SCUDDER TAX FREE TRUST, 497, 1995-03-13

SCUDDER TAX FREE TRUST
497, 1995-03-13

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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 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 s of
Additional Information each dated March 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 s , which are incorporated by
reference into this prospectus, have 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
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund

March 1, 1995

Prospectus

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

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 Scudder Medium
Free Money Term Tax Free
Fund Fund
---------- ----------
Sales commissions to purchase NONE NONE
shares (sales load)
Commissions to reinvest NONE NONE
dividends
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, 1993.
Investment management fees 0.50% 0.34%
12b-1 fees NONE NONE
Other expenses 0.25% 0.16%
----- -----
Total Fund operating expenses 0.75% 0.50%**
===== =====
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 $5
Three years 24 16
Five years 42 28
Ten years 93 63
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% of average daily net assets from January
1, 1993 to June 30, 1993, and maintain the Fund's total annualized
expenses at 0.25% from July 1, 1993 to December 31, 1993, the
total annualized expenses would have been 0.75% (of which 0.56%
would have consisted of investment management fees) for the period
ended December 31, 1993. Effective May 1, 1994, the Adviser has
agreed to maintain the total annualized expenses of the Fund at
0.70% of average daily net assets of the Fund until April 30,
1995.

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
Municipal Yield
Bonds Tax Free Fund
------ -------------
Sales commissions to purchase NONE NONE
shares (sales load)
Commissions to reinvest NONE NONE
dividends
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, 1993.
Investment management fees 0.51% 0.63%
12b-1 fees NONE NONE
Other expenses 0.12% 0.29%
----- ------
Total Fund operating expenses 0.63% 0.92%**
===== ======
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 $6 $9
Three years 20 29
Five years 35 51
Ten years 78 113
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. 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 September 1, 1993 to December 31, 1993 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 0.98%
(of which 0.69% would have consisted of investment management
fees) for the period ended December 31, 1993. 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.

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
----------
Sales commissions to purchase shares (sales NONE
load)
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 NONE
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 consist ed 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.

Financial highlights
Scudder Tax Free Money Fund

If you would like more detailed information concerning each Fund's performance,
a complete portfolio listing and audited financial statements are available in
each fund's Annual Report for each fund's fiscal year end and may be obtained
without charge by writing or calling Scudder Investor Services, Inc.

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

<TABLE>
<CAPTION>
Six Months
Ended June
30, 1994
(Unaudited) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
value, ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
beginning of
period
Net .009 .018 .025 .041 .053 .057 .046 .040 .041 .045 .053
investment
income
Less (.009) (.018) (.025) (.041) (.053) (.057) (.046) (.040) (.041) (.045) (.053)
distributions ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
from net
investment
income
Net asset $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
value, end of ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
period
Total Return .93** 1.86 2.54 4.20 5.44 5.83 4.73 4.03 4.19 4.62 5.41
(%)
Ratios and
Supplemental
Data
Net assets, 244 222 267 279 303 279 358 390 383 265 225
end of period
($ millions)
Ratio of .77* .75 .73 .70 .72 .70 .67 .66 .63 .63 .63
operating
expenses to
average daily
net assets
(%)
Ratio of net 1.86* 1.84 2.53 4.12 5.30 5.67 4.61 4.03 4.01 4.54 5.31
investment
income to
average daily
net assets
(%)
* Annualized
** Not annualized
</TABLE>

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 financial
statements.

Six Months
Ended June Years Ended December 31,
30, 1994 -----------------------------------------------------------------------

(Unaudited) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
----------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset $11.36 $10.86 $10.62 $10.11 $10.04 $10.02 $10.07 $10.34 $10.03 $9.67 $9.65
value, ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
beginning of
period
Income from
investment
operations:
Net investment .28 .60 .65 .67 .54 56 .54 .54 .62 .68 .73
income (a)
Net realized (.61) .56 .27 .52 .07 .02 (.05) (.22) .41 36 .02
and unrealized ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
gain (loss) on
investments
Total from (.33) 1.16 .92 1.19 .61 .58 .49 .32 1.03 1.04 .75
investment ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
operations
Less
distributions
from:
From net (.28) (.60) (.65) (.67) (.54) (.56) (.54) (.54) (.62) (.68) (.73)
investment
income
From net (.03) (.06) (.03) (.01) -- -- -- (.05) (.10) -- --
realized gains ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
on investments
Total (.31) (.66) (.68) (.68) (.54) (.56) (.54) (.59) (.72) (.68) (.73)
distributions ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset $10.72 $11.36 $10.86 $10.62 $10.11 $10.04 $10.02 $10.07 $10.34 $10.03 $9.67
value, end of ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
period
Total Return (2.96)* 10.94 8.93 12.13 6.29 6.00 4.92 3.23 10.54 11.02 8.10
(%) (b)
Ratios and
Supplemental
Data
Net assets, end 864 1,017 661 268 27 54 99 125 104 59 31
of period ($
millions)
Ratio of .56** .14 -- -- .97 .91 .79 .80 .82 .85 .83
operating
expenses net,
to average net
assets (%) (a)
Ratio of net 5.10** 5.35 6.07 6.44 5.37 5.62 5.05 5.37 6.00 6.76 7.66
investment
income to
average net
assets (%)
Portfolio 37.2** 37.3 22.4 14.0 116.9 15.7 31.2 32.6 44.3 132.2 96.2
turnover rate
(%)
(a)Portion of -- $.005 $.014 $.020 $.001 $-- $-- $-- $-- $-- $--
expenses
reimbursed by
the Adviser
Management fee $.008 $.063 $.064 $.062 $.002 $-- $-- $-- $-- $.001 $.02
and other fees
not imposed
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 six months ended June 30, 1994 and for the years ended December 31, 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 seven years in the period
ended December 31, 1990 should not be considered representative of the present Fund.
* Not annualized
** Annualized

</TABLE>

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 financial
statements.

Six Months
Ended June Years Ended December 31,
30, 1994 -----------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Unaudited) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
----------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset $9.09 $8.72 $8.80 $8.45 $8.54 $8.60 $8.24 $8.93 $8.40 $7.69 $7.67
value, ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
beginning of
period
Income from
investment
operations:
Net investment .23 .47 .51 .53 .55 .59 .60 .61 .61 .59 .70
income
Net realized (.72) .66 .25 .47 -- .33 .38 (.58) .77 .71 .02
and unrealized ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
gain (loss) on
investments
Total from (.49) 1.13 .76 1.00 .55 .92 .98 .03 1.38 1.30 .72
investment ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
operations
Less (.23) (.47) (.51) (.53) (.55) (.59) (.60) (.61) (.61) (.59) (.70)
distributions:
From net
investment
income
From net (.02) (.29) (.33) (.12) (.09) (.39) (.02) (.11) (.24) -- --
realized gains ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
on investment
transactions
Total (.25) (.76) (.84) (.65) (.64) (.98) (.62) (.72) (.85) (.59) (.70)
distributions ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset $8.35 $9.09 $8.72 $8.80 $8.45 $8.54 $8.60 $8.24 $8.93 $8.40 $7.69
value, end of ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
period
Total Return (5.46)** 13.32 8.98 12.23 6.77 11.19 12.27 .34 16.84 17.37 10.17
(%)
Ratios and
Supplemental
Data
Net assets, end 801 910 830 796 719 691 635 592 663 574 545
of period ($
millions)
Ratio of .63* .63 .63 .64 .61 .62 .61 .63 .58 .58 .61
operating
expenses to
average daily
net assets (%)
Ratio of net 5.29* 5.21 5.76 6.16 6.61 6.78 7.13 7.20 6.88 7.27 9.52
investment
income to
average daily
net assets (%)
Portfolio 33.9* 52.8 59.6 32.4 72.1 89.8 75.5 73.5 78.0 98.2 120.0
turnover rate
(%)
* Annualized
** Not Annualized
</TABLE>

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 financial
statements.

<TABLE>
<CAPTION>
For the Period
January 22,
1987
Six Months (commencement
Ended June Years Ended December 31, of operations)
30, 1994 ----------------------------------------------- to December 31,
(Unaudited) 1993 1992 1991 1990 1989 1988 1987
---------- ------ ------ ------ ------ ------ ------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $12.55 $11.90 $11.67 $11.19 $11.35 $11.06 $10.52 $12.00
beginning of period ------ ------ ------ ------ ------ ------ ------ ------
Income from
investment
operations:
Net investment .33 .67 .72 .76 .77 .76 .83 .78
income (a)
Net realized and (1.03) .93 .50 .69 (.11) .35 .54 (1.48)
unrealized gain ------ ------ ------ ------ ------ ------ ------ ------
(loss) on
investments
Total from (.70) 1.60 1.22 1.45 .66 1.11 1.37 (.70)
investment ------ ------ ------ ------ ------ ------ ------ ------
operations
Less distributions:
From net investment (.33) (.67) (.72) (.76) (.77) (.76) (.83) (.78)
income
From net realized -- (.21) (.27) (.21) (.05) (.06) -- --
gains on investment
transactions
In excess of net -- (.07) -- -- -- -- -- --
realized gains on ------ ------ ------ ------ ------ ------ ------ ------
investment
transactions
Total distributions (.33) (.95) (.99) (.97) (.82) (.82) (.83) (.78)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, $11.52 $12.55 $11.90 $11.67 $11.19 $11.35 $11.06 $10.52
end of period ====== ====== ====== ====== ====== ====== ====== ======
Total Return (%) (5.59)** 13.85 10.88 13.36 6.02 10.32 13.48 (5.81)**
Ratios and
Supplemental Data
Net assets, end of 300 317 204 160 129 114 74 36
period ($ millions)
Ratio of operating .80* .92 .98 1.00 1.00 1.00 .67 .40*
expenses net, to
average daily net
assets (%) (a)
Ratio of net 5.62* 5.38 6.10 6.65 6.88 6.72 7.65 8.45*
investment income
to average daily
net assets (%)
Portfolio turnover 28.9* 56.4 56.6 45.5 33.4 75.8 36.7 131.8*
rate (%)
(a)Reflects a per $-- $-- $-- $-- $-- $-- $.010 $.066
share amount of
expenses, exclusive
of management fees,
reimbursed by the
Adviser of
Reflects a per $.01 $.01 $-- $-- $.01 $.01 $.05 $.06
share amount of
management fee not
imposed by the
Adviser of
Operating expense .98* .98 .99 1.04 1.09 1.15 1.25 1.80*
ratio, including
expenses
reimbursed,
management fee and
other expenses not
imposed (%)
* Annualized
** Not annualized
</TABLE>

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.

<TABLE>
<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 4.84*
net assets (%)
Portfolio turnover rate (%) 36.3*
(a)Reflects a per share amount of expenses, $.04
exclusive of management fees, reimbursed by the
Adviser of
Reflects a per share amount of management fee and $.06
other fees not imposed by the Adviser of
Operating expense ratio including expenses 1.29*
reimbursed, management fee and other expenses not
imposed (%)
* Annualized
** Not annualized
</TABLE>

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:

* Scudder Tax Free Money Fund
* Scudder Limited Term Tax Free Fund
* Scudder Medium Term Tax Free Fund
* Scudder Managed Municipal Bonds
* 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

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 for
the 30-day period
----------------- Taxable
ended Equivalent Yield**
----- ------------------
28% Tax 31% Tax 36% Tax 39.6% Tax
December 31, 1994 Bracket Bracket Bracket Bracket
----------------- ------- ------- -------- -------
Scudder Tax Free 3.45% 4.79% 5.00% 5.39% 5.71%
Money Fund*
Scudder Medium Term 5.28% 7.33% 7.65% 8.25% 8.74%
Tax Free Fund
Scudder Managed 5.78% 8.03% 8.38% 9.03% 9.57%
Municipal Bonds
Scudder High Yield 6.53% 9.07% 9.46% 10.20% 10.81%
Tax Free Fund
Scudder Limited 5.38% 7.47% 7.80% 8.41% 8.91%
Term Tax Free Fund
* The tax-free yield for Scudder Tax Free Money Fund is for the seven-day
period ended 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.

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 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 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 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 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
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 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
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 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.

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.

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 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.

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 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.

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.

(Continued on page 20)

Purchases

Opening an account

Minimum initial investment: $1,000; IRAs $500

Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.

Make checks payable to "The Scudder Funds."

* By Mail

Send your completed and signed application and check

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

* 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.

* 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 additional shares

Minimum additional investment: $100; IRAs $50

Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.

Make checks payable to "The Scudder Funds."

* By Mail

Send a check with a Scudder investment slip, or with a letter of
instruction including your account number and the complete Fund name, to
the appropriate address listed above.

* By Wire

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

* 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.

* By Automatic Investment Plan ($50 minimum)

You may arrange to make investments on a regular basis through automatic
deductions from your bank checking account. Please call 1-800-225-5163 for
more information and an enrollment form.

Exchanges and redemptions

Exchanging shares

Minimum investments: $1,000 to establish a new account; $100 to exchange among
existing accounts

* 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).

* By Mail or Fax

Print or type your instructions and include:

- 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
tele phone number.

Send your instructions

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

The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 1099 Hingham Street
Boston, MA Rockland, MA
02107-2291 02370-1052

Redeeming shares

* 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.

* By "Write- A-Check"

For Scudder Tax Free Money Fund, Scudder Limited Term Tax Free Fund and
Scudder 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.

* By Mail or Fax

Send your instructions for redemption to the appropriate address or fax
number 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
tele phone number.

A signature guarantee is required for redemptions over $50,000. See Transaction
information--Redeeming shares following these tables.

* By Automatic Withdrawal Plan

You may arrange to receive automatic cash payments periodically if the
value of your account is $10,000 or more. Call 1-800-225-5163 for more
information and an enrollment form.

(Continued from page 17)

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.
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.

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 Fund s, 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%, in the aggregate, of its net assets in
securities which are not readily marketable, in restricted securities and
in 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 Fund s'
Statement s 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
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
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. In
the event of the commencement of bankruptcy or insolvency proceedings of 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 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.

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 Fund s' Statement s 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, although an additional distribution may
be made, if necessary. 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.
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
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.

<TABLE>
<CAPTION>
Summary of important features

Scudder Tax Scudder Scudder Medium Scudder Scudder High
Free Money Fund Limited Term Term Tax Free Fund Managed Yield Tax
Tax Free Fund Municipal Free Fund
Bonds
<S> <C> <C> <C> <C> <C>
Investment *money market *higher and *higher tax-free *income *high
objectives and fund income more stable income than exempt from tax-free
characteristics exempt from level of generally available regular income
regular federal federally from tax-free money federal
income tax tax-free market funds income tax
income than
normally
provided by
tax-free
money market
investments
*stability of *more price *more price *net asset *potentially
principal stability stability than value greater price
than investments in fluctuates variability
investments long-term municipal with level
in bonds of interest
intermediate- rates
and long-term
municipal
bonds
Investments *short-term *shorter- *intermediate-term *primarily *primarily
municipal term, municipal securities long-term long-term
securities high-grade municipal municipal
municipal securities securities
securities
*dollar-weighte *dollar-weigh
d average ted average
maturity of 90 effective
days or less maturity of
between one
and five
years
Quality *100% of *normally at *normally at least *at least 75% *at least 65%
investments least 80% of 80% of investments of of
rated within investments rated within top investments investments
top two quality rated within three quality rated within rated within
ratings, or top three ratings, or top three top four
judged to be of quality equivalent quality quality
comparable ratings, or ratings, or ratings, or
quality equivalent equivalent equivalent
*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>

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 year ended December 31, 1993, the Adviser received investment management
fees of 0.50%, 0.51% and 0.63% of the average daily net assets on an annualized
basis of Scudder Tax Free Money Fund, Scudder Managed Municipal Bonds and
Scudder High Yield Tax Free Fund, respectively. For the 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.

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
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 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
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 is also a Portfolio Manager for the Scudder
Medium Term Tax Free Fund and has over five years' experience as a portfolio
manager.

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.

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(tm)).
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.

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

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.

Investment products and service
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 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.
<PAGE>

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

STATEMENT OF ADDITIONAL INFORMATION

March 1, 1995

This Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectus of Scudder Limited Term
Tax Free Fund dated March 1, 1995, as amended from time to time, a copy of
which may be obtained without charge by writing to Scudder Investor
Services, Inc., Two International Place, Boston, Massachusetts 02110-1706.

