1989 1988 1987
-------------------------------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period . . . $12.55 $11.90 $11.67 $11.19 $11.35 $11.06 $10.52 $12.00
------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (a) . . . . . . . . .70 .67 .72 .76 .77 .76 .83 .78
Net realized and unrealized gain
(loss) on investments . . . . . . . . . (1.73) .93 .50 .69 (.11) .35 .54 (1.48)
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations . . . . . (1.03) 1.60 1.22 1.45 .66 1.11 1.37 (.70)
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment income . . . . . . . (.66) (.67) (.72) (.76) (.77) (.76) (.83) (.78)
From net realized gains on
investment transactions . . . . . . . . -- (.21) (.27) (.21) (.05) (.06) -- --
In excess of net realized gains
on investment transactions . . . . . . . -- (.07) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions . . . . . . . . . . . . (.66) (.95) (.99) (.97) (.82) (.82) (.83) (.78)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period . . . . . . $10.86 $12.55 $11.90 $11.67 $11.19 $11.35 $11.06 $10.52
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) . . . . . . . . . . . . . (8.38) 13.85 10.88 13.36 6.02 10.32 13.48 (5.81)**

<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Scudder High Yield Tax Free Fund (the "Fund") is organized as a diversified
series of Scudder Municipal Trust, a Massachusetts business trust, which is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The policies described below are followed by the
Fund in the preparation of its financial statements in conformity with
generally accepted accounting principles.

FUTURES CONTRACTS. The Fund may enter into financial futures contracts for bona
fide hedging purposes. During the year ended December 31, 1994, to hedge
against the negative effects of rising interest rates, the Fund sold Municipal
Bond Index Futures contracts.

<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------

Upon entering into a futures contract, the Fund is required to deposit with a
broker an amount ("initial margin") equal to a certain percentage of the
purchase price indicated in the futures contract. Subsequent payments
("variation margin") are made or received by the Fund each day, dependent on
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 the Fund enters into a closing transaction, the Fund will realize,
for book purposes, 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 from the contingency of imperfect market
conditions.

AMORTIZATION AND ACCRETION. All premiums and original issue discounts are
amortized/accreted for both tax and financial reporting purposes.

FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies and to distribute all of its taxable and tax exempt income to its
shareholders. The Fund accordingly paid no federal income taxes and no
provision for federal income taxes was required.

At December 31, 1994, the Fund had a net tax basis capital loss carryforward of
approximately $2,144,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until December
31, 2002, the expiration date. In addition, from November 1, 1994 through
December 31, 1994, the Fund incurred approximately $1,713,000 of net realized
capital losses. As permitted by tax regulations, the Fund intends to elect to
defer these losses and treat them as arising in the fiscal year ending December
31, 1995.

DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of the Fund
is declared as a dividend to shareholders of record as of the close of business
each day and is paid to shareholders monthly. During any particular year, net
realized gains from investment transactions, in excess of available capital
loss carryforwards, would be taxable to the Fund if not distributed and,
therefore, will be distributed to shareholders. An additional distribution may
be made to the extent necessary to avoid the payment of a four percent federal
excise tax.

<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.
These differences primarily relate to investments 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.

OTHER. Investment transactions are accounted for on a trade-date basis.
Interest income is accrued pro rata to the earlier of call or maturity.

B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
Purchases and sales of long-term municipal investments for the year ended
December 31, 1994, were $98,979,700 and $124,452,505, respectively.

The aggregate face value of futures contracts opened and closed during the year
ended December 31, 1994 was $73,731,788 and $46,663,563, respectively.

C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment objectives, policies, and
restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides
certain administrative services in accordance with the Agreement. The
management fee payable under the Agreement is equal to an annual rate of 0.70%
on the first $200,000,000 of average daily net assets, and 0.65% of such net
assets in excess of $200,000,000, computed and accrued daily and payable
monthly. The Agreement also provides that if the Fund's expenses exclusive of
taxes, interest, and extraordinary expenses, exceed specified limits, such
excess, up to the amount of the management fee, will be paid by the Adviser.

<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------

For the year ended December 31, 1994, the fee pursuant to the Agreement
amounted to $1,526,385 which was equivalent to an annual effective rate of .52%
of the Fund's average daily net assets. The Adviser has agreed not to impose
all or a portion of its management fee until April 30, 1995, and during such
period to maintain the annualized expenses of the Fund at not more than .80% of
average daily net assets. For the year ended December 31, 1994, the Adviser did
not impose a portion of its management fee amounting to $498,322.

Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
For the year ended December 31, 1994, the amount charged to the Fund by SSC
aggregated $374,557 of which $28,046 is unpaid at December 31, 1994.

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

TO THE TRUSTEES OF SCUDDER MUNICIPAL TRUST AND THE SHAREHOLDERS OF SCUDDER HIGH
YIELD TAX FREE FUND:

We have audited the accompanying statement of assets and liabilities of Scudder
High Yield Tax Free Fund, including the investment portfolio, as of December
31, 1994, and the related statement of operations for the year then ended, the
statements of changes in net assets and the financial highlights for each of
the seven years in the period then ended and for the period January 22, 1987
(commencement of operations) to December 31, 1987. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder High Yield Tax Free Fund as of December 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the seven years in the period then ended and for the period January 22, 1987
(commencement of operations) to December 31, 1987, in conformity with generally
accepted accounting principles.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 21, 1995

<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
TAX INFORMATION
- --------------------------------------------------------------------------------

By now shareholders for whom year-end tax reporting is required by the IRS
should have received their Form 1099-DIV and tax information letter from the
Fund. For corporate shareholders no amount of the income dividends paid by the
Fund qualified for the dividends received deduction.

Of the dividends paid from net investment income for the fiscal year ended
December 31, 1994, 13.5% should be treated as an item of tax preference for
purposes of the federal alternative minimum tax, if applicable. Pursuant to
section 852 of the Internal Revenue Code, the Fund designates $17,800,000 as
exempt-interest dividends for the fiscal year ended December 31, 1994.