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES 1
General Investment Objective and Policies 1
The Fund's Investments 1
Municipal Obligations 2
Management Strategies 4
Trustees' Power to Change Objective and Policies 12
Investment Restrictions 12
PURCHASES 14
Additional Information About Opening an Account 14
Checks 14
Wire Transfer of Federal Funds 14
Share Price 15
Share Certificates 15
Other Information 15
EXCHANGES AND REDEMPTIONS 15
Exchanges 15
Redemption by Telephone 16
Redemption by Mail or Fax 17
Redemption by "Write-A-Check" 17
Other Information 18
FEATURES AND SERVICES OFFERED BY THE FUND 18
The Pure No-Load(tm) Concept 18
Distribution Plans 19
Scudder Funds Centers 19
Reports to Shareholders 20
Transaction Summaries 20
THE SCUDDER FAMILY OF FUNDS 20
SPECIAL PLAN ACCOUNTS 23
Automatic Withdrawal Plan 23
Cash Management System - Group Sub-Accounting Plan for
Trust Accounts,
Nominees and Corporations 24
Automatic Investment Plan 24
Uniform Transfers/Gifts to Minors Act 24
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS 24
PERFORMANCE INFORMATION 25
Average Annual Total Return 25
Cumulative Total Return 25
Total Return 26
Yield 26
Tax-Equivalent Yield 26
Comparison of Fund Performance 27
FUND ORGANIZATION 30
INVESTMENT ADVISER 31
Personal Investments by Employees of the Adviser 33
TRUSTEES AND OFFICERS 33
REMUNERATION 35
DISTRIBUTOR 35
TAXES 36
Federal Taxation 36
PORTFOLIO TRANSACTIONS 39
Brokerage 39
Portfolio Turnover 40
NET ASSET VALUE 40
ADDITIONAL INFORMATION 41
Experts 41
Shareholder Indemnification 41
Ratings of Municipal Obligations 41
Glossary 42
Other Information 43
FINANCIAL STATEMENTS 44
</TABLE>

THE FUND'S INVESTMENT OBJECTIVE AND POLICIES

(See "Investment objective and policies" and "Additional information about
policies and investments" in the Fund's prospectus.)

Scudder Limited Term Tax Free Fund (the "Fund") is a series of Scudder
Tax Free Trust (the "Trust"). The Trust is a pure no-load(tm) open-end
management investment company (or mutual fund), presently consisting of two
series.

General Investment Objective and Policies

The Fund is 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.

The Fund'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 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 a
great deal of 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.

Municipal Obligations

Municipal obligations 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 most of these obligations is generally
exempt from regular federal income tax in the hands of most individual
investors, although it may be subject to the individual and corporate
alternative minimum tax. The two principal classifications of municipal
obligations 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. Tax anticipation notes and
revenue anticipation notes are generally issued in anticipation of various
seasonal revenues such as income, sales, use, and business taxes. 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. 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, such financing provides 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 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, 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.

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

The Fund 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 the 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 Fund intends 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 an investment grade
investment portfolio. 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.

The variable rate demand instruments that the Fund may purchase are
payable on demand on not more than thirty 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
prime rate of a bank or other appropriate interest rate adjustment index as
provided in the respective instruments. The Fund will determine the
variable rate demand instruments that it 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 the
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 the Fund. The
Adviser will reevaluate each unrated variable rate demand instrument held
by the Fund on a quarterly basis to determine that it continues to meet the
Fund's quality criteria.

The value of the underlying variable rate demand instruments may
change with changes in interest rates generally, but the variable rate
nature of these instruments should minimize 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 the comparable portfolio of fixed income securities. The Fund 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 instrument held by the Fund
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.

4. General Considerations. An entire issue of municipal obligations
may be purchased by one or a small number of institutional investors such
as the Fund. 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 obligations which are not publicly offered may
nevertheless be readily marketable. A secondary market exists for
municipal obligations which were not publicly offered initially.

Obligations purchased for the Fund are subject to the limitations on
holdings of securities which are not readily marketable contained in the
Fund's investment restrictions. The Adviser determines whether a municipal
obligation 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 the Fund's investments enhance marketability. In addition,
Stand-by Commitments and demand obligations also enhance marketability.

For the purpose of the Fund's investment restrictions, the
identification of the "issuer" of municipal obligations 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.

The Fund expects that it will not invest more than 25% of its total
assets in municipal obligations 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.
The Fund may invest more than 25% of its total assets in municipal
obligations 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 obligations of a similar type. However, the Fund believes that
the most important consideration affecting risk is the quality of
particular issues of municipal obligations, rather than factors affecting
all, or broad classes of, municipal obligations.

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 will be 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 be reduced.

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.

When-Issued Securities. The Fund 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 accrues to the purchaser. To
the extent that assets of the Fund are not invested prior to the settlement
of a purchase of securities, the Fund will earn no income; however, it is
intended that the Fund will be fully invested to the extent practicable and
subject to the policies stated herein. When-issued or forward delivery
purchases are negotiated directly with the other party, and are not traded
on an exchange. While when-issued or forward delivery securities may be
sold prior to the settlement date, it is intended that the 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 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. The Fund does not believe
that the Fund's net asset value or income will be adversely affected by its
purchase of securities on a when-issued or forward delivery basis. The
Fund will not enter into such transactions for leverage purposes.

Third Party Puts. The Fund may also purchase long-term fixed rate bonds
that have been coupled with an option granted by a third party financial
institution allowing the Fund at specified intervals 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 its tax-exempt status, the put option will terminate
automatically and the risk to the Fund will be that of holding a long-term
bond. A Fund may be assessed "tender fees" for each tender period at a
rate equal to the difference between the bond's fixed coupon rate and the
rate, as determined by a remarketing or similar agent, that would cause the
bond coupled with the option to trade at par on the date of such
determination.

Management understands that the Internal Revenue Service (the "IRS")
has issued a 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 IRS
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 IRS 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. 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 IRS 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 Fund's
portfolio in a manner designed to minimize any adverse impact from these
investments.

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 or 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 a 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 a 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 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 a Fund.

The Fund may purchase participation interests in municipal lease
obligations held by a commercial bank or other financial institution. Such
participations provide a Fund with the right to a pro rata undivided
interest in the underlying municipal lease obligations. In addition, such
participations generally provide a Fund with the right to demand payment,
on not more than seven days' notice, of all or any part of such 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.

Strategic Transactions and Derivatives. The 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 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.
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 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 the Fund's net assets are required to
be invested in tax-exempt municipal securities, and as limited by the
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 the Fund's portfolio resulting from securities markets
fluctuations, to protect the 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
the 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 also be used to enhance
potential gain although no more than 5% of the 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 the Fund to utilize these Strategic Transactions successfully
will depend on the Adviser's ability to predict pertinent market movements,
which cannot be assured. The Fund 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 Fund,
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 Fund can realize on its investments or cause the 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 the Fund creates the
possibility that losses on the hedging instrument may be greater than gains
in the value of the 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, the Fund
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, the 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.
The Fund's purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect the Fund
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. The 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.

The 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. The Fund will only sell OTC options that
are subject to a buy-back provision permitting the Fund to require the
Counterparty to sell the option back to the Fund at a formula price within
seven days. The 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 the Fund or fails to make
a cash settlement payment due in accordance with the terms of that option,
the 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. The 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 S&P or P-1 from
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 the Fund, and portfolio
securities "covering" the amount of the 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 the Fund's limitation on
investing no more than 10% of its assets in illiquid securities.

If the 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 the Fund's income. The sale of put options can
also provide income.

The 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 the Fund must be
"covered" (i.e., the 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 the Fund
will receive the option premium to help protect it against loss, a call
sold by the Fund exposes the 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 the Fund to hold a
security or instrument which it might otherwise have sold.

The 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. The Fund will not sell put options if, as a result,
more than 50% of the 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 the Fund may be required to buy the underlying security at a
disadvantageous price above the market price.

General Characteristics of Futures. The 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 the 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.

The 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 the 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 the Fund. If the
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.

The 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 the 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. The 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, 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. The 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 the
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 the Fund may enter are interest rate and index swaps and the purchase
or sale of related caps, floors and collars. The 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 the
Fund anticipates purchasing at a later date. The 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 the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the 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.

The 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 the 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 the 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. The 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, the 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. The 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. The 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.

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 the 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 the 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 the 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 the Fund will require the 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 the Fund on an index will
require the 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
the Fund requires the Fund to segregate liquid, high grade assets equal to
the exercise price.

OTC options entered into by the 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 the
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 the 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 the Fund sells a call option on an
index at a time when the in-the-money amount exceeds the exercise price,
the 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 the Fund other than those above generally settle
with physical delivery, or with an election of either physical delivery or
cash settlement and the 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, the 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, the 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 the
Fund's net obligation, if any.

Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The 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, the 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 the Fund. Moreover, instead of
segregating assets if the 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.

The 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 Objective and Policies

Except as specifically stated to the contrary, the objective and
policies stated above may be changed by the Trustees without a vote of the
shareholders.

Investment Restrictions

Unless specified to the contrary, the following restrictions may not
be changed without the approval of a majority of the outstanding voting
securities of the 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 the Fund present at a meeting if the holders of
more than 50% of the outstanding shares of the Fund are present in person
or by proxy, or (2) more than 50% of the outstanding shares of the Fund.
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 Fund.

As a matter of fundamental policy, the Trust, on behalf of the 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.

As a matter of nonfundamental policy, the 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);

(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. 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;

The Trust, on behalf of the Fund, has no current intention of engaging
in any borrowing, lending of portfolio securities or investing in
closed-end investment companies.

PURCHASES

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

Additional Information About Opening an Account

Shareholders of other Scudder funds who have submitted an account
application and have a certified 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. (the "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, amount to be wired ($1,000 minimum),
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
his bank to arrange a wire transfer to State Street Bank and Trust Company,
Attention: Mutual Funds, 225 Franklin Street, Boston, MA 02110. 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.

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 the Fund are purchased by a check which proves to be
uncollectible, the Fund reserves the right to cancel the purchase
immediately and the purchaser will be responsible for any loss incurred by
the Fund or the principal underwriter by reason of such cancellation. If
the purchaser is a shareholder, the 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

To purchase shares of the Fund and obtain the same day dividend 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.

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

Boston banks are presently 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 the Fund.

Share Price

Purchases will be filled without sales charge at the net asset value
next computed after receipt of the purchase order in good order. Net asset
value normally will be computed once a day, as of the close of regular
trading on each day when the Exchange is open for trading. Orders received
after the close of regular trading on the Exchange will be executed at the
next business day's net asset value. If the order has been placed by a
member of the NASD, other than Scudder Investor Services, Inc., it is the
responsibility of that member broker, rather than the 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 Fund's management to afford ease of
redemption, certificates will not be issued to indicate ownership in the
Fund.

Other Information

If purchases or redemptions of Fund 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 and Scudder Investor
Services, Inc., the Trust's principal underwriter, each has the right to
limit the amount of purchases by and to refuse to sell to any person and
each may suspend or terminate the offering of shares of the Fund at any
time.

The "Tax Identification Number" section of the 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 organizations certification of exempt
status) will be returned to the investor.

The 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
Fund's prospectus.)

Exchanges

Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange
either may be an additional investment into an existing account or may
involve opening a new account in the other fund. 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, 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 guarantees" 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 the respective
net asset values determined on that day. Exchange orders received after
the close of regular trading on the Exchange 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.

No commission is charged 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 an 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 Fund employs
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
Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it
reasonably believes to be genuine. The Fund 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

Shareholders currently receive the right to redeem by telephone up to
$50,000 to their address of record automatically, without having to elect
it. Shareholders may also request by telephone to have the proceeds mailed
or wired to their predesignated bank account. 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.

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

(b) EXISTING SHAREHOLDERS who wish to establish telephone redemption
to a predesignated 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. An original signature and an original signature
guarantee are required for each person in whose name the account
is registered.

If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be 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 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 Fund employs 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 Fund does not follow such procedures, it may be liable for
losses due to unauthorized or fraudulent telephone instructions. The Fund
will not be liable for acting upon instructions communicated by telephone
that it reasonably believes to be genuine.

Redemption requests by telephone (technically a repurchase by
agreement between the Fund and the shareholder) of shares purchased by
check will not be accepted until the purchase check has cleared which may
take up to seven business days.

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 Fund's 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 five 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 who apply to the Custodian
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
the 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 Fund pays the bank charges for
this service. However, the 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
Trust, on behalf of the Fund, the Transfer Agent and the Custodian 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 the Fund 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 redemption or repurchase. The Fund does not impose a
redemption or repurchase charge, although a wire charge may be applicable
for redemption proceeds wired to an investor's bank account. Redemptions
of shares, including redemptions undertaken to effect an exchange for
shares of another Scudder fund, 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 therefore 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 for any reason, (c) during which an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (d) during which the
SEC by order permits a suspension of 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
the Fund to below $1,000 in value, the Fund may notify the shareholder
that, unless the account balance is brought up to at least $1,000, the Fund
will redeem all shares, close the account and send 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 the Fund. (This
policy applies to accounts of new shareholders, but does not apply to
certain Special Plan Accounts.)

FEATURES AND SERVICES OFFERED BY THE FUND

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.

<TABLE>
<CAPTION>
Scudder Load Fund No-Load Fund
YEARS Pure No-Load 8.50% Load with 0.75% with 0.25%
----- (tm) Fund Fund 12b-1 Fee 12b-1 Fee
------------- ---- --------- ---------
<C> <C> <C> <C> <C>
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
</TABLE>

Investors are encouraged to review the fee tables on page 2 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 freedom to choose whether to receive cash or to
reinvest any dividends from net investment income or distributions from
realized capital gains in additional shares of the Fund. A change of
instructions for the method of payment must be received by the Transfer
Agent at least five 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 is usually 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 distribution of
any income dividends or capital gains distributions. If no election is
made, dividends and distributions will be invested in additional shares of
the 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 the
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 Centers maintained by Scudder Investor
Services, Inc. listed in the Fund's prospectus. The Centers are designed
to provide individuals with services during any business day. Investors
may pick up literature or find 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
prospectus.

Reports to Shareholders

The Fund issues to shareholders 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 supplementary information for the Fund.

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.

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.

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.

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.

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

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 Fund's 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.

Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRA's other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.

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 Fund's prospectus. Any such requests must be
received by the Fund's 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 Trust or its agent 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.

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 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
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 Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in
the event that regular investments to the account cease before the $1,000
minimum is reached.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

(See "Distribution and performance information--Dividends and
capital gains distributions" in the Fund's prospectus.)

The Fund will follow the practice of distributing substantially all,
and in no event less than 90%, of its taxable and tax-exempt 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. The Fund may follow 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 the
Fund and its shareholders, the Fund may retain all or part of such gain for
reinvestment.

Dividends will be declared daily and distributions of net investment
income will be made monthly. Any dividend declared in October, November,
or December as of a record date in such a month will be treated by
shareholders for federal income tax purposes as if received in December if
it is paid during the following January. Distributions of net short-term
and net long-term capital gains realized during each fiscal year, if any,
will be made annually within three months after the end of the Fund's
fiscal year. An additional 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," below). 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.

Each distribution is accompanied by a brief explanation of the form
and character of the distribution. The characterization of distributions
on such correspondence may differ from the characterization for federal tax
purposes. In January of each year the Fund issues to each shareholder 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 the Fund has designated as tax-exempt and the percentage of such
tax-exempt distributions treated as a tax-preference item for purposes of
the alternative minimum tax.

PERFORMANCE INFORMATION

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

From time to time, quotations of the 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

Average annual total return is the average annual compound rate of
return for one year, five years and for the life of the Fund, ended on the
last day of a recent calendar quarter. 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:

T = Average Annual Total Return
P = a hypothetical initial investment of $1,000
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.

Cumulative Total Return

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 the change in the price of the
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 period, 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.

The cumulative total return of Scudder Limited Term Tax Free Fund for
the period ended October 31, 1994 was 0.44%.

If the advisor had not maintained Fund expenses and had imposed a full
management fee, the cumulative total return for the same period would have
been -0.32%.

Total Return

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.

Yield

Yield is the net annualized yield based on a specified 30-day (or one
month) period assuming a semiannual compounding of income. 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 including the amortization of market
premium or accretion of market discount.
b = expenses accrued for the period (net of
reimbursements).
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.

The 30-day yield of the Fund for the period ended
October 31, 1994 was 5.18%.

Tax-Equivalent Yield

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 special
30 day (or one month) period assuming semiannual compounding of income.
Tax-equivalent yield is calculated by dividing that portion of the Fund's
yield (as computed in the yield description 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 a federal tax rate of 28%, 36% or 39.6% would need to earn a taxable
yield of 7.18 %, 8.08 % and 8.56 %, respectively, to
receive after-tax income equal to the 5.18% tax-free yield of Scudder
Limited Term Tax Free Fund for the 30-day period ended on October 31, 1994.

Quotations of the Fund's performance are historical, show the
performance of a hypothetical investment and are not intended to indicate
future performance. Performance of the Fund will vary based on changes in
market conditions and the level of the Fund's expenses. An investor's
shares, when redeemed, may be worth more or less than their original cost.

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

Comparison of Fund 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 consider the effects of the methods used to calculate
performance when comparing performance of the 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, the 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, this
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, the 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 Fund, the Fund's 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 Fund. 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 Fund 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 Fund. The
description may include a "risk/return spectrum" which compares the Fund
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 Fund 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.

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 made by independent sources may also be
used in advertisements concerning the Fund, including reprints of, or
selections from, editorials or articles about this Fund. Sources for Fund
performance information and articles about the Fund 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 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.

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.

FUND ORGANIZATION

(See "Fund organization" in the Fund's prospectus.)

The Fund is a series of Scudder Tax Free Trust. Scudder Medium Term
Tax Free Fund is the other series of the Trust. The Trust is a
Massachusetts business trust established under a Declaration of Trust dated
December 28, 1982, as amended. Its authorized capital consists of an
unlimited number of shares of beneficial interest of $0.01 par value. Each
share of each Fund has equal rights with each other share of that Fund as
to voting, dividends and liquidation. Shareholders have one vote for each
share held on matters on which they are entitled to vote.

The assets of the Trust 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 its
equitable share of the general liabilities of the Trust, as determined by
the Trustees. 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 the Trust, 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 the Trust or any series, 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.

Shares of the Trust 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.

The Trustees have the authority to issue more series of shares and to
designate the relative rights and preferences as between the different
series. All shares issued and outstanding will be fully paid and
nonassessable by the Trust, and redeemable as described in this Statement
of Additional Information and in the Fund's prospectus.

The Declaration of Trust provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of
the Trust, that the Trustees and officers will not be liable for errors of
judgment or mistakes of fact or law, and that the Trust 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 Trust 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
Trust. However, nothing in the Declaration of Trust protects or
indemnifies a Trustee or officer against any liability to which he 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 office.

INVESTMENT ADVISER

(See "Fund organization--Investment adviser" in the Fund's prospectus.)

Scudder, Stevens & Clark, Inc., an investment counsel firm, acts as
investment adviser to the Fund. 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, the
Adviser introduced Scudder International Fund, the first mutual fund
registered with the SEC in the U.S. investing internationally in several
foreign countries.

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 of over $11 billion and includes
the AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust and
AARP Cash Investment Funds.

In selecting the securities in which the Fund may invest, the
conclusions and investment decisions of the Adviser with respect to the
Fund are based primarily on the analyses of its own research department.
The Adviser receives published reports and statistical compilations of the
issuers themselves, 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.

Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund 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 the Fund. Purchase and sale orders for the Fund may be combined
with those of other clients of the Adviser in the interest of achieving the
most favorable net results to the Fund.

The Investment Advisory Agreement (the "Agreement") 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.

Under the Agreement, the Adviser regularly provides the Fund with
investment research, advice and supervision and furnishes continuously an
investment program consistent with the Fund's investment objectives and
policies and determines what securities shall be purchased for the Fund's
portfolio, what securities shall be held or sold by the Fund, and what
portion of the Fund's assets shall be held uninvested, subject always to
the provisions of the Trust's Declaration of Trust and By-Laws, the
Investment Company Act of 1940, the Internal Revenue Code of 1986 and to
the Fund's investment objective, policies and restrictions, and subject
further to such policies and instructions as the Trustees of the Trust may
from time to time establish. The Adviser also advises and assists the
officers of the Trust 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 Fund.

The Adviser pays the compensation and expenses of all affiliated
Trustees and executive employees of the Trust and makes available, without
expense to the Trust, the services of such Advisers, Directors, Officers,
and employees as may duly be elected officers or Trustees of the Trust,
subject to their individual consent to serve and to any limitations imposed
by law, and provides the Fund's office space and facilities and provides
investment advisory, research and statistical facilities and all clerical
services relating to research, statistical and investment work. For these
services, the Fund 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 the Fund
at not more than 0.25 % of the average daily net assets of the Fund
until August 31, 1995 .

For the fiscal year ended October 31, 1994 the amount to be reimbursed
by the Adviser equaled $124,328.

Under the Agreement the Fund is responsible for all of its other
expenses, including organization expenses; clerical salaries; fees and
expenses incurred in connection with membership in investment company
organizations; brokers' commissions; payment for portfolio pricing services
to a pricing agent, if any; legal, auditing or accounting expenses; taxes
or governmental fees; the fees and expenses of the Transfer Agent; the cost
of preparing share certificates and any other expenses, including clerical
expense, of issuance, redemption or repurchase of shares of beneficial
interest; the expenses of and fees for registering or qualifying securities
for sale; the fees and expenses of the Trustees of the Trust who are not
affiliated with the Adviser; the cost of preparing and distributing reports
and notices to shareholders; and the fees or disbursements of custodians.
The Trust is also responsible for its 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 Agreement further provides that as between the Fund and the
Adviser the Fund will be responsible for all expenses, including clerical
expense, of offer, sale, underwriting and distribution of the Fund's shares
only so long as the Fund employs a principal underwriter to act as the
distributor of the Fund's shares pursuant to an underwriting agreement
which provides that the underwriter will assume such expenses. The Trust's
underwriting agreement provides that the principal underwriter shall pay
all expenses of offer and sale of the Fund's shares except the expenses of
preparation and filing of registration statements under the Securities Act
of 1933 and under state securities laws, issue and transfer taxes, if any,
and a portion of the prospectuses used by the Fund. In the event that the
Fund ceases to employ a principal underwriter to act as the distributor of
the Fund's shares, the expenses of distributing the Fund's shares will be
borne by the Adviser unless the Fund shall have adopted a plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 providing that the Fund
shall be responsible for some or all of such distribution expenses.

The Agreement requires the Adviser to return to the Fund all or a
portion of advances of its management fee to the extent annual expenses of
the Fund (including the management fee stated above) exceed the limitations
prescribed by any state in which the Fund's shares are offered for sale.
Management 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. Any such fee
advance required to be returned to the 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 also provides that the Trust and the Fund may use any
name derived from the name "Scudder, Stevens & Clark" only as long as the
Agreement or any extension, renewal or amendment thereof remains in effect.

In reviewing the terms of the Agreement and in discussions with the
Adviser concerning the Agreement, Trustees who are not "interested persons"
of the Adviser are represented by independent counsel at the Fund's
expense.

The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, 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 Agreement.

Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which
have occurred were not influenced by existing or potential custodial or
other Trust relationships.

None of the Trustees or officers of the Trust may have dealings with
the 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 Fund. 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,
Position Principal Scudder Investor
Name and Address with Trust Occupation** Services, Inc.
- ---------------- ---------- ------------ ------------------
<C> <C> <C> <C>
David S. Lee*+@ President and Managing Director President,
Trustee of Scudder, Assistant
Stevens & Clark, Treasurer and
Inc. Director

Dawn-Marie Driscoll Trustee Attorney & --
5760 Flamingo Drive Corporate
Cape Coral, FL Director; Partner,
Palmer & Dodge
from 1988 to 1990

Peter B. Freeman@ Trustee Corporate Director --
100 Alumni Avenue and Trustee
Providence, RI

Wesley W. Marple, Trustee Professor of --
Jr.@ Business
413 Hayden Hall Administration,
360 Huntington Avenue Northeastern
Boston, MA University College
of Business
Administration

Juris Padegs*#@ Trustee Managing Director Vice President and
of Scudder, Director
Stevens & Clark,
Inc.

Jean C. Tempel Trustee Director, --
Executive Vice
President and
Manager, Safeguard
Scientifics, Inc.

Donald C. Carleton+ Vice President Managing Director --
of Scudder,
Stevens & Clark,
Inc.

Jerard K. Hartman# Vice President Managing Director --
of Scudder,
Stevens & Clark,
Inc.

Thomas W. Joseph+ Vice President Principal of Vice President,
Scudder, Stevens & Director,
Clark, Inc. Treasurer and
Assistant Clerk

Thomas F. McDonough+ Vice President Principal of Clerk
and Secretary Scudder, Stevens &
Clark, Inc.

Pamela A. McGrath+ Vice President Principal of --
and Treasurer Scudder, Stevens &
Clark, Inc.

Edward J. O'Connell# Vice President Principal of Assistant
and Assistant Scudder, Stevens & Treasurer
Treasurer Clark, Inc.

Coleen Downs Dinneen+ Assistant Vice President of Assistant Clerk
Secretary Scudder, Stevens &
Clark, Inc.

* Messrs. Lee and Padegs are considered by the Trust and its counsel to be
Trustees who are "interested persons" of the Adviser or of the Fund within
the meaning of the Investment Company Act of 1940, as amended.

** Unless otherwise stated, all officers and Trustees 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. Lee, Freeman, Marple and Padegs are members of the Executive
Committee of the Fund, which has the power to declare dividends from
ordinary income and distributions of realized capital gains to the same
extent as the Board is so empowered.

</TABLE>

The Trustees and officers of the Trust may also serve in similar capacities
with other Scudder Funds.

As of January 31, 1995 all Trustees and officers of the Trust 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 the shares of the Fund
outstanding on such date.

As of January 31, 1995 Scudder, Stevens & Clark, Inc. owned in the
aggregate, by or on behalf of accounts for which it acts as investment adviser,
3,642,839 shares or 43.95 % of the outstanding shares of the Fund.
Scudder, Stevens & Clark, Inc. may be deemed to be the beneficial owner of such
shares but disclaims any beneficial ownership in such shares.

To the best of the Trust's knowledge, as of January 31, 1995 , no
person owned beneficially more than 5% of Scudder Limited Term Tax Free Fund's
outstanding shares, except as stated above.

The following Compensation Table provides, in tabular form, the
following data.

Column (1) All Trustees who receive compensation from the Trust.

Column (2) Aggregate compensation received by a Trustee from all series of
the Trust - Scudder Limited Term Tax Free Fund and Scudder Medium Term Tax Free
Fund.

Columns (3) and (4) Pension or retirement benefits accrued or proposed to
be paid by the Trust. The Trust does not pay its trustee such benefits.

Column (5) Total compensation received by a Trustee from the Trust, 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).

<TABLE>
<CAPTION>
Compensation Table
for the year ended December 31, 1994
- -----------------------------------------------------------------------
(1) (2) (3) (4) (5)
Scudder Tax
Free Trust
consisting of
two Funds: Pension or
Scudder Retirement Total
Limited Term Benefits Estimated Compensation
Tax Free Fund Accrued As Annual From Trust
and Scudder Part of Benefits and Fund
Name of Person, Medium Term Fund Upon Complex Paid
Position Tax Free Fund Expenses Retirement to Trustee
- ------------------- ------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Dawn-Marie Driscoll, $13,796 N/A N/A $94,793.83
Trustee (16 funds)

Peter B. Freeman, $13,796 N/A N/A $141,843.83
Trustee (31 funds)

Wesley W. Marple, $13,796 N/A N/A $95,693.83
Jr., Trustee (15 funds)

Jean C. Tempel, ----- N/A N/A $15,076.00
Trustee (14 funds)
</TABLE>

REMUNERATION

Several of the officers and Trustees of the Trust may be officers of
the Adviser, Scudder Fund Accounting Corporation, Scudder Investor
Services, Inc., Scudder Service Corporation or Scudder Trust Company and
participate in fees paid by the Fund. The Fund pays no direct remuneration
to any officer of the Trust. However, each of the Trustees who is not
affiliated with the Adviser will be paid by the Trust. Each of these
unaffiliated Trustees receives an annual Trustee's fee of $4,000 plus $300
for each attended Trustees' meeting, audit committee meeting or meeting
held for the purpose of considering arrangements between the Fund and the
Adviser. Each unaffiliated Trustee also receives $100 per committee
meeting, other than those set forth above. For the period ended October
31, 1994 such fees totaled $28,489.

DISTRIBUTOR

The Trust has an underwriting agreement with Scudder Investor
Services, Inc. (the "Distributor"), a Massachusetts corporation, which is a
wholly-owned subsidiary of Scudder, Stevens & Clark, Inc., a Delaware
corporation. The Trust's underwriting agreement dated July 15, 1985 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 members
of the Board of Trustees who are not parties to such agreement or
interested persons of any such party and either by vote of a majority of
the Board of Trustees or a majority of the outstanding voting securities of
the Trust. The underwriting agreement was last approved by the Trustees on
August 10, 1993.

Under the underwriting agreement, the Trust is responsible for the
payment of all fees and expenses in connection with the preparation and
filing with the SEC of the Trust's registration statement and prospectus
and any amendments and supplements thereto; the registration and
qualification of shares for sale in the various states, including
registering the Trust as a broker or dealer; 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 the Trust; the cost of printing and mailing confirmations
of purchases of shares and the 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 the Trust 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 Fund's
shares to the public and preparing, printing and mailing any other
literature or advertising in connection with the offering of shares of the
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 the Fund,
unless a Rule 12b-1 plan is in effect which provides that each Fund shall
bear some or all of such expenses.

Note: Although the 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
the 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 the Fund on a
continuous basis to investors in all states in which shares of the Fund may
from time to time be registered or where permitted by applicable law. The
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
the Fund.

TAXES

(See "Transaction information--Tax information, Tax identification number"
and "Distribution and performance information--Dividends and capital gains
distributions" in the Fund's prospectus.)

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 situation.

Certain political events, including federal elections and future
amendments to federal income tax laws, may affect the desirability of
investing in the Fund.

Federal Taxation

Each fund within the Trust will be separate for investment and
accounting purposes, and will be treated as a separate taxable entity for
federal income tax purposes. The Fund, therefore, intends to qualify and
elect to be treated as a separate regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 as amended (the "Code").

As a regulated investment company qualifying under Subchapter M of the
Code, the Fund is required to distribute to its shareholders at least 90
percent of its taxable net investment income (including 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 is not subject to
federal income tax to the extent that it distributes annually all of its
taxable net investment income and net realized capital gains in accordance
with the timing requirements of the Code. The Fund intends to distribute
at least annually substantially all of its taxable and tax-exempt net
investment income and net realized capital gains.

If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment,
requiring federal income taxes to be paid thereon by the Fund, the Fund
will elect to treat such capital gains as having been distributed to
shareholders. As a result, each shareholder will report such capital gains
as long-term capital gains, will be able to claim his share of federal
income taxes paid by the Fund on such gains as a credit against his own
federal income tax liability, and will be entitled to increase the adjusted
tax basis of his Fund shares by the difference between his pro rata share
of such gains and his tax credit.

The Fund is subject to a 4% non-deductible excise tax on amounts
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 the 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, together with any undistributed, untaxed amounts of ordinary
income and capital gains from the previous calendar year. The Fund intends
to adjust its distribution policies to minimize any adverse impact from
this tax or eliminate its application.

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 its taxable year is invested in
state, municipal and other obligations the interest on which is excluded
from gross income under Section 103(a) of the Code. The Fund intends to
satisfy this 50% requirement in order to permit its distributions of
tax-exempt interest to be treated as such for federal income tax purposes
in the hands of its shareholders. Distributions to shareholders of
tax-exempt interest earned by the Fund for the taxable year are therefore
not expected to be subject to federal income tax, although they may be
subject to the individual and corporate alternative minimum taxes described
below.

The Revenue Reconciliation Act of 1993 requires that 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 Fund's income will be comprised of dividends
from domestic corporations, none of the income distributions of the Fund
will be eligible for the dividends-received deduction available for certain
taxable dividends received by corporations.

Any short-term capital loss realized upon the redemption of shares
within six months of the date of their purchase will be disallowed to the
extent of any tax-exempt dividends received with respect to such shares,
although the period may be reduced under Treasury regulations to be
prescribed.

Distributions derived from interest which is exempt from regular
federal income tax may subject corporate shareholders to, or increase their
liability under, the corporate 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 individual alternative minimum tax, but normally no more than 20% of
the Fund's net assets will be invested in securities the interest on which
is such a tax preference item.

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.

All distributions of taxable 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 or
capital gains distributions declared and payable to shareholders of record
on a specified date in October, November or December, if any, will be
deemed to have been received by shareholders in December if paid during
January of the following year. Shareholders are also required to report
tax-exempt interest. Redemptions of shares, 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.

Interest which is tax-exempt for federal income tax purposes is
included as income for purposes of determining the amount of social
security or railroad retirement benefits subject to tax.

All or a portion of a loss realized upon the redemption of shares may
be disallowed to the extent shares are purchased (including shares acquired
by means of reinvested dividends) within 30 days before or after such
redemption.

Interest on indebtedness incurred by shareholders to purchase or carry
shares of the Fund will not be deductible for federal income tax purposes.
Under rules used by the IRS 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 Fund has not undertaken any investigation as to the
users of the facilities financed by bonds in the Fund's portfolio.

Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value
below a shareholder's cost basis, such distribution would nevertheless be
taxable to the shareholder, to the extent it is derived from other than
tax-exempt interest, as ordinary income or capital gain as described above,
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, to the
extent it is derived from other than tax-exempt interest, will nevertheless
be taxable to them.

A portion of any original issue discount from certain stripped
tax-exempt obligations or their coupons may be treated as taxable income to
the Fund or, upon its distribution, to shareholders.

All futures contracts entered into by the Fund and all listed
nonequity options written or purchased by the Fund (including options on
futures contracts and options on securities indices) 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 Fund's 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 in the Fund's
portfolio.

Positions of the Fund which consist of at least one debt security not
governed by Section 1256 and at least one futures contract or nonequity
option governed by Section 1256 which substantially diminishes the Fund's
risk of loss with respect to such debt security will be treated as a "mixed
straddle." 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, however, exist for them which reduce or eliminate the operation
of these rules. The Fund will monitor its transactions in options and
futures and may make certain tax elections in order to mitigate the
operation of these rules and prevent disqualification of the Fund as a
regulated investment company for federal income tax purposes.