OFFICERS AND TRUSTEES

David S. Lee*
President and Trustee

Daniel Pierce*
Vice President and Trustee

Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation

Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director

Peter B. Freeman
Trustee; Corporate Director and Trustee

Dudley H. Ladd*
Trustee

George M. Lovejoy, Jr.
Trustee; Chairman Emeritus, Meredith & Grew, Incorporated

Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
College of Business Administration

Juris Padegs*
Trustee

Donald C. Carleton*
Vice President

Cuyler W. Findlay*
Vice President

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

Edward J. O'Connell*
Vice President and Assistant Treasurer

Coleen Downs Dinneen*
Assistant Secretary

* Scudder, Stevens & Clark, Inc.

INVESTMENT PRODUCTS AND SERVICES

The Scudder Family of Funds

Retirement Plans and Tax-Advantaged Investments

IRAs
Keogh Plans
Scudder Horizon Plan+++* (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase
Pension Plans

Closed-end Funds#

Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++

For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from
the tax-free funds may be subject to federal, state and local taxes. *Not
available in all states. +++A no-load variable annuity contract provided by
Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder, Stevens & Clark, Inc., are traded on various stock exchanges.
++For information on Scudder Treasurers Trust(tm), an institutional cash
management service that utilizes certain portfolios of Scudder Fund, Inc.
($100,000 minimum), call: 1-800-541-7703.

HOW TO CONTACT SCUDDER

Account Service and Information

For existing account service and transactions

SCUDDER INVESTOR RELATIONS
1-800-225-5163

For account updates, prices, yields, exchanges and redemptions

SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890

Investment Information

To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions

SCUDDER INVESTOR RELATIONS
1-800-225-2470

For establishing 401(k) and 403(b) plans

SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105

Please address all correspondence to

THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291

Or stop by a Scudder Funds Center

Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can be
found in the following cities:

Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale

For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts
which utilizes certain portfolios of Scudder Fund, Inc.* ($100,000
minimum), call: 1-800-541-7703.

For information on Scudder Institutional Funds,* funds designed to meet the
broad investment management and service needs of banks and other
institutions, call: 1-800-854-8525.

Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.

* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees
and expenses. Please read it carefully before you invest or send
money.

Celebrating 75 Years of Serving Investors

PART C. OTHER INFORMATION

Item 24. Financial Statements and Exhibits.

a. Financial Statements:

Included in Part A:

Scudder Medium Term Tax Free Fund:

Financial Highlights for the ten fiscal years
ended December 31, 1994

Scudder Limited Term Tax Free Fund:

Financial Highlights for the period February
15, 1994 (commencement of
operations) to October 31, 1994

Included in Part B:

Scudder Medium Term Tax Free Fund:

Investment Portfolio as of December 31, 1994
Statement of Assets and Liabilities as of
December 31, 1994
Statement of Operations for the fiscal year
ended December 31, 1994
Statements of Changes in Net Assets for the
two fiscal years ended December 31, 1994
Financial Highlights for the ten fiscal
years ended December 31, 1994
Notes to Financial Statements
Report of Independent Accountants

Scudder Limited Term Tax Free Fund:

Investment Portfolio as of October 31, 1994
Statement of Assets and Liabilities as of
October 31, 1994
Statement of Operations for the period
February 15, 1994 (commencement of
operations) to October 31, 1994
Statement of Changes in Net Assets for the
period February 15, 1994 (commencement of
operations) to October 31, 1994
Financial Highlights for the period February
15, 1994 (commencement of operations) to
October 31, 1994
Notes to Financial Statements
Report of Independent Accountants

Statements, schedules and historical information
other than those listed above have been omitted since
they are either not applicable or are not required.

<TABLE>
<CAPTION>
b. Exhibits:
<S> <C>

All references are to the Registrant's Registration Statement on
Form N-1A filed with the Securities and Exchange Commission on
December 29, 1982. File No. 2-81105 and 811-3632 (the "Registration
Statement").

1
<PAGE>

1. (a) Amended and Restated Declaration of Trust dated December 29, 1987 is
incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement.

(b) Amendment dated May 1, 1992 to the Amended and Restated Declaration
of Trust dated December 29, 1987 is incorporated by reference to
Post-Effective Amendment No. 15 to the Registration Statement.

(c) Establishment and Designation of Additional Series of shares dated
April 1, 1985 is incorporated by reference to Post-Effective
Amendment No. 8 to the Registration Statement.

(d) Instrument dated November 2, 1990 Redesignating Series of Shares of
Beneficial Interest is incorporated by reference to Post-Effective
Amendment No. 13 to the Registration Statement.

2. (a) By-Laws dated December 28, 1982 is incorporated by reference to the
Registration Statement.

(b)(1) Amendment dated August 13, 1991 to the By-Laws of the Registrant is
incorporated by reference to Post-Effective Amendment No. 14 to the
Registration Statement.

(b)(2) Amendment dated December 10, 1991 to the By-Laws of the Registrant
is incorporated by reference to Post-Effective Amendment No. 14 to
the Registration Statement.

3. Inapplicable.

4. Specimen certificate representing shares of beneficial interest,
with $.01 par value is incorporated by reference to Post Effective
Amendment No. 11 to the Registration Statement.

5. (a) Investment Advisory Agreement between the Registrant and Scudder,
Stevens & Clark, Inc. on behalf of Scudder Medium Term Tax Free
Fund, formerly the 1990 Portfolio of the Trust, dated December 10,
1985 is incorporated by reference to Post-Effective Amendment No. 8
to the Registration Statement.

(b) Investment Advisory Agreement between the Registrant and Scudder,
Stevens & Clark, Inc. on behalf of Scudder Medium Term Tax Free Fund
dated August 10, 1993 is incorporated by reference to Post-Effective
Amendment No. 18 to the Registration Statement.

(c) Investment Management Agreement between the Registrant and Scudder,
Stevens & Clark, Inc. on behalf of Scudder Limited Term Tax Free
Fund dated February 15, 1994 is incorporated by reference to
Post-Effective Amendment No. 19 to the Registration Statement.

6. Underwriting Agreement with Scudder Investor Services, Inc.,
formerly Scudder Fund Distributors, Inc., dated September 10, 1985
is incorporated by reference to Post-Effective Amendment No. 18 to
the Registration Statement.

2
<PAGE>

7. Inapplicable.

8. (a) Custodian Contract with State Street Bank and Trust Company ("State
Street Bank") dated April 12, 1983 is incorporated by reference to
Post-Effective Amendment No. 3 to the Registration Statement.

(b)(1) Amendment to the Custodian Agreement between the Registrant and State
Street Bank dated August 9, 1988 is incorporated by reference to
Post-Effective Amendment No. 11 to the Registration Statement.

(b)(2) Amendment to the Custodian Agreement between the Registrant and State
Street Bank dated December 11, 1990 is incorporated by reference to
Post-Effective Amendment No. 13 to the Registration Statement.

(c) Fee schedule for Exhibit 8(a) is incorporated by reference to
Post-Effective Amendment No. 9 to the Registration Statement.

(d) Subcustodian Agreement between State Street Bank and Morgan Guaranty
Trust Company of New York dated November 25, 1985 is incorporated by
reference to Post-Effective Amendment No. 8 to the Registration
Statement.

(e) Subcustodian Agreement between Irving Trust Company and State Street
Bank dated November 30, 1987 is incorporated by reference to
Post-Effective Amendment No. 11 to the Registration Statement.

(f) Subcustodian Agreement between Chemical Bank and State Street Bank
dated May 31, 1988 is incorporated by reference to Post-Effective
Amendment No. 11 to the Registration Statement.

(g) Subcustodian Agreement between Security Pacific Bank and Trust
Company (New York) and State Street Bank dated February 18, 1988 is
incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement.

(h) Subcustodian Agreement between Bankers Trust Company and State
Street Bank dated August 15, 1989, filed May 1, 1990, and
incorporated by reference to Post-Effective Amendment No. 12 to
the Registration Statement.

(i) Fee schedule for Exhibit 8(a) is incorporated by reference to
Post-Effective Amendment No. 20 to the Registration Statement.

9. (a)(1) Transfer Agency and Service Agreement between the Registrant and
Scudder Service Corporation dated October 2, 1989 is incorporated by
reference to Post-Effective Amendment No. 12 to the Registration
Statement.

(a)(2) Fee Schedule for Exhibit 9(a)(1) is incorporated by reference to
Post-Effective Amendment No. 12 to the Registration Statement.

3
<PAGE>

(a)(3) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Limited Term Tax Free Fund, and Scudder Fund Accounting
Corporation dated February 15, 1994 is incorporated by reference
to Post-Effective Amendment No. to the Registration Statement.

(a)(4) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Medium Term Tax Free Fund, and Scudder Fund Accounting
Corporation dated February 21, 1995 is filed herein.

(b) Inapplicable.

10. Opinion of Counsel is filed herein.

11. Consent of Independent Accountants is filed herein.

12. Article 6 Financial Data Schedules are filed herein.

13. Inapplicable.

14. Inapplicable.

15. Inapplicable.

16. Schedule for Computation of Performance Calculation is incorporated
by reference to Post-Effective Amendment No. 11 to the Registration
Statement.

Power of Attorney is incorporated by reference to the signature page
to Post-Effective Amendment No. 13 to the Registration Statement and
is filed herein.
</TABLE>

Item 25. Persons Controlled by or under Common Control with Registrant.

None

Item 26. Number of Holders of Securities (as of April 1, 1995).

<TABLE>
<CAPTION>
(1) (2)
Title of Class Number of Record Shareholders
<C> <C>

Shares of Beneficial Interest
($.01 par value)
Scudder Medium Term Tax Free Fund 17,019
Scudder Limited Term Tax Free Fund 1,588

</TABLE>

Item 27. Indemnification.

A policy of insurance covering Scudder, Stevens & Clark Inc.,
its subsidiaries including Scudder Investor Services, Inc.,
and all of the registered investment companies advised by
Scudder, Stevens & Clark Inc. insures the Registrant's
Trustees and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent
act, error or accidental omission in the scope of their
duties.

Article IV, Sections 4.1-4.3 of Registrant's Declaration
of Trust provides as follows:

4
<PAGE>

Section 4.1. No Personal Liability of Shareholders,
Trustees, etc. No Shareholder shall be subject to any
personal liability whatsoever to any Person in
connection with Trust Property or the acts,
obligations or affairs of the Trust. No Trustee,
officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever to any
Person, other than to the Trust or its Shareholders,
in connection with Trust Property or the affairs of
the Trust, save only that arising from bad faith,
willful misfeasance, gross negligence or reckless
disregard of his duties with respect to such Person;
and all such Persons shall look solely to the Trust
Property for satisfaction of claims of any nature
arising in connection with the affairs of the Trust.
If any Shareholder, Trustee, officer, employee, or
agent, as such, of the Trust, is made a party to any
suit or proceeding to enforce any such liability of
the Trust, he shall not, on account thereof, be held
to any personal liability. The Trust shall indemnify
and hold each Shareholder harmless from and against
all claims and liabilities, to which such Shareholder
may become subject by reason of his being or having
been a Shareholder, and shall reimburse such
Shareholder for all legal and other expenses
reasonably incurred by him in connection with any
such claim or liability. The indemnification and
reimbursement required by the preceding sentence
shall be made only out of the assets of the one or
more Series of which the Shareholder who is entitled
to indemnification or reimbursement was a Shareholder
at the time the act or event occurred which gave rise
to the claim against or liability of said
Shareholder. The rights accruing to a Shareholder
under this Section 4.1 shall not impair any other
right to which such Shareholder may be lawfully
entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation
even though not specifically provided herein.

Section 4.2. Non-Liability of Trustees, etc. No
Trustee, officer, employee or agent of the Trust
shall be liable to the Trust, its Shareholders, or to
any Shareholder, Trustee, officer, employee, or agent
thereof for any action or failure to act (including
without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful
misfeasance, gross negligence or reckless disregard
of the duties involved in the conduct of his office.