Under the federal income tax law, the Fund will be required to report
to the IRS all distributions of taxable income and capital gains as well as
gross proceeds from the redemption or exchange of Fund shares, except in
the case of certain exempt shareholders. Under the backup withholding
provisions of Section 3406 of the Code, distributions of taxable income and
capital gains and proceeds from the redemption or exchange of the shares of
a regulated investment company are generally subject to withholding of
federal income tax at the rate of 31% in the case of nonexempt shareholders
who fail to furnish the investment company with their taxpayer
identification numbers and with required certifications regarding their
status under the federal income tax law. Under a special exception,
distributions of taxable income and capital gains of the Fund will not be
subject to backup withholding if the Fund reasonably estimates that at
least 95% of all of its distributions will consist of tax-exempt interest.
However, in this case, the proceeds from the redemption or exchange of
shares may be subject to backup withholding. Withholding may also be
required if the Fund is notified by the IRS or a broker that the taxpayer
identification number furnished by the shareholder is incorrect or that the
shareholder has previously failed to report interest or dividend income.
If the withholding provisions are applicable, any such distributions and
proceeds, whether taken in cash or reinvested in additional shares, will be
reduced by the amounts required to be withheld.

The Trust is organized as a Massachusetts business trust, and neither
the Trust nor the Fund is liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that the Fund qualifies as a
regulated investment company.

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 consider the U.S. and
foreign tax consequences of ownership of shares of the 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.

PORTFOLIO TRANSACTIONS

Brokerage

To the maximum extent feasible, the Adviser places orders for
portfolio transactions for the Fund through the Distributor, which in turn
places orders on behalf of the Fund with issuers, underwriters or other
brokers and dealers. The Distributor receives no commissions, fees or
other remuneration from the Fund for this service. Allocation of brokerage
is supervised by the Adviser.

The Fund's purchases and sales of portfolio securities are generally
placed by the Adviser with primary market makers for these securities on a
net basis, without any brokerage commission being paid by the Fund.
Trading does, however, involve transaction costs. Transactions with
dealers serving as primary market makers reflect the spread between the bid
and asked prices. Purchases of underwritten issues may be made which will
involve an underwriting fee paid to the underwriter.

The primary objective of the Adviser in placing orders for the
purchase and sale of securities for the Fund's portfolio is to obtain the
most favorable net results taking into account such factors as price,
commission (negotiable in the case of U.S. national securities exchange
transactions), where applicable, 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 the 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 for
appraisal purposes, or who supply research, market and statistical
information to the Fund. The term "research, market and statistical
information" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities; 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 the
Fund to pay a brokerage commission (to the extent applicable) in excess of
that which another broker might have charged for executing the same
transaction on account of the receipt of research, market or statistical
information, although it may do so in seeking to obtain the most favorable
net results with respect to a particular transaction. 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 the Fund. In effecting transactions in
over-the-counter securities, orders are 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 Fund 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 Fund and not all such information is used by the Adviser in connection
with the Fund. 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 Fund.

The Trustees intend to review from time to time whether the recapture
for the benefit of the Fund of some portion of the brokerage commissions or
similar fees paid by the Fund on portfolio transactions is legally
permissible and advisable.

Portfolio Turnover

The Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities
or expiration dates at the time of acquisition of one year or less. A
higher rate involves greater brokerage transaction expenses to the Fund and
may result in the realization of net capital gains, which would be taxable
to shareholders when distributed. Purchases and sales are made for the
Fund's portfolio whenever necessary in management's opinion, to meet the
Fund's objective.

NET ASSET VALUE

The net asset value of shares of the Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for
trading. 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 the Fund, less all
liabilities, by the total number of shares outstanding.

An exchange-traded equity security 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"). Lacking a Calculated Mean, the security is valued
at the most recent bid quotation. An equity security which is traded on
the National Association of Securities Dealers Automated Quotation
("NASDAQ") system is valued at its most recent sale price. Lacking any
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 its most recent sale price. Lacking
any sales, the security is valued at the Calculated Mean. Lacking a
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(s) 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 it is not possible
to value a particular debt security pursuant to the above methods, the
Adviser may calculate the price of that debt security, subject to
limitations established by the Board.

An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on
such exchange. Lacking any sales, the options contract is valued at the
Calculated Mean. Lacking any Calculated Mean, the options contract is
valued at the most recent bid quotation in the case of a purchased options
contract, or the most recent asked quotation in the case of a written
options contract. An options contract on securities, currencies and other
financial instruments traded over-the-counter is valued at the most recent
bid quotation in the case of a purchased options contract and at the most
recent asked quotation in the case of a written options contract. Futures
contracts are valued at the most recent settlement price. Foreign currency
exchange forward contracts are valued at the value of the underlying
currency at the prevailing exchange rate.

If a security is traded on more than one exchange, or upon 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 a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio 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 other portfolio holdings owned by the
Fund 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 portfolio assets in terms of U.S.
dollars is calculated by converting the Local Currency into U.S. dollars at
the prevailing currency exchange rate on the valuation date.

ADDITIONAL INFORMATION

Experts

The financial information in this Statement of Additional Information
has been audited by Coopers & Lybrand L.L.P., One Post Office Square,
Boston, MA 02109, independent accountants, and is included in this
Statement of Additional Information in reliance upon the accompanying
report of said firm, which report is given upon their authority as experts
in accounting and auditing.

Shareholder Indemnification

The Trust is an organization 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 Declaration of Trust
contains an express disclaimer of shareholder liability in connection with
the Fund's property or the acts, obligations or affairs of the Trust. The
Declaration of Trust also provides for indemnification out of the Fund's
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 the Fund itself would be unable to meet its
obligations.

Ratings of Municipal Obligations

The four highest ratings of Moody's for municipal bonds are Aaa, Aa, A
and Baa. 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.

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 MIG-1 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 MIG-2 are of high
quality, with margins of protection ample although not as large as in the
preceding group.

The four highest ratings of S&P for municipal bonds are AAA (Prime),
AA (High-grade), A (Good-grade) and BBB (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.

S&P's 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 four highest ratings of Fitch for municipal bonds are AAA, AA, A
and BBB. 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.

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 semi-annually 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 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.

4. Maturity

The date on which the principal amount of a debt obligation comes due
by the terms of the instrument.

5. Municipal Obligation

Obligations 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.

6. Net Asset Value Per Share

The value of each share of the Fund for purposes of sales and
redemptions.

7. Net Investment Income

The net investment income of the Fund is comprised of its interest
income, including amortizations of original issue discounts, less
amortizations of premiums and expenses paid or accrued computed under
GAAP.

Other Information

The CUSIP number of the Fund is 81123Q104.

The Fund has a fiscal year ending on October 31.

Portfolio securities of the Fund are held separately, pursuant to a
custodian agreement, by the Fund's Custodian, State Street Bank and Trust
Company, 225 Franklin Street, Boston, MA 02110.

The firm of Willkie Farr & Gallagher of New York is counsel for the
Trust.

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, 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. No Fund of the Trust is
liable for the obligations of any other Fund. Upon the initial purchase of
shares, the shareholder agrees to be bound by the Trust's Declaration of
Trust, as amended from time to time. The Declaration of Trust of the Trust
is on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts. All persons dealing with the Fund must look only to the
assets of the Fund for the enforcement of any claims against the Fund as no
other series of the Trust assumes any liabilities for obligations entered
into on behalf of the Fund.

Costs of $41,258 incurred by the Fund in conjunction with its
organization are amortized over five years beginning February 15, 1994.

Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a wholly-owned subsidiary of the Adviser,
computes the Funds' 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. The fee incurred by the Fund to
Scudder Fund Accounting Corporation for February 15, 1994 (commencement of
operations) to October 31, 1994 would have amounted to $25,393, had this
fee been imposed.

Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a wholly-owned subsidiary of the Adviser,
is the transfer and dividend-paying agent. Service Corporation also serves
as shareholder service agent. The Fund pays Service Corporation an annual
fee of $25.00 for each account maintained for a shareholder. The fee
incurred by the Fund to Service Corporation for February 15, 1994
(commencement of operations) to October 31, 1994 would have amounted to
$27,525, had this fee been imposed.

The Fund's prospectus and this Statement of Additional Information
omit certain information contained in the Registration Statement which the
Trust has filed with the SEC under the Securities Act of 1933 and reference
is hereby made to the Registration Statement for further information with
respect to the Fund and the securities offered hereby.

This Registration Statement is available for inspection by the public
at the SEC in Washington, D.C.

FINANCIAL STATEMENTS

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.
<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 to 5 years 52% five- to 10-years have, in our
5 to 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.
</FN>
</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.

</FN>
</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
</FN>
</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

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.

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>

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 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

March 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
and Scudder High Yield 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.

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUNDS AND THEIR OBJECTIVES 1
General Investment Objectives and Policies of Scudder Tax Free 1
Money Fund
General Investment Objectives and Policies of Scudder Medium 3
Term Tax Free Fund
General Investment Objective and Policies of Scudder Managed 4
Municipal Bonds
General Investment Objective and Policies of Scudder High Yield 6
Tax Free Fund
Investments and Investment Techniques Common to the Funds 9
Trustees' Power to Change Objectives and Policies 20
Investment Restrictions 20
PURCHASES 26
Additional Information About Opening an Account 26
Checks 27
Wire Transfer of Federal Funds 27
Share Price 27
Share Certificates 27
Other Information 28
EXCHANGES AND REDEMPTIONS 28
Exchanges 28
Redemption by Telephone 29
Redemption by Mail or Fax 29
Redemption by Write-A-Check 30
Other Information 30
FEATURES AND SERVICES OFFERED BY THE FUNDS 31
The Pure No-Load(tm) Concept 31
Dividend Reinvestment Plan 32
Scudder Funds Centers 32
Reports to Shareholders 32
Diversification 32
Transaction Summaries 32
THE SCUDDER FAMILY OF FUNDS 32
SPECIAL PLAN ACCOUNTS 36
Automatic Withdrawal Plan 36
Cash Management System - Group Sub-Accounting Plan for Trust
Accounts,
Nominees and Corporations 36
Automatic Investment Plan 37
Uniform Transfers/Gifts to Minors Act 37
Scudder Trust Company 37
DIVIDENDS 37
Scudder Tax Free Money Fund 37
Scudder Medium Term Tax Free Fund, Scudder Managed Municipal 38
Bonds and Scudder High Yield Tax Free Fund
PERFORMANCE INFORMATION 39
Scudder Tax Free Money Fund 39
Yield 39
Effective Yield 39
Tax-Equivalent Yield 39
Scudder Medium Term Tax Free Fund, Scudder Managed Municipal 40
Bonds and Scudder High Yield Tax Free Fund
Average Annual Total Return 40
Cumulative Total Return 40
Total Return 41
Yield 41
Tax-Equivalent Yield 42
Tax-Exempt Income vs. Taxable Income 42
Comparison of Fund Performance 43
ORGANIZATION OF THE FUNDS 46
INVESTMENT ADVISER 47
Personal Investments by Employees of the Adviser 51
TRUSTEES AND OFFICERS 52
REMUNERATION 55
DISTRIBUTOR 55
TAXES 56
PORTFOLIO TRANSACTIONS 60
Brokerage 60
Portfolio Turnover 60
NET ASSET VALUE 61
Scudder Tax Free Money Fund 61
Scudder Medium Term Tax Free Fund, Scudder Managed Municipal
Bonds and
Scudder High Yield Tax Free Fund 61
ADDITIONAL INFORMATION 62
Experts 62
Shareholder Indemnification 62
Ratings of Municipal Obligations 62
Commercial Paper Ratings 63
Glossary 64
Other Information 65
FINANCIAL STATEMENTS 66
Scudder Tax Free Money Fund 66
Scudder Medium Term Tax Free Fund 66
Scudder Managed Municipal Bonds 66
Scudder High Yield Tax Free Fund 67

THE FUNDS AND THEIR OBJECTIVES

(See "Scudder Tax Free Money 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 Medium
Term Tax Free Fund is a series, is referred to herein as "STFT." 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,
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
and efficient 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 Corporation ("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.

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
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 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. In some cases the
Adviser will determine the remaining maturity of debt securities. There can be
no assurance that the Fund's objectives will be met.

The Fund will maintain a dollar-weighted average effective portfolio
maturity of between five and ten years. Duration represents the weighted
average maturity of expected cash flows (i.e. interest and principal payments)
on one or more debt obligations, discounted to their present values. The
duration of an obligation is always less than or equal to its stated maturity
and is related to the degree of the volatility in the market value of the
obligation.

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. Subject to the requirement that the
dollar-weighted average effective portfolio maturity will not exceed ten years,
the Fund may invest in individual debt obligations of up to fifteen years. 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.

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 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 their equivalents, 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, 1993, approximately 48% of the bonds in the Fund's
portfolio were rated AAA, 19% were rated AA and 21% were rated A by Moody's, S&P
or Fitch, or of equivalent quality.

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.

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 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, 1993, approximately 22% of the bonds in the Fund's
portfolio were rated AAA, 10% were rated AA, 16% were rated A and 41% were rated
BBB by Moody's, S&P or Fitch, or of equivalent quality.

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
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.")

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.
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.

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 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. The Funds 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 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 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.

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 . SMTTFF, SMMB and SHYTFF may, but
are 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 include
the use of derivative contracts. Such strategies are generally accepted as
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, the 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 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 the Fund's portfolio resulting from securities markets fluctuations, to
protect the 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 the 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 also be used to enhance potential gain although no more than 5%
of the 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 the Fund to utilize these Strategic Transactions
successfully will depend on the Adviser's ability to predict pertinent market
movements, which cannot be assured. The Fund 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 Fund, 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 Fund can realize on its
investments or cause the 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 the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the 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,
the Fund 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, the 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. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund 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. The 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.

The 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. The
Fund will only sell OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. The 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 the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the 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. The 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
Corporation ("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 the Fund, and portfolio securities "covering" the amount of the
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 the
Fund's limitation on investing no more than 10% of its assets in illiquid
securities.

If the 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 the Fund's income. The sale of put options can also provide income.

The 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 the Fund must be "covered"
(i.e., the 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 the Fund will receive the option premium to
help protect it against loss, a call sold by the Fund exposes the 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 the
Fund to hold a security or instrument which it might otherwise have sold.

The 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. The Fund will not sell put options if, as a result, more than 50%
of the 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 the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.

General Characteristics of Futures. The 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 the 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.

The 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 the 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 the Fund.
If the 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.

The 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 the 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. The 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,
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. The 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 the 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
the Fund may enter are interest rate and index swaps and the purchase or sale of
related caps, floors and collars. The 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 the Fund anticipates purchasing
at a later date. The 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 the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
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.

The 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 the 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 the 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. The 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, the 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. The 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. The 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.

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 the 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 the 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 the 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 the Fund will require the 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 the Fund on an index will require the 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 the Fund requires the Fund to
segregate liquid, high grade assets equal to the exercise price.

OTC options entered into by the 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 the 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 the 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 the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the 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 the Fund other than
those above generally settle with physical delivery, and the 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.

With respect to swaps, the 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 the Fund's net obligation, if any.

Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The 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, the 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 the Fund. Moreover, instead of segregating assets if the 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.

The 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);

(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;

(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 Medium 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 (the payment of interest on borrowings will reduce
the Fund's income);

(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 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.

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; 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 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;

(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 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.

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 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 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.

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.

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
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.

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 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 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
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.

</TABLE>
<TABLE>
<CAPTION>
Scudder Load Fund No-Load Fund
Pure No- 8.50% Load with 0.75% with 0.25%
YEARS Load(tm) Fund Fund 12b-1 Fee 12b-1 Fee
----- ------------- ---- --------- ---------
<C> <C> <C> <C> <C>
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
</TABLE>

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.

Dividend Reinvestment Plan

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 choosing to participate in Scudder's Automatic Withdrawal Plan
must reinvest any dividends or capital gains.

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.

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.

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.

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.

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.

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

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.

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 New York Stock 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.
Shares purchased as of the determination of net asset value made as of the close
of the New York Stock 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 New York Stock
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 Medium Term Tax Free Fund, Scudder Managed Municipal Bonds
and Scudder High Yield Tax Free Fund

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, 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 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, 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.

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, 1993 was 2.23%.

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,
1993 was 2.25%.

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
3.48% and 3.69%, respectively, to receive after-tax income equal to the 2.23%
tax-free yield of Scudder Tax Free Money Fund on December 31, 1993. Please
refer to the chart beginning on page 44 for a discussion of tax-exempt income v.
taxable income.

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 Medium Term Tax Free Fund, Scudder Managed Municipal Bonds
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.

<TABLE>
<CAPTION>
Average Annual Total Return for periods ended December 31, 1993

One Five Ten Life of
Year Years Years Fund
------ ------ ------ ------
<S> <C> <C> <C> <C>
Scudder Medium Term Tax Free Fund* 10.94% 8.83% 8.17% --

Scudder Managed Municipal Bonds 13.32 10.47 10.85 --

Scudder High Yield Tax Free Fund** 13.85 10.85 -- 8.77 (1)
<FN>
* 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, 1990
through December 31, 1993 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 10.28%, 8.36% and 7.92%,
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 8.44%.