Section 4.3 Mandatory Indemnification. (a) Subject
to the exceptions and limitations contained in
paragraph (b) below:

(i) every person who is, or has been, a
Trustee or officer of the Trust shall be
indemnified by the Trust to the fullest
extent permitted by law against all
liability and against all expenses
reasonably incurred or paid by him in
connection with any claim, action, suit or
proceeding in which he becomes involved as a
party or otherwise by virtue of his being or
having been a Trustee or officer and against
amounts paid or incurred by him in the
settlement thereof;

(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims,
actions, suits or proceedings (civil,
criminal, administrative, or other,
including appeals), actual or threatened;
and the words "liability" and "expenses"
shall include, without limitation,
attorneys' fees, costs, judgments, amounts
paid in settlement, fines, penalties and
other liabilities.

(b) No indemnification shall be provided hereunder to
a Trustee or officer:

(i) against any liability to the Trust, a
series thereof, or the Shareholders by
reason of a final adjudication by a court or
other body before which a proceeding was
brought that he engaged in willful
misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in
the conduct of his office;

5
<PAGE>

(ii) with respect to any matter as to which
he shall have been finally adjudicated not
to have acted in good faith in the
reasonable belief that his action was in the
best interest of the Trust;

(iii) in the event of a settlement or other
disposition not involving a final
adjudication as provided in paragraph (b)(i)
or (b)(ii) resulting in a payment by a
Trustee or officer, unless there has been a
determination that such Trustee or officer
did not engage in willful misfeasance, bad
faith, gross negligence or reckless
disregard of the duties involved in the
conduct of his office;

(A) by the court or other body
approving the settlement or other
disposition; or

(B) based upon a review of readily
available facts (as opposed to a
full trial-type inquiry) by (x) vote
of a majority of the Disinterested
Trustees acting on the matter
(provided that a majority of the
Disinterested Trustees then in
office act on the matter) or (y)
written opinion of independent legal
counsel.

(c) The rights of indemnification herein provided may
be insured against by policies maintained by the
Trust, shall be severable, shall not affect any other
rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a person
who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing
contained herein shall affect any rights to
indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by
contract or otherwise under law.

(d) Expenses of preparation and presentation of a
defense to any claim, action, suit, or proceeding of
the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust prior to
final disposition thereof upon receipt of an
undertaking by or on behalf of the recipient, to
repay such amount if it is ultimately determined that
he is not entitled to indemnification under this
Section 4.3, provided that either:

(i) such undertaking is secured by a surety
bond or some other appropriate security
provided by the recipient, or the Trust
shall be insured against losses arising out
of any such advances; or

(ii) a majority of the Disinterested
Trustees acting on the matter (provided that
a majority of the Disinterested Trustees act
on the matter) or an independent legal
counsel in a written opinion shall
determine, based upon a review of readily
available facts (as opposed to a full
trial-type inquiry), that there is reason to
believe that the recipient ultimately will
be found entitled to indemnification.

As used in this Section 4.3, a
"Disinterested Trustee" is one who is not
(i) an "Interested Person" of the Trust
(including anyone who has been exempted from
being an "Interested Person" by any rule,
regulation or order of the Commission), or
(ii) involved in the claim, action, suit or
proceeding.

Item 28. Business or Other Connections of Investment Adviser

The Adviser has stockholders and employees who are denominated
officers but do not as such have corporation-wide
responsibilities. Such persons are not considered officers for
the purpose of this Item 28.

6
<PAGE>

Business and Other Connections of Board
Name of Directors of Registrant's Adviser
<S> <C>

Stephen R. Beckwith Director, Scudder, Stevens & Clark, Inc. (investment adviser)**

Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V. (investment
company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company) +
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company) +
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
Trustee, Scudder Funds Trust (investment company)*
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
President & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Director, Inverlatin Dollar Income Fund, Inc. (investment company) Georgetown, Grand
Cayman, Cayman Islands
Director, ProMexico Fixed Income Dollar Fund, Inc. (investment company) Georgetown,
Grand Cayman, Cayman Islands
Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
Partner, George Birdsong Co., Rye, NY

Nicholas Bratt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, Scudder New Europe Fund, Inc. (investment company)**
President & Director, The Brazil Fund, Inc. (investment company)**
President & Director, The First Iberian Fund, Inc. (investment company)**
President & Director, Scudder International Fund, Inc. (investment company)**
President & Director, Scudder Global Fund, Inc. (Director only on Scudder Global Fund,
a series of Scudder Global Fund, Inc.) (investment company)**
President & Director, The Korea Fund, Inc. (investment company)**
President & Director, Scudder New Asia Fund, Inc. (investment company)**
President, The Argentina Fund, Inc. (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Vice President, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Vice President, Scudder, Stevens & Clark Overseas Corporationoo

Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director, Scudder Investor Services, Inc. (broker/dealer)**
President & Trustee, AARP Cash Investment Funds (investment company)**
President & Trustee, AARP Growth Trust (investment company)**
President & Trustee, AARP Income Trust (investment company)**
President & Trustee, AARP Tax Free Income Trust (investment company)**
Director, SFA, Inc. (advertising agency)*

Margaret D. Hadzima Director, Scudder, Stevens & Clark, Inc. (investment adviser)*

Jerard K. Hartman Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder California Tax Free Trust (investment company)*
Vice President, Scudder Equity Trust (investment company)*

7
<PAGE>

Vice President, Scudder Cash Investment Trust (investment company)*
Vice President, Scudder Development Fund (investment company)*
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President, Scudder Portfolio Trust (investment company)*
Vice President, Scudder International Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President, Scudder Municipal Trust (investment company)*
Vice President, Scudder Mutual Funds, Inc. (investment company)**
Vice President, Scudder New Asia Fund, Inc. (investment company)**
Vice President, Scudder New Europe Fund, Inc. (investment company)**
Vice President, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder Funds Trust (investment company)*
Vice President, Scudder Tax Free Money Fund (investment company)*
Vice President, Scudder Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President, Scudder Variable Life Investment Fund (investment company)*
Vice President, The Brazil Fund, Inc. (investment company)**
Vice President, The Korea Fund, Inc. (investment company)**
Vice President, The Argentina Fund, Inc. (investment company)**
Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian
investment adviser) Toronto, Ontario, Canada
Vice President, The First Iberian Fund, Inc. (investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**

Richard A. Holt Director, Scudder, Stevens & Clark, Inc. (investment adviser)++
Vice President, Scudder Variable Life Investment Fund (investment company)*

Dudley H. Ladd Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Senior Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)*
Vice President & Trustee, Scudder Cash Investment Trust (investment company)*
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President & Treasurer, SFA, Inc. (advertising agency)*

Douglas M. Loudon Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President & Trustee, Scudder Development Fund (investment company)*
Vice President & Trustee, Scudder Equity Trust (investment company)*
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President & Director, Scudder Mutual Funds, Inc. (investment company)**
Vice President, AARP Cash Investment Funds (investment company)**
Vice President, AARP Growth Trust (investment company)**
Vice President, AARP Income Trust (investment company)**
Vice President, AARP Tax Free Income Trust (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Chairman, World Capital Fund (investment company) Luxembourg ##

8
<PAGE>

Managing Director, Kankaku - Scudder Capital Asset Management Corporation (investment
adviser)**
Chairman & Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
President, The Japan Fund, Inc. (investment company)**
Trustee, Scudder, Stevens & Clark Supplemental Retirement Income Plan
Trustee, Scudder, Stevens & Clark Profit Sharing Plan **
Chairman & Director, The World Capital Fund (investment company) Luxembourg
Chairman & Director, Scudder, Stevens & Clark (Luxembourg), S.A., Luxembourg#
Chairman, Canadian High Income Fund (investment company) #
Chairman, Hot Growth Companies Fund (investment company) #
Vice President & Director, Scudder Precious Metals, Inc. xxx
Director, Berkshire Farm & Services for Youth
Board of Governors & President, Investment Counsel Association of America

John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, Montgomery Street Income Securities, Inc. (investment company) o
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x

Juris Padegs Secretary & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Director, The Brazil Fund, Inc. (investment company)**
Trustee, Scudder Development Fund (investment company)*
Vice President & Trustee, Scudder Equity Trust (investment company)*
Chairman & Director, The First Iberian Fund, Inc. (investment company)**
Trustee, Scudder Funds Trust (investment company)*
Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment company)**
Trustee, Scudder Investment Trust (investment company)*
Vice President, Assistant Secretary & Director, Scudder International Fund, Inc.
(investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Trustee, Scudder Municipal Trust (investment company)*
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Assistant Secretary & Director, Scudder New Asia Fund, Inc. (investment
company)**
Vice President & Trustee, Scudder Tax Free Money Fund (investment company)*
Trustee, Scudder Tax Free Trust (investment company)*
Chairman & Director, The Korea Fund, Inc. (investment company)**
Vice President & Director, The Argentina Fund, Inc. (investment company)**
Secretary, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser),
Toronto, Ontario, Canada
Vice President & Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Assistant Secretary, SFA, Inc. (advertising agency)*
Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)**
Assistant Treasurer & Director, Kankaku - Scudder Capital Asset Management (investment
adviser)**
Chairman & Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Chairman & Supervisory Director, Sovereign High Yield Investment Company N.V.
(investment company) +
Director, President Investment Trust Corporation (Joint Venture)***
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**

9
<PAGE>

Director, Vice President & Assistant Secretary, Scudder Precious Metals, Inc. xxx
Vice President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman, Scudder, Stevens & Clark Overseas Corporationoo
Director, Scudder Trust (Cayman) Ltd. (trust services company)xxx
Director, ICI Mutual Insurance Company, Inc., Washington, D.C.
Director, Baltic International USA
Director, Baltic International Airlines (a limited liability company) Riga, Latvia

Daniel Pierce Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, California Tax Free Trust (investment company)*
President & Trustee, Scudder Development Fund (investment company)**
President & Trustee, Scudder Equity Trust (investment company)**
Director, The First Iberian Fund, Inc. (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment company)*
President & Trustee, Scudder Funds Trust (investment company)*
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc. (investment company)**
Director, Scudder International Fund, Inc. (investment company)**
President & Trustee, Scudder Investment Trust (investment company)*
Vice President & Trustee, Scudder Municipal Trust (investment company)*
President & Director, Scudder Mutual Funds, Inc. (investment company)**
Director, Scudder New Asia Fund, Inc. (investment company)**
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President & Trustee, Scudder Variable Life Investment Fund (investment company)*
Director, The Brazil Fund, Inc. (until 7/94) (investment company)**
Vice President & Assistant Treasurer, Montgomery Street Income Securities, Inc.
(investment company)o
Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser), Toronto, Ontario, Canada
Chairman, Assistant Treasurer & Director, Scudder, Stevens & Clark, Inc. (investment
adviser)**
President & Director, Scudder Precious Metals, Inc. xxx
Chairman & Director, Scudder Global Opportunities Funds (investment company) Luxembourg
Chairman, Scudder, Stevens & Clark, Ltd. (investment adviser) London, England
Director, Scudder Fund Accounting Corporation (in-house fund accounting agent)*
Director, Scudder Realty Holdings Corporation (a real estate holding company)*
Director, Scudder Latin America Investment Trust PLC (investment company)@
Incorporator, Scudder Trust Company (a trust company)+++
Director, Fiduciary Trust Company (banking & trust company) Boston, MA
Director, Fiduciary Company Incorporated (banking & trust company) Boston, MA
Trustee, New England Aquarium, Boston, MA

Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, AARP Cash Investment Funds (investment company)*
Vice President, AARP Growth Trust (investment company)*
Vice President, AARP Income Trust (investment company)*
Vice President, AARP Tax Free Income Trust (investment company)*

10
<PAGE>

Edmond D. Villani President & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Trustee, Scudder Development Fund (investment company)*
Chairman & Director, Scudder Global Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
Chairman & Director, The Argentina Fund, Inc. (investment company)**
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Supervisory Director, Scudder Mortgage Fund (investment company) +
Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company)+
Director, The Brazil Fund, Inc. (investment company)**
Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
President & Director, Scudder, Stevens & Clark Overseas Corporationoo
President & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Director, IBJ Global Investment Manager S.A., (Luxembourg investment management
company) Luxembourg, Grand-Duchy of Luxembourg

<FN>

* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
++ Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, IL
+++ 5 Industrial Way, Salem, NH
o 101 California Street, San Francisco, CA
# 11, rue Aldringen, L-1118 Luxembourg, Grand-Duchy of Luxembourg
+ John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad Curacao, Netherlands Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter, Devon
</FN>
</TABLE>

Item 29. Principal Underwriters.