(1) For the period beginning January 22, 1987 (commencement of operations).
</FN>
</TABLE>
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, 1993

One Five Ten Life of
Year Years Years Fund
------ ------ ------ ------
<S> <C> <C> <C> <C>
Scudder Medium Term Tax Free Fund* 10.94% 52.67% 119.36% --

Scudder Managed Municipal Bonds 13.32 64.54 180.04 --

Scudder High Yield Tax Free Fund** 13.85 67.37 -- 78.90 (1)
<FN>
* 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, 1993 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 10.28%, 49.42% and 115.32%, 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 75.53%.

(1) For the period beginning January 22, 1987 (commencement of operations).
</FN>
</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.

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, 1993

Scudder Medium Term Tax Free Fund* 4.46%

Scudder Managed Municipal Bonds 4.66%

Scudder High Yield Tax Free Fund 5.06%

* The Adviser maintained Fund expenses for the period November 1, 1990
through June 30, 1993. From July 1, 1993 to December 31, 1993 the Adviser
maintained Fund expenses at 0.25% of average daily net assets of the Fund.
The yield for the 30-day period ended December 31, 1993, had the Adviser
not maintained Fund expenses, would have been approximately 3.71%.

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, 1993
<TABLE>
<CAPTION>
TAXABLE EQUIVALENT*

28% 36% 39.6%
FUND Tax Bracket Tax Bracket Tax Bracket
- ---- ----------- ----------- -----------
<S> <C> <C> <C>
Scudder Medium Term Tax Free Fund 6.19% 6.97% 7.38%

Scudder Managed Municipal Bonds 6.47% 7.30% 7.72%

Scudder High Yield Tax Free Fund 7.03% 7.91% 8.38%
<FN>
* Based on federal income tax rates in effect for the 1993 taxable year.
</FN>
</TABLE>

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 1993
calendar year.

<TABLE>
<CAPTION>
To Equal Hypothetical Tax-Free
1993 Taxable Federal Yields of 5%, 7% and 9%, a Taxable
Income Brackets Tax Rates Investment Would Have To Earn**
Individual
Return 5% 7% 9%
------ ------ ------ ------
<S> <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%
<FN>
** 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.
</FN>
</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 Fund 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
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.

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.

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 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
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, the nation's number one 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.

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 SMTTFF 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 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, 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, 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.

Shares of SMT 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 "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.

Certain investments may be appropriate for more than one of the Funds (or
more than one series of SMT) 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, 1991, 1992 and 1993, the investment
advisory fees pursuant to its investment advisory agreement amounted to
$1,511,571, $1,326,155 and $1,204,009, 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.

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 year ended December 31, 1990, SMTTFF's aggregate fees pursuant to
such Agreement amounted to $255,336, however the Adviser did not impose $7,199.
For the years ended December 31, 1991, 1992 and 1993, SMTTFF's fees pursuant to
such Agreement amounted to $811,770, $2,771,139 and $484,365, respectively. The
Adviser did not impose any of its fee for the years ended December 31, 1991 and
1992. For the year ending December 31, 1993, SMTTFF's aggregate fees pursuant
to such Agreement amounted to $5,202,848; however, the Adviser did not impose
$4,718,483.

The Adviser has agreed to maintain the annualized expenses of the Fund at
not more than 0.50% of average daily net assets of the Fund until May 1, 1994.
Expenses were also maintained at this level for the period December 17, 1990 to
January 1, 1993. 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
December 31, 1993 the Adviser maintained expenses of the Fund at 0.25% of
average daily net assets. For the 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, 1991, 1992 and 1993, aggregate fees
incurred by SMMB pursuant to its investment advisory agreement amounted to
$3,839,842, $4,135,346 and $4,545,920, 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, 1994. For the years ended December 31, 1991, 1992 and 1993 fees
incurred by SHYTFF amounted to $948,940, $1,225,773 and $1,727,686,
respectively. For the years ended December 31, 1991, 1992 and 1993 the Adviser
did not impose a fee which would have amounted to $54,019, $10,760 and $161,421,
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, 1991, 1992 and 1993 were 0.70%, 0.73% and 0.75%,
respectively. The expense ratios for SMTTFF for the fiscal years ended December
31, 1991, 1992 and 1993 were 0%, 0% and 0.14%, respectively. If expense
maintenance had not been in effect, total annualized Fund operating expenses for
SMTTFF for the years ended December 31, 1991, 1992 and 1993 would have been
0.88%, 0.80% and 0.75% of average daily net assets, respectively. The expense
ratios of SMMB for the years ended December 31, 1991, 1992 and 1993 were 0.64%,
0.63% and 0.63%, respectively. Since the Adviser maintained Fund expenses as
described above, the expense ratios for SHYTFF were 1.00%, 0.98% and 0.92% for
the fiscal years ended December 31, 1991, 1992 and 1993, respectively. If
expense maintenance had not been in effect, total annualized Fund operating
expenses for SHYTFF for the years ended December 31, 1991, 1992 and 1993 would
have been 1.04%, 0.99% and 0.98% 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 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
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,
Position Principal Scudder Investor
Name and Address with Trust Occupation** Services, Inc.
- ---------------- ---------- ------------ ------------------
<C> <C> <C> <C>
David S. Lee*+ President and Managing Director President,
Trustee (1,2,3) of Scudder, Director and
Stevens & Clark, Assistant
Inc. Treasurer

Henry P. Becton, Jr. Trustee (1) President and --
WGBH General Manager,
125 Western Ave. WGBH Educational
Boston, MA 02134 Foundation

Dawn-Marie Driscoll Trustee (1,2,3) Attorney and --
5760 Flamingo Drive Corporate
Cape Coral, FL 33904 Director; former
Partner, Palmer &
Dodge, 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 --
100 Alumni Avenue and Trustee
Providence, RI 02906

Dudley H. Ladd*+ Trustee (1) Managing Director Senior Vice
of Scudder, President and
Stevens & Clark, Director
Inc.

George M. Lovejoy, Trustee (1,2) Chairman of --
Jr. Meredith & Grew
160 Federal Street Incorporated, a
Boston, MA 02110 real estate
service company

Wesley W. Marple, Jr. Trustee (1,3) Professor of --
Northeastern Business
University Administration,
413 Hayden Hall Northeastern
360 Huntington Avenue University,
Boston, MA 02115 College of
Business
Administration

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

Daniel Pierce*+ Trustee and Vice Chairman of the Vice President,
President (1) Board and Managing Director and
Director of Assistant
Scudder, Stevens & Treasurer
Clark, Inc.

Juris Padegs*# Trustee (1,2,3) Managing Director Vice President and
and Vice of Scudder, Director
President (2) Stevens & Clark,
Inc.

Donald C. Carleton+ Vice President Managing Director --
(1,2,3) of Scudder,
Stevens & Clark,
Inc.

Cuyler W. Findlay# Vice President Managing Director Senior Vice
of Scudder, President and
Stevens & Clark, Director
Inc.

Jerard K. Hartman# Vice President Managing Director --
(1,2,3) of Scudder,
Stevens & Clark,
Inc.

Thomas W. Joseph+ Vice President Principal of Vice President,
(1,2,3) Scudder, Stevens & Director,
Clark, Inc. Treasurer and
Assistant Clerk

Thomas F. McDonough+ Vice President Principal of Clerk
and Secretary Scudder, Stevens &
(1,2,3) Clark, Inc.

Pamela A. McGrath+ Vice President Principal of --
and Treasurer Scudder, Stevens &
(1,2,3) Clark, Inc.

Edward J. O'Connell# Vice President Principal of Assistant
and Assistant Scudder, Stevens & Treasurer
Treasurer Clark, Inc.
(1,2,3)

Coleen Downs Dinneen+ Assistant Vice President of Assistant Clerk
Secretary Scudder, Stevens &
(1,2,3) Clark, Inc.
(1) SMT
(2) STFMF
(3) STFT
</TABLE>

* Messrs. Lee, Ladd, Padegs, and Pierce 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 Investment Company Act of
1940, 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 March 31, 1994, 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 March 31, 1994, no person owned
beneficially more than 5% of the Fund's outstanding shares.

As of March 31, 1994, 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
20,891,730 shares in the aggregate, or 23.61% of the outstanding shares of
SMTTFF on March 31, 1994. 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 March 31, 1994, no person owned
beneficially more than 5% of SMTTFF's outstanding shares except as stated above.

As of March 31, 1994, 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) 493,948 shares, or 5.02% of the shares of SMMB.

Certain accounts for which the Adviser acts as investment adviser owned
15,227,603 shares in the aggregate, or 15.49% of the outstanding shares of SMMB
on March 31, 1994. The Adviser may be deemed to be the beneficial owner of such
shares but disclaims any beneficial interest in such shares.

As of March 31, 1994, 7,451,480 shares in the aggregate, 7.58% 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 March 31, 1994, no person owned
beneficially more than 5% of SMMB's outstanding shares except as stated above.

As of March 31, 1994, 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 March 31, 1994, 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).

<TABLE>
<CAPTION>
Compensation Table
for the year ended December 31, 1994

(1) (2) (3) (4) (5)
(b)
(a) Scudder Tax
Scudder Free Trust
Municipal Trust consisting of
consisting of two Funds: Total
two Funds: Scudder Medium Pension or Compensation
Scudder Managed Term Tax Free Retirement Estimated from the AARP
Municipal Bonds Fund and Scudder (c) Benefits Annual Trusts and
Name of and Scudder High Limited Term Tax Scudder Tax Accrued as Benefits Fund Complex
Person, Yield Tax Free Free Fund Free Money Part of Fund Upon Paid to
Position Fund ------ Fund Expenses Retirement Trustee
-------- --------- ------ --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Henry P. $18,000 --- --- N/A N/A $90,597.83
Becton, Jr. (15 funds)
Trustee

Dawn-Marie $18,000 $13,796 $9,000 N/A N/A $94,793.83
Driscoll (16 funds)
Trustee

Peter B. $18,000 $13,796 $9,000 N/A N/A $141,843.83
Freeman (31 funds)
Trustee

George M. $18,000 --- $9,000 N/A N/A $117,450.00
Lovejoy, Jr. (12 funds)
Trustee

Wesley W. $18,000 $13,796 --- N/A N/A $95,693.83
Marple, Jr. (15 funds)
Trustee

Jean C. --- --- $1,600 N/A N/A $15,076.00
Tempel (14 funds)
Trustee
</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 SMTTFF,
$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, 1993, such fees totaled $33,425 for STFMF, $26,995 for SMTTFF,
$28,992 for SMMB and $28,805 for SHYTFF.

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, 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
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.

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, 1993, STFMF had a net capital loss
carryforward of approximately $132,800, which may be applied against realized
capital gains of each succeeding year until fully utilized or until December 31,
1995, ($76,700), December 31, 1996 ($20,400), December 31, 2000 ($6,800) and
December 31, 2001 ($28,900), 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 SMTTFF, 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 SMTTFF, 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
gain with respect to such shares. Any short-term capital loss realized upon the
redemption of shares of SMTTFF, 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 SMTTFF, 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 SMTTFF, 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 SMTTFF, 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
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.

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.

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.

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, 1993 and 1992 were 37.3% and 22.4%, respectively. The portfolio
turnover rate of SMMB for the fiscal years ended December 31, 1993 and 1992 were
52.8% and 59.6%, respectively. The portfolio turnover rate of SHYTFF for the
fiscal years ended December 31, 1993 and 1992 were 56.4% and 56.6%,
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 Medium Term Tax Free Fund, Scudder Managed Municipal Bonds
and Scudder High Yield Tax Free Fund

The net asset value of shares of SMTTFF, SMMB and SHYTFF are computed as of
the close of regular trading on the New York Stock Exchange (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 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, 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.

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.

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

(b) Original Issue Discount

An original issue discount is the discount from face value at which
the bond is first offered to the public.

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 amortization 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 Scudder Limited Term Tax Free
Fund (SLTTFF). Each series is distinct from the other, although both
SMTTFF and SLTTFF are combined in one investment company--STFT. SLTTFF
files a separate SAI with the SEC.

Other Information

The CUSIP number for STFMF is 811235-10-0.

The CUSIP number for SMTTFF is 811236-20-7.

The CUSIP number for SMMB is 811170-10-9.

The CUSIP number for SHYTFF is 811170-20-8.

Each Fund has a taxable year ending on December 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 $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 of New York 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 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. $250,977 was
charged to STFMF for the year ended December 31, 1993 of which $21,520 is unpaid
at December 31, 1993. A total of $424,181 was charged by Service Corporation to
SMMB for the calendar year ended December 31, 1993, $34,344 of which is unpaid
at December 31, 1993. A total of $358,783 was charged to SHYTFF for the year
ended December 31, 1993, $31,735 of which is unpaid at December 31, 1993. For
SMTTFF, Service Corporation agreed not to impose its fee until June 30, 1993.
From June 30, 1993 to December 31, 1993 $299,685 was charged to SMTTFF. From
January 1, 1993 to June 30, 1993 the fee not imposed by Service Corporation was
$286,946.

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
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 Financial Highlights, are incorporated by
reference and attached hereto on pages 8 through 17 , inclusive, in the
Semi annual Report to the Shareholders of the Fund dated June 30,
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 Financial Highlights, are
incorporated by reference and attached hereto on pages 10 through 26 ,
inclusive, in the Semi annual Report to the Shareholders of the Fund dated
June 30, 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 Financial Highlights, are
incorporated by reference and attached hereto on pages 10 through 23 ,
inclusive, in the Semi annual Report to the Shareholders of the Fund dated
June 30, 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 Financial Highlights, are
incorporated by reference and attached hereto on pages 10 through 20 ,
inclusive, in the Semi annual Report to the Shareholders of the Fund dated
June 30, 1994 , and are hereby deemed to be part of this Statement of
Additional Information.

<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 Tax Free Money Fund

Semiannual Report
June 30, 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.

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
8 Investment Portfolio
Itemized list of your Fund's portfolio holdings
14 Financial Statements
17 Financial Highlights
18 Notes to Financial Statements
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 have been a study in contrasts over the
past 12 months. In 1993, long-term interest rates approached or hit lows
not seen in years in the United States, Japan and many European countries.
Fueled by lower rates, many stock markets around the world had hit record
high levels by January 1994. Financial markets have cooled considerably
since then. Early in the first quarter of 1994, reports of accelerating
U.S. economic growth prompted fears of rising inflation and led to a series
of short-term interest rate hikes by the Federal Reserve this spring. As
yields rose in the United States, bond prices fell across the maturity
spectrum. Yields also rose outside the United States, leading to declines
in most of the world's stock and bond markets.

What do these events mean for investors? On the positive side, we
expect a moderate overall pace of economic expansion and low relative
inflation worldwide. However, this year's investment returns, as we have
stated previously, are not likely to come close to matching the exceptional
performance of 1993.

In light of the current market environment, we encourage you
periodically to examine your portfolio to make sure your asset allocation
and fund choices remain appropriate for your investment time frame and
financial goals. Money market funds are an important component of any
investment program as a means of cash management and can also serve as a
portfolio repository in the event of potential market volatility. But for
investors with long time horizons, those who require current income will
most likely need to rely on bonds and money market funds and those who
require growth to outpace inflation will most likely need stocks to help
them reach their objectives.

Please call Scudder Investor Information at 1-800-225-2470 if you have
questions about your Fund or if you would like help in evaluating your
current investment portfolio. 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

PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

On June 30, Scudder Tax Free Money Fund's yield was 2.02% while its
effective annualized 7-day yield, which factors in the effect of
compounding, was 2.04%, compared to 2.25% six months earlier. For
shareholders in the 36% and 39.6% federal income tax bracket, this compound
yield translates into a taxable equivalent yield of 3.19% and 3.38%,
respectively--meaning a comparable taxable fund would have to provide those
yields to match your Fund's yield on an after-tax basis. In keeping with
its objective, the Fund maintained a constant share price of $1.00.

The Fund's total return, which reflects reinvested income
distributions of $0.009 per share, was 0.93% for the six-month period. By
comparison, the average tax-free money market fund produced a total return
for the six months of 0.97%, according to Lipper Analytical Services Inc.,
an independent firm that tracks mutual fund performance.

Rising U.S. Rates Set the Tone

The first six months of 1994 were eventful, to say the least, for all
financial markets. For most of 1993, interest rates had been on the decline
and money market yields had moved steadily lower. But in 1994, U.S.
short-term interest rates rose from historic lows as the Federal Reserve
gradually but persistently raised the federal funds rate (the rate charged
on overnight loans) four times between February and May, from 3% to 4.25%.
In addition, the most recent increase was accompanied by a rise in the
discount rate (the rate the Federal Reserve charges member banks on loans)
by one half of a percentage point, to 3.5%. These rate hikes--the first such
moves by the Fed in five years--triggered declines in stock and bond markets
worldwide as investors interpreted Fed actions as a signal that inflation
was on the rise. Throughout this turbulent period, money market investors
were among the few groups to escape price declines since their share prices
are managed to remain at a constant $1.00.