(a) Scudder California Tax Free Trust
Scudder Cash Investment Trust
Scudder Development Fund
Scudder Equity Trust
Scudder Fund, Inc.
Scudder Funds Trust
Scudder Global Fund, Inc.
Scudder GNMA Fund
Scudder Institutional Fund, Inc.
Scudder International Fund, Inc.
Scudder Investment Trust
Scudder Municipal Trust
Scudder Mutual Funds, Inc.
Scudder Portfolio Trust
Scudder State Tax Free Trust

11
<PAGE>

Scudder Tax Free Money Fund
Scudder Tax Free Trust
Scudder U.S. Treasury Money Fund
Scudder Variable Life Investment Fund
AARP Cash Investment Funds
AARP Growth Trust
AARP Income Trust
AARP Tax Free Income Trust
The Japan Fund, Inc.

<TABLE>
<CAPTION>
(b)

(1) (2) (3)
<S> <C> <C>

Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant

Charles S. Boit Assistant Treasurer None
Two International Place
Boston, MA 02110

E. Michael Brown Assistant Treasurer None
Two International Place
Boston, MA 02110

Linda Coughlin Director None
345 Park Avenue
New York, NY 10154

Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154

Coleen Downs Dinneen Assistant Clerk Assistant Secretary
Two International Place
Boston, MA 02110

Paul J. Elmlinger Vice President None
345 Park Avenue
New York, NY 10154

Cuyler W. Findlay Senior Vice President and None
345 Park Avenue Director
New York, NY 10154

Thomas W. Joseph Vice President, Director, Vice President
Two International Place Treasurer and Assistant Clerk
Boston, MA 02110

Dudley H. Ladd Senior Vice President and None
Two International Place Director
Boston, MA 02110

David S. Lee President, Assistant President and Trustee
Two International Place Treasurer and Director
Boston, MA 02110

12
<PAGE>

Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant

Douglas M. Loudon Senior Vice President None
345 Park Avenue
New York, NY 10154

Thomas F. McDonough Clerk Vice President and
Two International Place Secretary
Boston, MA 02110

Thomas H. O'Brien Assistant Treasurer None
345 Park Avenue
New York, NY 10154

Edward J. O'Connell Assistant Treasurer Vice President and
345 Park Avenue Assistant Treasurer
New York, NY 10154

Juris Padegs Vice President and Director Trustee
345 Park Avenue
New York, NY 10154

Daniel Pierce Vice President, Director None
Two International Place and Assistant Treasurer
Boston, MA 02110

Robert E. Pruyne Assistant Treasurer None
Two International Place
Boston, MA 02110

Kathryn L. Quirk Vice President None
345 Park Avenue
New York, NY 10154

David B. Watts Assistant Treasurer None
Two International Place
Boston, MA 02110

</TABLE>
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 29.

(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other Compensation
Underwriter Commissions and Repurchases Commissions
<C> <C> <C> <C> <C>

Scudder Investor None None None None
Services, Inc.
</TABLE>

13
<PAGE>

Item 30. Location of Accounts and Records.

Certain accounts, books and other documents required to
be maintained by Section 31(a) of the 1940 Act and the
Rules promulgated thereunder are maintained by Scudder,
Stevens & Clark, Inc., Two International Place, Boston,
Massachusetts 02110. Records relating to the duties of
the Registrant's custodian are maintained by State Street
Bank and Trust Company, Heritage Drive, North Quincy,
Massachusetts.

Item 31. Management Services.

Inapplicable.

Item 32. Undertakings.

None.

14
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 3rd day of April, 1995.
SCUDDER TAX FREE TRUST

By /s/Thomas F. McDonough
Thomas F. McDonough,
Vice President and Secretary

Pursuant to the requirements of the Securities Act of 1933, this amendment
to its Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.

SIGNATURE TITLE DATE

/s/David S. Lee President (Principal April 3, 1995
David S. Lee* Executive Officer)
and Trustee

/s/Dawn-Marie Driscoll Trustee April 3, 1995
Dawn-Marie Driscoll*

/s/Peter B. Freeman Trustee April 3, 1995
Peter B. Freeman*

/s/Wesley W. Marple, Jr. Trustee April 3, 1995
Wesley W. Marple, Jr.*

/s/Juris Padegs Trustee April 3, 1995
Juris Padegs*

/s/Jean C. Tempel Trustee April 3, 1995
Jean C. Tempel*

/s/Pamela A. McGrath Vice President and April 3, 1995
Pamela A. McGrath Treasurer (Principal
Financial and Accounting
Officer)

*By: /s/Thomas F. McDonough
Thomas F. McDonough,
Attorney-in-fact pursuant to powers
of attorney contained in the
signature pages of Post-Effective
Amendment No. 13 to the
Registration Statement filed on
February 28, 1991 and
Post-Effective Amendment No. 21 to
the Registration Statement filed
herein.
<PAGE>

File No. 2-81105
File No. 811-3632

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

EXHIBITS

FORM N-1A

POST-EFFECTIVE AMENDMENT NO. 21

TO REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

AND

AMENDMENT NO. 21

TO REGISTRATION STATEMENT

UNDER

THE INVESTMENT COMPANY ACT OF 1940

SCUDDER TAX FREE TRUST

<PAGE>

SCUDDER TAX FREE TRUST

EXHIBIT INDEX

Exhibit 9(a)(4)

Exhibit 10

Exhibit 11

Exhibit 12

FUND ACCOUNTING SERVICES AGREEMENT

THIS AGREEMENT is made on the 21st day of February, 1995 between Scudder Tax
Free Trust (the "Fund"), on behalf of Scudder Medium Term Tax Free Fund
(hereinafter called the "Portfolio"), a registered open-end management
investment company with its principal place of business in Boston, Massachusetts
and Scudder Fund Accounting Corporation, with its principal place of business in
Boston, Massachusetts (hereinafter called "FUND ACCOUNTING").