Supply and Demand Dictate Tax-Free Yields

While conventional wisdom would tell you that in a rising interest
rate environment your Fund would have ended the fiscal period with a
current 7-day yield that was higher, not lower, than at the start of the
six-month period, this was not the case. What caused the Fund's yield to
ratchet down slightly from its level at year end to its June 30 level?
Supply and demand factors played a particularly instrumental role in the
yields of municipal money market securities over the past several months.
Each year, the municipal marketplace undergoes key technical variations. In
January, the market typically experiences a low in supply while interest
coming due on securities increases market demand. In June, typically the
time when most municipalities close their fiscal year and begin borrowing
again, the marketplace generally sees a large jump in supply. When supply
is relatively heavy, prices are typically soft, which pushes up yields.
This year, however, though supply clearly rose, it by no means matched the
supply of last June.

In recent years, the seasonal oversupply was compounded by huge
refundings as municipalities across the country took advantage of declining
interest rates to refinance their higher-cost debt. With interest rates on
the rise in 1994, however, refundings were minimal. In addition, thanks to
the modestly improving economy, many municipalities were in healthier
financial shape and didn't need to borrow as much as in prior years. The
combination of these factors served to push the supply of municipal issues
increasingly lower, to approximately $89 billion for the first six months
of 1994 versus $149 billion for the same period last year.

Investor demand, meanwhile, has increased significantly. A combination
of higher taxes and falling prices for other financial assets caused
investors to begin turning to money market funds, and particularly to
tax-free money market funds. Moreover, many longer-term municipal bond
funds had shifted to a more conservative stance by increasing their
investments in tax-free money market securities for greater investment
stability and flexibility in the face of rising rates, driving demand
higher still.

With the supply/demand balance leaning heavily toward the demand side,
overall yields in municipal money market instruments were somewhat
restrained, as is evident from the Fund's lower yield on June 30 compared
to December 31, 1993.

Strategies Emphasize Principal Preservation in the Wake of Rising Rates

During the first half of 1994, your Fund emphasized strategies to
protect principal value fully as interest rates climbed, namely by
investing heavily in variable-rate demand notes. These securities pay
interest at current market levels and have the ability to return the entire
face value of the security to the investor at all times. Because there is
reduced price risk, these instruments afford the Fund a great deal of
stability.

We also took steps to reduce average portfolio maturity. This
strategy, however, is masked by the fact that the Fund's average maturity
of 65 days as of June 30 equalled its average maturity as of year end
1993--also 65 days. If the maturity snapshot had been taken in mid-May, the
picture would have been far different--at that time average maturity had
dipped as low as 29 days. The apparent inconsistency is primarily due to
the fact that as maturities in the portfolio get shorter, adding even just
a few money market securities with relatively long one-year maturities can
skew the average significantly higher, as was the case with your Fund. When
the municipal money market supply increased in June, we purchased several
attractive longer-term issues that served to elevate the Fund's average
maturity as of June 30. As these issues became available, it was important
to take advantage of them because seasonal supply tends to wane later in
the summer.

Under these conditions, concentrating on investments at both the long
and short ends of the short-term maturity spectrum was still appropriate.
The longer-maturity securities enabled the Fund to capture some higher
relative money market yields while prevailing interest rates moved higher.
At the same time, the shorter-maturity issues ensured the Fund maintained
ample liquidity both to meet shareholders' cash needs and pursue
opportunities to purchase higher-yielding instruments as they became
available.

During the six months, we also invested a very small portion of the
portfolio--only 3%--in so-called derivative instruments. Though some
derivative instruments can be used by investors to attempt to enhance
income, it is important to note that other derivatives are used for
defensive purposes--to help manage risk. Your Fund invests only in the most
conservative of defensive derivatives, known as custody receipts, which are
not leveraged and generate only tax-free income.

Finally, throughout the fiscal year, the Fund continued to adhere to
high standards of security selection, focusing on only those securities
within the top two ratings categories of independent rating organizations
such as Standard and Poor's and Moody's Investors Service. To promote
stability, we continue to diversify geographically with 93 quality
securities across 32 states. No single issue represents more than 4.5% of
the Fund. We place a high premium on the efforts of our own in-house
research and investment management resources to seek out the municipal
money market securities that offer the optimal mix of quality, yield and
liquidity.

Outlook

We expect the current moderate rate of economic growth will continue
with slim prospects for significantly higher inflation. In this
environment, it is unlikely that short-term interest rates will rise at the
same rapid pace as the first half of 1994. We would not, however, be
surprised to see short-term interest rates inch slightly higher during the
remainder of this year. In view of these expectations, we remain well
diversified across states and issues, while maintaining a favorable mix of
short- and longer-term municipal money market instruments.

As always, we continue to apply careful and conservative investment
strategies to preserve the $1.00 value of your investment while seeking to
deliver competitive tax-free money market yields.

Sincerely,

Your Portfolio Management Team

/s/K. Sue Cote /s/Donald C. Carleton
K. Sue Cote Donald C. Carleton

<PAGE>
<TABLE>
SCUDDER TAX FREE MONEY FUND
INVESTMENT PORTFOLIO as of June 30, 1994 (Unaudited)

<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Principal Credit Value ($)
Amount ($) Rating (b) (Note A)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
100.0% MUNICIPAL INVESTMENTS
---------------------------------------------------------------------------------------------------
ALABAMA Birmingham, AL, Medical Clinic, University of Alabama
Health Services, Daily Demand Note, 3.3%,
12/1/26* . . . . . . . . . . . . . . . . . . . . . 1,600,000 A1+ 1,600,000
ALASKA Alaska Housing Finance Corp., General Mortgage
Revenue, 1991 Series A, Weekly Demand Note,
2.9%, 6/1/26* . . . . . . . . . . . . . . . . . . . 6,600,000 MIG1 6,600,000
ARIZONA Maricopa County, AZ, Pollution Control Revenue,
Arizona Public Service Co., Series 1994, Daily
Demand Note, 3%, 5/1/29* . . . . . . . . . . . . . 2,500,000 P1 2,500,000
Maricopa County, AZ, Pollution Control Revenue,
Southern California Edison, Series B, Tax
Exempt Commercial Paper, 2.65%, 8/1/94 . . . . . . 1,000,000 A1 1,000,000
Maricopa County, AZ, Industrial Development
Authority, Royal Oaks Sun City Project, Weekly
Demand Note, 2.65%, 9/1/02* . . . . . . . . . . . . 400,000 MIG1 400,000
Salt River Project, Agricultural Improvement and
Power District, AZ, Tax Exempt Commercial Paper,
2.7%, 9/9/94 . . . . . . . . . . . . . . . . . . . 1,000,000 A1+ 1,000,000
CALIFORNIA California Revenue Anticipation Warrant, Series A,
3.75%, 12/21/94 . . . . . . . . . . . . . . . . . . 5,000,000 MIG1 5,017,329
Huntington Beach, CA, River Meadows Apartments,
Weekly Demand Note, 3.25%, 10/1/05* . . . . . . . . 1,800,000 A1 1,800,000
Irvine Ranch Water District, CA, Daily Demand
Note, 3%, 6/1/15* . . . . . . . . . . . . . . . . . 4,300,000 A1+ 4,300,000
Lancaster, CA, Willows Project, Green Meadows,
1985 Series A, Weekly Demand Note,
2.875%, 2/1/05* . . . . . . . . . . . . . . . . . . 8,650,000 A1 8,650,000
Long Beach, CA, General Obligation, Tax and
Revenue Anticipation Note, 3.25%, 9/21/94 . . . . . 2,500,000 MIG1 2,502,235
Los Angeles County, CA, Tax and Revenue
Anticipation Note:
4.5%, 6/30/95 . . . . . . . . . . . . . . . . . . . 5,140,000 SP1+ 5,172,074
Unified School District, 4.5%, 7/10/95 . . . . . . 2,000,000 SP1+ 2,017,600
Marin County, CA, General Obligation, Tax and
Revenue Anticipation Note, 1993 Series A,
3%, 7/6/94 . . . . . . . . . . . . . . . . . . . . 5,000,000 MIG1 5,000,060
Riverside, CA, Multi-Family Housing Revenue:
Countrywood Apartments, 1985 Series D, Weekly
Demand Note, 2.875%, 5/1/05* . . . . . . . . . . . 1,000,000 A1 1,000,000
Polk Apartments, Weekly Demand Note, 2.875%,
12/1/05* . . . . . . . . . . . . . . . . . . . . . 2,000,000 A1 2,000,000

The accompanying notes are an integral part of the financial statements.
</TABLE>

<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Principal Credit Value ($)
Amount ($) Rating (b) (Note A)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Student Educational Loan Marketing Corporation,
State of California, General Obligation, Mandatory
Tender Bond, 1993 Series A, 2.65%, 11/1/94 . . . . . . 3,000,000 MIG1 3,000,000
COLORADO Colorado Student Loan Obligation Bond Authority,
Weekly Demand Note, 1990 Series C,
2.35%, 9/1/99* . . . . . . . . . . . . . . . . . . . . 1,500,000 MIG1 1,500,000
CONNECTICUT Connecticut General Obligation, Tender Option
Bond, Weekly Coupon Reset, 2.35%, 7/7/94 . . . . . . . 2,000,000 MIG1 2,000,000
FLORIDA Broward County, FL, Housing Finance Authority,
Welleby Apartments Project, Weekly Demand Note,
2.85%, 12/1/06* . . . . . . . . . . . . . . . . . . . . 1,000,000 MIG1 1,000,000
Dade County, FL, Industrial Development Authority,
Florida Light & Power, Weekly Demand Note, 2.25%,
12/1/20* . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 MIG1 1,000,000
Florida Local Government Finance Authority, Weekly
Demand Note, 2.3%, 9/1/16* . . . . . . . . . . . . . . 3,000,000 MIG1 3,000,000
Putnam County, FL, Pollution Control Revenue,
Seminole Electric Cooperative Finance Corp.,
1984 Series H-2, Weekly Demand Note,
2.65%, 3/15/14* . . . . . . . . . . . . . . . . . . . . 2,650,000 A1+ 2,650,000
GEORGIA DeKalb Private Hospital Authority, Egleston Children's
Hospital at Emory University, 1994 Series B, Weekly
Demand Note, 2.35%, 3/1/24* . . . . . . . . . . . . . . 5,000,000 A1+ 5,000,000
Dekalb County, GA, Wood Brook Project, 1985
Series J, Weekly Demand Note, 2.75%, 8/1/07* . . . . . 2,000,000 MIG1 2,000,000
IDAHO Idaho Tax Anticipation Note, 4.5%, 6/29/95 . . . . . . . 2,000,000 MIG1 2,012,880
ILLINOIS Chicago, IL, General Obligation, Equipment Tender
Note, Series C1, Mandatory Put, 2.75%, 10/31/94 . . . . 2,000,000 A1+ 2,000,000
Illinois Development Finance Authority, Molex Inc.
Project, Series 1985, Weekly Demand Note,
2.45%, 7/1/05* . . . . . . . . . . . . . . . . . . . . 1,000,000 NR 1,000,000
Illinois Educational Facilities Authority, University
Pooled Finance Program, Weekly Demand Note,
2.6%, 12/1/05(c)* . . . . . . . . . . . . . . . . . . . 4,900,000 A1 4,900,000
Illinois Health Facilities Authority:
Rush Presbyterian, St. Luke's Medical Center,
Tax Exempt Commercial Paper, 2.9%, 10/13/94 . . . . . 2,000,000 A1+ 2,000,000
La Grange Memorial Health System, Series 1990,
Daily Demand Note, 3.5%, 12/1/16* . . . . . . . . . . 4,300,000 MIG1 4,300,000
Skokie, IL, Fashion Square, Series 1984, Weekly
Demand Note, 2.75%, 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+ 2,002,976
Sullivan, IN, National Rural Utilities, Hoosier Electric
Co., Tax Exempt Commercial Paper, Series L5,
2.7%, 9/9/94 . . . . . . . . . . . . . . . . . . . . . 1,000,000 A1+ 1,000,000

The accompanying notes are an integral part of the financial statements.

</TABLE>

<PAGE>
<TABLE>
SCUDDER TAX FREE MONEY FUND
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Value ($)
Amount ($) Rating (b) (Note A)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IOWA Iowa School Corporation, General Obligation:
3.6%, 12/30/94 . . . . . . . . . . . . . . . . . . . . 7,000,000 MIG1 7,010,267
Series A, 4.25%, 7/17/95 . . . . . . . . . . . . . . . 1,000,000 SP1+ 1,006,536
KENTUCKY Kentucky Development Finance Authority, Healthcare
System, Appalachian Regional Healthcare, Series
1991, Weekly Demand Note, 2.7%, 9/1/06* . . . . . . . . 1,400,000 MIG1 1,400,000
MAINE Maine General Obligation, 4.5%, 6/30/95 . . . . . . . . 4,000,000 SP1+ 4,030,760
MASSACHUSETTS Massachusetts General Obligation, Dedicated
Income Tax, Series D, Daily Demand Note,
3.1%, 6/1/95* . . . . . . . . . . . . . . . . . . . . . 300,000 A1+ 300,000
Massachusetts Bay Transportation Authority, 1984
Series A, Optional Put, 2.75%, 3/1/14 . . . . . . . . . 3,000,000 A1+ 3,000,000
MICHIGAN Michigan Strategic Fund, Dow Chemical Project,
Series 1986, Tax Exempt Commercial Paper,
3%, 10/14/94 . . . . . . . . . . . . . . . . . . . . . 1,000,000 P1 1,000,000
MINNESOTA Becker, MN, Pollution Control Revenue, Northern
States Power, 1993 Series B, Tax Exempt
Commercial Paper, 2.7%, 9/9/94 . . . . . . . . . . . . 1,000,000 P1 1,000,000
Cottage Grove, MN, Minnesota Mining and
Manufacturing, Series 1982, Weekly Demand
Note, 2.81%, 8/1/12* . . . . . . . . . . . . . . . . . 1,100,000 A1+ 1,100,000
Rochester, MN, Health Facilities Revenue,
Foundation/Mayo Medical Center, Tax Exempt
Commercial Paper, 2.65%, 8/1/94 . . . . . . . . . . . . 1,500,000 A1+ 1,500,000
MISSOURI Missouri Health and Educational Facilities Authority,
Sisters of Mercy, Weekly Demand Note,
2.3%, 6/1/19* . . . . . . . . . . . . . . . . . . . . . 3,000,000 MIG1 3,000,000
Missouri State Environmental Improvement and Energy
Resource Authority, Union Electric Co., 1984
Series A, Optional Put, 3.75%, 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,
2.4%, 12/1/07* . . . . . . . . . . . . . . . . . . . . 3,000,000 MIG1 3,000,000
NEVADA Clark County, NV, Airport Improvement Revenue,
Weekly Demand Note, 2.2%, 7/1/12(c)* . . . . . . . . . 2,000,000 A1+ 2,000,000
NEW JERSEY New Jersey Turnpike Authority, Series D, Weekly
Demand Note, 2%, 1/1/18(c)* . . . . . . . . . . . . . . 8,000,000 A1+ 8,000,000
Salem County, NJ, Industrial Pollution Control
Authority, E.I. du Pont de Nemours and Co.,
Floating Rate Demand Note, 2.75%, 3/1/12* . . . . . . . 11,400,000 P1 11,400,000
NORTH CAROLINA North Carolina Eastern Municipal Power Agency,
Tax Exempt Commercial Paper, 1988 Series B,
3.2%, 8/19/94 . . . . . . . . . . . . . . . . . . . . . 2,500,000 A1+ 2,500,000

The accompanying notes are an integral part of the financial statements.

</TABLE>

<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Value ($)
Amount ($) Rating (b) (Note A)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
North Carolina Medical Care Commission, Pooled
Finance, Series A-2, Weekly Demand Note,
2.7%, 7/1/26(c)* . . . . . . . . . . . . . . . . . . . 2,200,000 MIG1 2,200,000
NORTH DAKOTA Mercer County, ND, Pollution Control Revenue,
Cooperative Finance Corp., United Power, Weekly
Demand Note, 2.65%, 8/15/14* . . . . . . . . . . . . . 3,200,000 A1 3,200,000
OHIO North Olmstead, OH, General Obligation, Tax
Anticipation Note, 4.2%, 6/22/95 . . . . . . . . . . . 2,000,000 NR 2,005,618
OREGON Klamath Falls, OR, Hydroelectric Facilities Authority,
Salt Caves Project, 1986 Series D, Mandatory Put,
3.750%, 5/1/95 . . . . . . . . . . . . . . . . . . . . 1,500,000 SP1+ 1,500,000
Salem, OR, Hospital Facilities Authority, Weekly
Demand Note, 2.2%, 10/1/17* . . . . . . . . . . . . . 1,300,000 MIG1 1,300,000
PENNSYLVANIA Allegheny County, PA, Industrial Development
Authority, Lenmar Realty Project, Weekly Demand
Note, 2.75%, 1/1/98* . . . . . . . . . . . . . . . . . 1,530,000 MIG1 1,530,000
Bucks County, PA, Oxford Falls Plaza, Series 1984,
Weekly Demand Note, 3.125%, 10/1/14* . . . . . . . . . 6,000,000 MIG1 6,000,000
Elk County, PA, Stackpole Corporation, Series 1989,
Weekly Demand Note, 3.73%, 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, 2.25%, 3/1/24* . . . . . . . . . . . . . . . 800,000 A1+ 800,000
Series D5, 2.25%, 3/1/24* . . . . . . . . . . . . . . 1,800,000 A1 1,800,000
Series D6, 2.35%, 3/1/24* . . . . . . . . . . . . . . 800,000 A1 800,000
Series E, 2.250%, 3/1/24* . . . . . . . . . . . . . . 3,200,000 A1+ 3,200,000
Series G3, 2.25%, 3/1/24* . . . . . . . . . . . . . . 9,950,000 A1+ 9,950,000
Series G4, 2.35%, 3/1/24* . . . . . . . . . . . . . . 1,650,000 A1 1,650,000
Series H2, 2.35%, 3/1/24* . . . . . . . . . . . . . . 1,200,000 A1 1,200,000
Series H3, 2.35%, 3/1/24* . . . . . . . . . . . . . . 1,800,000 A1 1,800,000
TENNESSEE Clarksville, TN, Series 1990, Weekly Demand Note,
2.2%, 7/1/13(c)* . . . . . . . . . . . . . . . . . . . 2,000,000 MIG1 2,000,000
Franklin Industrial Development Revenue, Franklin
Oaks Apartments, Weekly Demand Note, 2.75%,
12/1/07* . . . . . . . . . . . . . . . . . . . . . . . 3,500,000 MIG1 3,500,000
Tennessee General Obligation, Bond Anticipation
Note, Weekly Demand Note, 1993 Series B,
2.25%, 5/1/96* . . . . . . . . . . . . . . . . . . . . 1,200,000 A1+ 1,200,000
Tennessee State Local Development, Bond
Anticipation Note, 4.5%, 6/1/95 . . . . . . . . . . . . 7,000,000 SP1+ 7,045,733
TEXAS Brazos Harbor Industrial Development Corporation,
Dow Chemical Co., Tax Exempt Commercial
Paper, 2.9%, 7/21/94 . . . . . . . . . . . . . . . . . 2,060,000 P1 2,060,000

The accompanying notes are an integral part of the financial statements.

</TABLE>

<PAGE>
<TABLE>
SCUDDER TAX FREE MONEY FUND
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Value ($)
Amount ($) Rating (b) (Note A)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Camp County, TX, Industrial Development, Pollution
Control Revenue, Texas Oil & Gas Corp., Floating
Rate Demand Bond, 2.8%, 12/1/13* . . . . . . . . . . . 2,000,000 A1 2,000,000
Lower Colorado River Authority, Tax Exempt
Commercial Paper, Series C, 3.4%, 7/12/94 . . . . . . . 2,600,000 P1 2,600,000
North Central Texas Health Facilities Development
Corp., Presbyterian Medical Center, Daily Demand
Note, 3.1%, 12/1/15(c)* . . . . . . . . . . . . . . . . 2,000,000 A1+ 2,000,000
San Antonio, TX, Industrial Development Authority,
River Center Associates Project, Weekly Demand
Note, 2.65%, 12/1/12* . . . . . . . . . . . . . . . . . 4,800,000 AA 4,800,000
UTAH Intermountain Power Agency, UT, 1985 Series F2,
Tax Exempt Commercial Paper, 2.9%, 10/12/94 . . . . . . 1,000,000 A1 1,000,000
Salt Lake City, UT, Pooled Hospital Financing
Program, Tax Exempt Commercial Paper:
3.05%, 7/14/94 . . . . . . . . . . . . . . . . . . . . 3,000,000 A1+ 3,000,000
2.75%, 7/22/94 . . . . . . . . . . . . . . . . . . . . 2,270,000 A1+ 2,270,000
Series 1990, 3.1%, 8/24/94 . . . . . . . . . . . . . . 5,000,000 MIG1 5,000,000
2.85%, 10/7/94 . . . . . . . . . . . . . . . . . . . . 2,265,000 A1+ 2,265,000
VIRGINIA Peninsula Port Authority of Virginia, Tax Exempt
Commercial Paper:
Dominion Terminal Association, 1987 Series B,
3.2%, 7/7/94 . . . . . . . . . . . . . . . . . . . . . 900,000 A1+ 900,000
2.7%, 7/7/94 . . . . . . . . . . . . . . . . . . . . . 1,900,000 A1+ 1,900,000
WASHINGTON Washington General Obligation, Various Purpose,
Series B-2, Tender Option Bond, Weekly Coupon
Reset, 2.35%, 7/5/94 . . . . . . . . . . . . . . . . . . 5,000,000 A1+ 5,000,000
Washington Health Care Facilities Authority, Daily
Demand Note:
1985 Series D, 3.65%, 10/1/05* . . . . . . . . . . . . 3,800,000 A1+ 3,800,000
Sisters of Providence, 1985 Series B, 3.65%,
10/1/05* . . . . . . . . . . . . . . . . . . . . . . . 1,100,000 A1+ 1,100,000
Fred Hutchinson Cancer Research Center:
Series A, 3.5%, 1/1/18* . . . . . . . . . . . . . . . . 240,000 MIG1 240,000
Series B, 3.5%, 1/1/18* . . . . . . . . . . . . . . . . 1,510,000 MIG1 1,510,000
Washington State Public Power Supply Authority,
Nuclear Project #2, Refunding Revenue, Series A,
Tender Option Bond, 2.65%, 11/1/94 . . . . . . . . . . 1,000,000 MIG1 1,000,000
WISCONSIN Wausau, WI, Pollution Control Revenue, Minnesota
Mining and Manufacturing, Floating Rate Demand
Note:
Series 1982, 2.81%, 8/1/17* . . . . . . . . . . . . . . 2,300,000 A1+ 2,300,000
Series 1983, 2.81%, 12/1/01* . . . . . . . . . . . . . 800,000 AAA 800,000

The accompanying notes are an integral part of the financial statements.

</TABLE>

(a) The cost for federal income tax purposes was $251,299,068.

(b) All of the securities held have been determined to be of eligible
credit quality. Credit ratings shown are either Standard &
Poor's Corporation, Moody's Investors Service, Inc. or
Fitch Investors Service, Inc. Unrated securities have been
determined to be of comparable quality to rated eligible
securities.

(c) Bond is insured by one of these companies: AMBAC, FGIC and 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.

The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>

JUNE 30, 1994 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Investments, at value (amortized cost $251,299,068)
(Note A) . . . . . . . . . . . . . . . . . . . . . . . . $251,299,068
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,964,520
Receivables:
Fund shares sold . . . . . . . . . . . . . . . . . . . . 3,311,791
Interest . . . . . . . . . . . . . . . . . . . . . . . . 1,250,105
Investments sold . . . . . . . . . . . . . . . . . . . . 200,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . 6,532
------------
Total assets . . . . . . . . . . . . . . . . . . . . 260,032,016
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . $15,233,314
Fund shares redeemed . . . . . . . . . . . . . . . . . 654,845
Dividends . . . . . . . . . . . . . . . . . . . . . . . 36,185
Accrued management fee (Note B) . . . . . . . . . . . . 103,015
Other accrued expenses (Note B) . . . . . . . . . . . . 33,234
-----------
Total liabilities . . . . . . . . . . . . . . . . . . 16,060,593
------------
Net assets, at value . . . . . . . . . . . . . . . . . . . $243,971,423
============
NET ASSETS
Net assets consist of:
Accumulated net realized loss . . . . . . . . . . . . . $ (146,017)
Shares of beneficial interest . . . . . . . . . . . . . 2,437,997
Additional paid-in capital . . . . . . . . . . . . . . . 241,679,443
------------
Net assets, at value . . . . . . . . . . . . . . . . . . . $243,971,423
============

NET ASSET VALUE, offering and redemption price per share
($243,971,423 / 243,799,653 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) . . . . . . . . . . . . . . . . . $1.00
=====

The accompanying notes are an integral part of the financial statements.

</TABLE>

<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,211,460

Expenses:
Management fee (Note B) . . . . . . . . . . . . . . . . . . . . . $ 616,293
Services to shareholders (Note B) . . . . . . . . . . . . . . . . 155,487
Trustees' fees (Note B) . . . . . . . . . . . . . . . . . . . . . 19,276
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . 52,505
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . 17,630
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,335
Auditing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,420
State registration . . . . . . . . . . . . . . . . . . . . . . . 43,733
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,285 938,964
---------- ----------
Net investment income . . . . . . . . . . . . . . . . . . . . . . 2,272,496
----------
NET REALIZED LOSS ON INVESTMENTS
Net realized loss from investment transactions . . . . . . . . . (13,237)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . $2,259,259
==========

The accompanying notes are an integral part of the financial statements.

</TABLE>

<PAGE>
<TABLE>
SCUDDER TAX FREE MONEY FUND
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1994 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . $ 2,272,496 $ 4,435,227
Net realized loss from investment
transactions . . . . . . . . . . . . . . . . (13,237) (28,852)
------------ ------------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . 2,259,259 4,406,375
------------ ------------
Distributions to shareholders from net
investment income ($.009 and $.018 per
share, respectively) . . . . . . . . . . . . (2,272,496) (4,435,227)
------------ ------------
Fund share transactions at net asset value of
$1.00 per share:
Shares sold . . . . . . . . . . . . . . . . . . 372,120,028 574,052,666
Shares issued to shareholders in
reinvestment of distributions . . . . . . . 2,029,884 3,926,092
Shares redeemed . . . . . . . . . . . . . . . . (352,618,260) (622,587,583)
------------ ------------
Net increase (decrease) in net assets from
Fund share transactions . . . . . . . . . . 21,531,652 (44,608,825)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . 21,518,415 (44,637,677)
Net assets at beginning of period . . . . . . . 222,453,008 267,090,685
------------ ------------
NET ASSETS AT END OF PERIOD $243,971,423 $222,453,008
============ ============
</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>
SIX MONTHS
ENDED
JUNE 30, Years Ended December 31,
1994 ----------------------------------------------------------------------------------
(UNAUDITED) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
----------- ----------------------------------------------------------------------------------
<S> <C> <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 $1.000
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net investment
income .............. .009 .018 .025 .041 .053 .057 .046 .040 .041 .045 .053
Less distributions
from net investment
income .............. (.009) (.018) (.025) (.041) (.053) (.057) (.046) (.040) (.041) (.045) (.053)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
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 $1.000
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN (%)...... .93** 1.86 2.54 4.20 5.44 5.83 4.73 4.03 4.19 4.62 5.41
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions).. 244 222 267 279 303 279 358 390 383 265 225
Ratio of operating
expenses to average
daily net assets (%). .77* .75 .73 .70 .72 .70 .67 .66 .63 .63 .63
Ratio of net investment
income to average
daily net assets (%). 1.86* 1.84 2.53 4.12 5.30 5.67 4.61 4.03 4.01 4.54 5.31
<FN>
* Annualized
** Not annualized
</FN>
</TABLE>

<PAGE>
SCUDDER TAX FREE MONEY FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------

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, 1993, the Fund had a net tax basis capital loss carryforward
of approximately $132,800, which (to the extent provided by regulations) may be
applied against any realized net taxable gains of each succeeding year until
fully utilized or until December 31, 1995 ($76,700), December 31, 1996
($20,400), December 31, 2000 ($6,800) and December 31, 2001 ($28,900), 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. The Fund uses the specific
identification method for determining

<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

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 six months ended June 30, 1994, the management fee pursuant to the
Agreement aggregated $616,293, 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 six months ended June 30, 1994, the amount charged to the Fund by SSC
aggregated $136,490, of which $22,593 is unpaid at June 30, 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 six months
ended June 30, 1994, Trustees' fees aggregated $19,276.

<PAGE>

OFFICERS AND TRUSTEES

David S. Lee*
President and Trustee

Karl A. Deavers*
Trustee

Amey A. DeFriez
Trustee; Corporate Director 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

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 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

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. #These funds, advised by Scudder, Stevens & Clark,
Inc., are traded on the New York Stock Exchange. Scudder Horizon Plan, a
no-load variable annuity contract provided by Charter National Life
Insurance Company of St. Louis, is offered by Scudder Insurance Agency,
Inc. 1-800-225-2470. ++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 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, 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 35 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

Semiannual Report
June 30, 1994

* A fund that 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.

* 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
23 Financial Statements
26 Financial Highlights
27 Notes to Financial Statements
30 Investment Products and Services
31 How to Contact Scudder

HIGHLIGHTS

* Tax-free bonds declined in price across the board as interest rates
rose persistently during the period. Reflecting this new environment,
Scudder Medium Term Tax Free Fund's yield increased from 4.46% on
December 31, 1993, to a 4.71% federally tax-free 30-day yield as of
June 30, 1994.

* Following 10 consecutive years of positive performance, the total
return of the Fund for the first six months of 1994 was -2.96%,
reflecting the uncertain market environment. This compares with the
-3.01% six-month average total return of the 83 intermediate-maturity
municipal bond funds tracked by Lipper.

* The Fund's total return has been consistently above average for the
one-, two-, three-, four-, and five-year periods through June 30,
1994, compared to its peer group, according to Lipper.

* For investors in the top federal tax bracket of 39.6%, the Fund's
tax-free yield was equivalent to a 7.80% taxable yield. For investors
in the 36% bracket, the Fund's yield was equivalent to a taxable yield
of 7.36%.

(BAR CHART TITLE) The Fund's Yield and Taxable Equivalent Yields as of
June 30, 1994

(CHART DATA)
Taxable-Equivalent Taxable-Equivalent
Yield at 36% Tax Yield at 39.6% Tax
Tax-Free Yield Bracket Bracket
-------------- ------- -------
4.71% 7.36% 7.80%

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

The world's financial markets have been a study in contrasts over the
past 12 months. Fueled by historically low interest rates in many
countries, bond and stock markets soared in the second half of 1993. But
financial markets have cooled considerably since then. Early in the first
quarter of 1994, U.S. Federal Reserve interest rate hikes caused bond
prices to fall across the maturity spectrum. Yields also rose outside the
United States, leading to declines in most of the world's stock and bond
markets. The declines in global markets were unusual in that they were
generally synchronized, further confusing investors struggling to adapt to
the changing investment landscape.

What do these events mean for investors? On the positive side, we
expect a moderate overall pace of economic expansion and low relative
inflation worldwide. Clearly, however, the markets are much more sensitive
to a rebound in inflation than they have been for some time. As a result,
financial markets are likely to be fairly volatile through 1994.
Nevertheless, we expect global markets to revert to more typically diverse
behavior as investors again focus on each country's individual strengths
and weaknesses, which should create varied opportunities.

In light of the current market environment, we encourage you to
examine your portfolio periodically to make sure your investments remain
appropriate for your time frame and financial goals. It may help to keep in
mind that over the long term, stocks have historically provided higher
total returns than bonds, which in turn have outperformed cash equivalents
such as money market funds--although stock and bond prices can fluctuate
noticeably over short time periods, as we have seen in 1994.

Please call Scudder Investor Information at 1-800-225-2470 if you have
questions about your Fund or your investments. Page 31 provides more
information on how to contact Scudder. Thank you for choosing Scudder
Medium Term Tax Free Fund to help meet your investment needs.

Sincerely

/s/David S. Lee
David S. Lee
President,
Scudder Medium Term Tax Free Fund

<PAGE>

SCUDDER MEDIUM TERM BOND FUND
PERFORMANCE UPDATE as of June 30, 1994

<TABLE>
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Scudder Medium Term Tax Free Fund
- ----------------------------------
<CAPTION>
Total Return
Period Growth ------------
Ended of Average
6/30/94 $10,000 Cumulative Annual
- -------- ------- ---------- -------
<S> <C> <C> <C>
1 Year $10,155 1.55% 1.55%
5 Year $14,392 43.92% 7.55%
10 Year $21,084 110.84% 7.74%
</TABLE>

<TABLE>
Lehman Brothers Municipal Bond Index
- ------------------------------------
<CAPTION>
Total Return
Period Growth ------------
Ended of Average
6/30/94 $10,000 Cumulative Annual
- -------- ------- ---------- -------
<S> <C> <C> <C>
1 Year $10,020 0.20% 0.20%
5 Year $14,599 45.99% 7.86%
10 Year $27,869 178.69% 10.79%
</TABLE>

<TABLE>
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 June 30

Scudder Medium Term Tax Free Fund
<CAPTION>
- ---------------------
Year Amount
- ---------------------
<S> <C>
83 $10,000
84 11,503
85 12,565
86 13,405
87 14,008
88 14,650
89 15,501
90 16,754
91 18,701
92 20,761
93 21,084
</TABLE>

<TABLE>
Lehman Brothers Municipal Bond Index
<CAPTION>
Year Amount
- ---------------------
<S> <C>
83 $10,000
84 12,605
85 14,687
86 15,954
87 17,137
88 19,089
89 20,389
90 22,226
91 24,843
92 27,814
93 27,869
</TABLE>

The Lehman Brothers Municipal Bond Index is a market value-weighted
measure of the long-term, investment grade tax-exempt bond market consisting of
approximately 25,000 municipal bonds with a maturity of at least one year.
Generally, the Index's average effective maturity is longer than the Fund's, so
the Index will tend to outperform the Fund when interest rates are falling. The
Fund will typically have a higher return when rates are rising. Index returns
assume dividends are reinvested and, unlike Fund returns, do not reflect any
fees or expenses.