WHEREAS, the Portfolio has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;

NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:

Section 1. Duties of FUND ACCOUNTING - General

FUND ACCOUNTING is authorized to act under the terms of this Agreement
as the Portfolio's fund accounting agent, and as such FUND ACCOUNTING
shall:

a. Maintain and preserve all accounts, books, financial records and
other documents as are required of the Fund under Section 31 of
the Investment Company Act of 1940 (the "1940 Act") and Rules
31a-1, 31a-2 and 31a-3 thereunder, applicable federal and state
laws and any other law or administrative rules or procedures
which may be applicable to the Fund on behalf of the Portfolio,
other than those accounts, books and financial records required
to be maintained by the Fund's custodian or transfer agent and/or
books and records maintained by all other service providers
necessary for the Fund to conduct its business as a registered
open-end management investment company. All such books and
records shall be the property of the Fund and shall at all times
during regular business hours be open for inspection by, and
shall be surrendered promptly upon request of, duly authorized
officers of the Fund. All such books and records shall at all
times during regular business hours be open for inspection, upon
request of duly authorized officers of the Fund, by employees or
agents of the Fund and employees and agents of the Securities and
Exchange Commission.

b. Record the current day's trading activity and such other proper
bookkeeping entries as are necessary for determining that day's
net asset value and net income.

c. Render statements or copies of records as from time to time are
reasonably requested by the Fund.

d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by the
Fund or by any regulatory body with jurisdiction over the Fund.

e. Compute the Portfolio's net asset value per share, and, if
applicable, its public offering price and/or its daily dividend
rates and money market yields, in accordance with Section 3 of
the Agreement and notify the Fund and such other persons as the
Fund may reasonably request of the net asset value per share, the
public offering price and/or its daily dividend rates and money
market yields.

1
<PAGE>

Section 2. Valuation of Securities

Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.

Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields

FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.

FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.

Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice

In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:

a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;

b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;

c. The value to be assigned to any asset for which no price
quotations are readily available;

d. If applicable, the manner of computation of the public offering
price and such other computations as may be necessary;

e. Transactions in portfolio securities;

f. Transactions in shares of beneficial interest.

FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.

2
<PAGE>

FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense
of the Portfolio and shall be without liability for any action taken or
thing done in good faith in reliance upon such advice.

FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.

Section 5. Proper Instructions

"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.

The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.

Section 6. Standard of Care and Indemnification

FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.

The Fund agrees, on behalf of the Portfolio, to indemnify and hold
harmless FUND ACCOUNTING and its employees, agents and nominees from
all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable attorneys' fees) incurred or assessed against
them in connection with the performance of this Agreement, except such
as may arise from their own negligent action, negligent failure to act
or willful misconduct. The foregoing notwithstanding, FUND ACCOUNTING
will in no event be liable for any loss resulting from the acts,
omissions, lack of financial responsibility, or failure to perform the
obligations of any person or organization designated by the Fund to be
the authorized agent of the Portfolio as a party to any transactions.

3
<PAGE>

FUND ACCOUNTING's responsibility for damage or loss with respect to the
Portfolio's records arising from fire, flood, Acts of God, military
power, war, insurrection or nuclear fission, fusion or radioactivity
shall be limited to the use of FUND ACCOUNTING's best efforts to
recover the Portfolio's records determined to be lost, missing or
destroyed.

Section 7. Compensation and FUND ACCOUNTING Expenses

FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled
to recover its reasonable telephone, courier or delivery service, and
all other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.

Section 8. Amendment and Termination

This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than ninety (90) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.

Section 9. Services Not Exclusive

FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.

Section 10. Limitation of Liability for Claims

The Fund's Declaration of Trust, dated December 8, 1987, as amended to
date (the "Declaration"), a copy of which, together with all amendments
thereto, is on file in the Office of the Secretary of State of the
Commonwealth of Massachusetts, provides that the name "Scudder Tax Free
Trust" refers to the Trustees under the Declaration collectively as
trustees and not as individuals or personally, and that no shareholder
of the Fund or the Portfolio, or Trustee, officer, employee or agent of
the Fund shall be subject to claims against or obligations of the Trust
or of the Portfolio to any extent whatsoever, but that the Trust estate
only shall be liable.

4
<PAGE>

FUND ACCOUNTING is expressly put on notice of the limitation of
liability as set forth in the Declaration and FUND ACCOUNTING agrees
that the obligations assumed by the Fund and/or the Portfolio under
this Agreement shall be limited in all cases to the Portfolio and its
assets, and FUND ACCOUNTING shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or the
Portfolio or any other series of the Fund, or from any Trustee,
officer, employee or agent of the Fund. FUND ACCOUNTING understands
that the rights and obligations of the Portfolio under the Declaration
are separate and distinct from those of any and all other series of the
Fund.

Section 11. Notices

Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.

If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President

If to the Fund - Portfolio: Scudder Tax Free Trust -
Scudder Medium Term Tax Free Fund
Two International Place
Boston, Massachusetts 02110
Attn: President, Secretary or Treasurer

Section 12. Miscellaneous

This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.

In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.

This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.

This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

5
<PAGE>

This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.

SCUDDER TAX FREE TRUST,
on behalf of Scudder Medium Term Tax Free Fund

By:_____________________________
President

SCUDDER FUND ACCOUNTING CORPORATION

By:_____________________________
Vice President

April 5, 1995

Scudder Tax Free Trust
Two International Place
Boston, Massachusetts 02110

Re: Post-Effective Amendment No. 21 to Registration Statement
(File No. 2-81105) (the "Registration Statement")

Ladies and Gentlemen:

We understand that Scudder Tax Free Trust, a Massachusetts business trust (the
"Trust"), the beneficial interests in which are represented by transferable
shares, $.01 par value per share (the "Shares"), intends to register under the
Securities Act of 1933, as amended, on behalf of Scudder Medium Term Tax Free
Fund, 24,945,600 Shares by Post-Effective Amendment No. 21 to the Trust's
Registration Statement.

We have examined a Long Form Certificate of Existence issued by the Secretary of
the Commonwealth of Massachusetts dated February 22, 1995 and copies, either
certified or otherwise proved to our satisfaction to be genuine, of the Trust's
Declaration of Trust and By-Laws, each as now in effect, and other documents
relating to the organization and operation of the Trust relevant to this
opinion.

Based upon the foregoing, it is our opinion that all necessary action on the
part of the Trust precedent to the issue of the Shares covered by Post-Effective
Amendment No. 21 to the Registration Statement has been duly taken, and that all
such Shares may legally and validly be issued for cash, and when sold will be
fully paid and nonassessable by the Trust upon receipt by the Trust or its agent
of consideration therefor in accordance with the terms described in the
Registration Statement, subject to compliance with the Securities Act of 1933,
as amended, the Investment Company Act of 1940, as amended, and applicable state
laws regulating the sale of securities.

<PAGE>

Scudder Tax Free Trust
April 5, 1995
Page 2

We note, however, that shareholders of a Massachusetts business trust may under
certain circumstances be subject to assessment at the instance of creditors to
pay the obligations of such trust in the event that its assets are insufficient
for the purpose. We note, further, that, as to the various questions of fact
material to the opinion expressed herein, we have relied upon certificates of
officers of the Trust.

We are members of the Bar of the State of New York and do not hold ourselves out
as being conversant with the laws of any jurisdiction other than those of the
United States of America and the State of New York. We note that we are not
licensed to practice law in the Commonwealth of Massachusetts, and to the extent
that any opinion expressed herein involves the law of the Commonwealth of
Massachusetts, such opinion should be understood to be based solely upon our
review of the documents referred to above, the published statutes of the
Commonwealth of Massachusetts, and where applicable, published cases, rules or
regulations of regulatory bodies of the Commonwealth of Massachusetts.

We consent to your filing this opinion with the Securities and Exchange
Commission as an Exhibit to Post-Effective Amendment No. 21 to the Registration
Statement.

Very truly yours,

/s/Willkie Farr & Gallagher

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Scudder Tax Free Trust:

We consent to the incorporation by reference in Post-Effective Amendment
No. 21 to the Registration Statement of Scudder Tax Free Trust on Form N-1A, of
our report dated February 10, 1995 on our audit of the financial statements and
financial highlights of Scudder Medium Term Tax Free Fund, which report is
included in the Annual Report to Shareholders for the year ended December 31,
1994, which is incorporated by reference in the Registration Statement.

We also consent to the reference to our Firm under the caption, "Experts."

/s/COOPERS & LYBRAND L.L.P.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
April 13, 1995

<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from the Scudder Limited Term Tax Free Fund
Annual Report for the fiscal year ended October 31,
1994 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> Scudder Limited Term Tax Free Fund

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-30-1993
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 63,815,620
<INVESTMENTS-AT-VALUE> 62,921,059
<RECEIVABLES> 0
<ASSETS-OTHER> 5,065,527
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67,986,586
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 398,084
<TOTAL-LIABILITIES> 398,084
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 5,792,967
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 46,497
<ACCUM-APPREC-OR-DEPREC> (894,561)
<NET-ASSETS> 67,588,502
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,237,032
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 1,237,032
<REALIZED-GAINS-CURRENT> (46,497)
<APPREC-INCREASE-CURRENT> (894,561)
<NET-CHANGE-FROM-OPS> 295,974
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,237,032)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,388,931
<NUMBER-OF-SHARES-REDEEMED> 1,658,471
<SHARES-REINVESTED> 62,407
<NET-CHANGE-IN-ASSETS> 67,587,302
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 894,561
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 36,151,493
<PER-SHARE-NAV-BEGIN> 12.00
<PER-SHARE-NII> .38
<PER-SHARE-GAIN-APPREC> (.33)
<PER-SHARE-DIVIDEND> .38
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.67
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Scudder Medium Term Tax Free Fund ended December 31, 1994 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> Scudder Medium Term Tax Free Fund

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 723,481,012
<INVESTMENTS-AT-VALUE> 699,647,413
<RECEIVABLES> 18,531,249
<ASSETS-OTHER> 3,287,219
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 721,465,881
<PAYABLE-FOR-SECURITIES> 13,785,084
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,243,784
<TOTAL-LIABILITIES> 20,028,868
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 725,355,643
<SHARES-COMMON-STOCK> 67,486,134
<SHARES-COMMON-PRIOR> 89,545,863
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (85,031)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (23,833,599)
<NET-ASSETS> 701,437,013
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 49,170,281
<OTHER-INCOME> 0
<EXPENSES-NET> 5,526,307
<NET-INVESTMENT-INCOME> 43,643,974
<REALIZED-GAINS-CURRENT> 1,334,624
<APPREC-INCREASE-CURRENT> (81,623,664)
<NET-CHANGE-FROM-OPS> (36,645,066)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 43,643,974
<DISTRIBUTIONS-OF-GAINS> 3,856,845
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,098,846
<NUMBER-OF-SHARES-REDEEMED> 47,017,553
<SHARES-REINVESTED> 2,858,978
<NET-CHANGE-IN-ASSETS> (315,987,478)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,896,593
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,920,420
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,296,481
<AVERAGE-NET-ASSETS> 883,743,267
<PER-SHARE-NAV-BEGIN> 11.36
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> (.92)
<PER-SHARE-DIVIDEND> .53
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.39
<EXPENSE-RATIO> .63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>