<TABLE>

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.

- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- --------------------------------------------------------------------------------
Yearly periods ended June 30
Description of bar graph:
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value . . . $10.03 $10.18 $10.22 $10.13 $10.03 $10.04 $10.22 $10.72 $11.20 $10.72
Income Dividends. . . $ .75 $ .62 $ .58 $ .53 $ .55 $ .55 $ .61 $ .65 $ .64 $ .57
Capital Gains Dividends $ -- $ .10 $ .05 $ -- $ -- $ -- $ -- $ .01 $ .03 $ .09
Fund Total Return (%) 15.03 9.23 6.69 4.50 4.58 5.81 8.08 11.62 11.02 1.55
Index Total Return (%) 26.05 16.52 8.63 7.42 11.39 6.81 9.01 11.77 11.96 .20
</TABLE>

* On November 1, 1990, the Fund adopted its present name and objectives. 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. Since adopting its current objectives, the cumulative and average
annual total returns are 33.90% and 8.30%, respectively.

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 that an investor's shares when redeemed may be worth
more or less than when purchased. If the Adviser had not temporarily capped
expenses for the period November 1, 1990 through June 30, 1994, the average
annual total return of the Fund for the one year, five year and ten year
periods would have been lower.

<PAGE>
PORTFOLIO SUMMARY as of June 30, 1994

- --------------------------------------------------------------------------------
DIVERSIFICATION
- --------------------------------------------------------------------------------

/ / General Obligation 28% As of June 30, the Fund held
/ / Electric Utility 18% securities issued in 41 states,
/ / Hospital/Health Revenue 15% along with the District of
/ / Lease Rentals 9% Columbia, the Virgin Islands and
/ / Port/Airport Revenue 6% Puerto Rico. We also spread Fund
/ / Higher Education 5% assets among general obligation
/ / Water and Sewer 4% bonds and over 10 types of
/ / Pollution Control Revenue 3% revenue bonds.
/ / Housing Finance Authority 3%
/ / Other 9%
----
100%
====
A graph in the form of a pie chart appears here, illustrating the exact data
points found in the above table.
- --------------------------------------------------------------------------------
QUALITY
- --------------------------------------------------------------------------------

/ / AAA 57% Roughly 70% of Fund assets
/ / AA 13% were invested in bonds rated
/ / A 16% AAA, AA, or the equivalent
/ / BBB 14% as of June 30, 1994.
----
100%
====
Weighted average quality: AA
A graph in the form of a pie chart appears here, illustrating the exact data
points found in the above table.
- --------------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------------

/ / Less than 1 year 9% In light of rising interest
/ / 1 - 5 years 15% rates, we shortened the Fund's
/ / 5 - 10 years 58% average maturity slightly
/ / 10 - 15 years 18% during the period.
----
100%
====

Weighted average effective maturity: 7 years
A graph in the form of a pie chart appears here, illustrating the exact data
points found in the above table.

<PAGE>

PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

During the six months ended June 30, 1994, a period marked by
unexpectedly sharp increases in interest rates across the board,
shareholders in Scudder Medium Term Tax Free Fund received a total of $0.28
per share in federally tax-free income dividends. At the end of the period,
the Fund provided a net annualized yield of 4.71%, compared to a 4.46%
yield at year end, reflecting the changed interest rate environment. For
shareholders subject to the 39.6% maximum federal income tax rate, the
Fund's tax-free yield was equivalent to a 7.80% taxable yield. For
investors in the 36% federal income tax bracket, this was the equivalent of
a 7.36% taxable yield, higher than yields provided by comparable taxable
investments on an after-tax basis.

Reflecting the price weakness in the municipal market, the Fund's net
asset value declined from $11.36 per share on December 31, 1993, to $10.72
as of June 30, 1994. At the close of the six-month period, the Fund's price
change, income and capital gains distributions combined for a total return
of -2.96%. The total return of the unmanaged Lehman Brothers Municipal Bond
Index (a long-term investment-grade index) was -4.42% for the six-month
period. As interest rates rose during the period, long- and
intermediate-maturity bonds followed a typical pattern, generally declining
more in price than bonds with shorter maturities. As an
intermediate-maturity fund, Scudder Medium Term Tax Free Fund's short-term
performance was affected by these circumstances.

However, for longer time periods, the Fund has displayed consistently
strong performance. For example, during the most recent 12-month period
ended June 30, the Fund's return was in the top 30% of all
intermediate-maturity municipal bond funds. For the most recent three-year
period, the Fund was in the top 6% of all such funds, and for the most
recent five years it was in the top 11%.

<TABLE>
The Fund Has Provided Above-Average Returns Over Time
(Returns for periods ended June 30, 1994)
<CAPTION>
Scudder Medium
Term Tax Free Fund
Average Annual Lipper Average Number of
Period Return Annual Return Funds Tracked
------ ------ ------------- -------------
<S> <C> <C> <C>
1 year 1.55% 1.19% 66
2 years 6.18 5.57 39
3 years 7.96 6.97 31
4 years 7.99 7.27 30
5 years 7.55 7.05 27
Source: Lipper Analytical Services, Inc. (Lipper is an independent firm
that tracks performance of mutual funds.) Performance is historical and is
not indicative of future results.
</TABLE>

Interest Rates Rose Amid Inflation Worries

The past six-month period saw a significant increase in volatility for
the fixed-income markets. Inflation fears began to permeate the bond market
as the new year took shape in response to stronger than expected U.S.
economic growth during the latter portion of 1993. The Federal Reserve
raised short-term interest rates four times from February through May in
repeated attempts to preempt inflation and control the economy's pace.
Despite moderate growth and low inflation thus far in 1994, investors
continued to push bond prices down as the Fed raised rates. As bond prices
declined, significant losses in highly leveraged investment accounts such
as hedge funds and other speculative vehicles forced additional selling,
which further drove down the market. In June, the dramatically declining
value of the dollar versus the Japanese yen and the German mark added to
the market's difficulties.

One bright spot for the municipal marketplace during this period was
the shrinking supply of tax-exempt bonds. While the 1993 municipal market
featured declining interest rates and a heavy supply of bonds, thanks in
large part to a record amount of refinancings, this year's market has seen
a significant reduction in refinancing activity due to rising interest
rates. New issue volume during the first six months of 1994 of only $89
billion compares to $149 billion during the same period a year ago, a 40%
decrease. Supply also declined because large numbers of outstanding bonds
matured during the period. Decreased supply helped to moderate price
declines in municipal bonds the Fund held during the first six months of
the year, since the relatively higher demand for existing issues provided a
measure of price support.

(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - The shrinking supply of
municipal bonds helped to moderate price declines in bonds the Fund held
during the period.

Portfolio Strategy Geared Toward High Quality and Lower Relative Volatility

In light of rising interest rates, we chose to shorten the Fund's
average effective maturity slightly during the period, from 7.4 years to
7.1 years. In addition, we have been buying bonds priced at a slight
premium to par value because these issues generally have characteristics
that tend to allow them to perform better in rising interest rate
environments. We also maintained the Fund's emphasis on non-callable bonds,
which provide a dependable income stream since the issuer cannot redeem
them before the maturity date. At the close of the period, about 87% of
bonds in the Fund's portfolio were non-callable. We also maintained our
position in several "cushion bonds"--bonds that can be called in a
relatively short time but offer yields high enough to compensate for the
likelihood of their being redeemed early by the issuer. In addition, to
provide the Fund with additional flexibility during periods of falling
interest rates, we have extended the Fund's permissible maximum average
maturity to 10 years from eight years.

We maintained the portfolio's high average quality through the period
because there is currently little extra yield to be gained by buying
lower-quality bonds. As of June 30, roughly 70% of Fund assets were
invested in bonds rated AAA, AA, or the equivalent. The portfolio's average
quality is AA, the second highest quality grade. Securities are rated by
Standard & Poor's, Moody's Investors Service, Fitch Investors Service, or
assigned an equivalent rating by Scudder. Diversification among municipal
holdings also remained an important strategy for the Fund. As of June 30,
the portfolio held securities issued in 41 states, along with the District
of Columbia, the Virgin Islands, and Puerto Rico. We also spread Fund
assets among general obligation bonds and over 10 types of revenue bonds.

Near-Term Outlook

In this environment, Scudder Medium Term Tax Free Fund's strategy will
most likely remain focused on searching for value, purchasing select
non-callable bonds, and under normal circumstances, remaining fully
invested to earn a high relative tax-free yield. At the present time, we do
not expect to make any significant change in the Fund's average maturity,
given our forecasts for economic expansion and inflation. As always, our
strategy reflects our commitment to seeking high relative tax-free income
and competitive total returns, with the 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
INVESTMENT PORTFOLIO as of June 30, 1994 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2.9% SHORT-TERM MUNICIPAL INVESTMENTS (under 1 year)
-------------------------------------------------------------------------------------------------------
ALASKA Alaska Lease Purchase Agreement, 6.79%, 7/15/94 . . . . . . 406,392 A 406,392
ARIZONA Maricopa County, AZ, Pollution Control Revenue,
Arizona Public Service Corporation, Series F,
Daily Demand Note, 3.3%, 5/1/29* . . . . . . . . . . . . . 6,100,000 A1+ 6,100,000
Pinal County, AZ, Pollution Control Revenue, Magma
Copper, Series 1984, Daily Demand Note,
3.15%, 12/1/09* . . . . . . . . . . . . . . . . . . . . . 3,300,000 A1+ 3,300,000
ARKANSAS Arkansas Development Finance Authority, Single
Family Mortgage Revenue, 1985 Series A, FHA
insured, 8.3%, 2/1/95 . . . . . . . . . . . . . . . . . . . 490,000 AA 494,493
FLORIDA Palm Beach, FL, Water & Sewer Revenue, Daily
Demand Note, 3.15%, 10/1/11* . . . . . . . . . . . . . . . 400,000 MIG1 400,000
IOWA Iowa Lease Purchase Agreement, 7.65%, 6/15/95 . . . . . . . . 845,286 AA 872,758
MISSOURI Missouri Health and Education Facilities Authority
Washington University, Series A, Daily Demand Note,
3.3%, 3/1/17* . . . . . . . . . . . . . . . . . . . . . . . 7,270,000 A1+ 7,270,000
PENNSYLVANIA Pennsylvania Higher Educational Facilities Authority,
Temple University, Series 1984, Daily Demand Note,
3.3%, 10/1/09* . . . . . . . . . . . . . . . . . . . . . . 1,400,000 MIG1 1,400,000
PUERTO RICO Puerto Rico Sugar Corp., General Obligation, 6.8%,
7/1/94 . . . . . . . . . . . . . . . . . . . . . . . . . . 4,750,000 BBB 4,750,000
----------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $24,980,108) . . . . . . . . . . . . . . . . . . . . 24,993,643
----------

97.1% LONG-TERM MUNICIPAL INVESTMENTS (over 1 year)
-------------------------------------------------------------------------------------------------------

ALABAMA University of South Alabama, Hospital and Auxiliary
Revenue, 4.875%, 5/15/04(b) . . . . . . . . . . . . . . . . 6,680,000 AAA 6,229,434
ALASKA North Slope Borough, AK, General Obligation:
Series A, Zero Coupon, 6/30/02(b) . . . . . . . . . . . . . . 5,000,000 AAA 3,164,600
Series A, Zero Coupon, 6/30/03(b) . . . . . . . . . . . . . . 10,000,000 AAA 5,925,500
Series G, Refunding, 7.5%, 6/30/97(b) . . . . . . . . . . . . 2,350,000 AAA 2,523,289
Series I, Refunding, 6.55%, 6/30/95(b) . . . . . . . . . . . 2,000,000 AAA 2,044,960
Series I, Zero Coupon, 6/30/96(b) . . . . . . . . . . . . . . 2,800,000 AAA 2,536,660
Series I, 6.6%, 6/30/96(b) . . . . . . . . . . . . . . . . . 4,000,000 AAA 4,145,760
ARIZONA Arizona Health Facilities Authority, Phoenir Baptist
Hospital and Medical Center, 6.1%, 9/1/03ab). . . . . . . . 2,000,000 AAA 2,086,780

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>

INVESTMENT PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------

<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maricopa County, AZ, School District #28,
Kyrene Elementary, Zero Coupon:
Series B, 7/1/02(b) . . . . . . . . . . . . . . . . . . 3,350,000 AAA 2,119,913
Series B, 1/1/03(b) . . . . . . . . . . . . . . . . . . 5,750,000 AAA 3,507,040
Series B, 7/1/03(b) . . . . . . . . . . . . . . . . . . 6,000,000 AAA 3,554,640
Maricopa County, AZ, Unified School District #41,
Zero Coupon:
7/1/03(b) . . . . . . . . . . . . . . . . . . . . . . . 7,000,000 AAA 4,147,080
1/1/04(b) . . . . . . . . . . . . . . . . . . . . . . . 6,000,000 AAA 3,421,080
7/1/04(b) . . . . . . . . . . . . . . . . . . . . . . . 7,000,000 AAA 3,875,060
7/1/06(b) . . . . . . . . . . . . . . . . . . . . . . . 5,605,000 AAA 2,680,759
Maricopa County, AZ, Unified School District #97,
Deer Valley, Zero Coupon:
7/1/02(b) . . . . . . . . . . . . . . . . . . . . . . . 9,120,000 AAA 5,771,227
7/1/05(b) . . . . . . . . . . . . . . . . . . . . . . . 4,060,000 AAA 2,090,413
CALIFORNIA California Housing Finance Agency, Multi-Unit Rental
Housing Revenue, Series A, 7.25%, 8/1/98 . . . . . . . . . 2,270,000 A 2,426,267
California State Public Works Lease Board Revenue:
Del Norte Prison, Series C, 4.75%, 12/1/05 . . . . . . . . 4,750,000 A+ 4,238,568
Department of Corrections, Del/Norte Imperial,
Series C, 4.7%, 12/1/03(b) . . . . . . . . . . . . . . . 10,000,000 AAA 9,244,000
California Statewide Communities Development
Authority, Certificate of Participation, Children's
Hospital:
4.8%, 6/1/04(b) . . . . . . . . . . . . . . . . . . . . 2,790,000 AAA 2,577,653
4.9%, 6/1/05(b) . . . . . . . . . . . . . . . . . . . . 2,835,000 AAA 2,619,767
Palomar Pomerado, CA, Health Systems, 1993
Series B, Zero Coupon, 11/1/01(b) . . . . . . . . . . . . 3,080,000 AAA 2,059,781
Rancho, CA, Water District Finance Authority,
5.7%, 8/1/01(b) . . . . . . . . . . . . . . . . . . . . 2,595,000 AAA 2,650,896
San Joaquin Hills, CA, Transportation Corridor
Agency, Senior Lien Toll Road Revenue, Zero
Coupon to 1/1/02, 7.35% to 1/1/05 . . . . . . . . . . . . 3,525,000 BBB 2,063,183
Santa Clara County, CA, Certificate of Participation,
Multiple Facilities Project, 6.125%, 5/15/04(b) . . . . . 2,120,000 AAA 2,214,828
COLORADO Colorado Health Facilities Authority, Hospital Revenue:
Rocky Mountain Adventist Healthcare Project,
6%, 2/1/98 . . . . . . . . . . . . . . . . . . . . . . . 3,500,000 BBB 3,463,215
Rose Medical Center Project, 8.5%, 11/1/96(b) . . . . . . 260,000 AAA 282,370
Denver, CO, City and County Airport Revenue:
8.375%, 8/1/96 . . . . . . . . . . . . . . . . . . . . . 1,455,000 BBB 1,459,336
9.75%, 12/1/95 . . . . . . . . . . . . . . . . . . . . . 5,870,000 BBB 6,002,134
10.5%, 12/1/00 . . . . . . . . . . . . . . . . . . . . . 21,040,000 BBB 21,605,555

The accompanying notes are an integral part of the financial statements.
</TABLE>

SCUDDER MEDIUM TERM TAX FREE FUND
- ---------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Larimer, Weld and Boulder Counties, CO, Thompson
School District, General Obligation, No. R2-J,
Zero Coupon, 12/15/95(b) . . . . . . . . . . . . . . . . . 1,000,000 AAA 933,430
CONNECTICUT Bristol, CT, Resource Recovery, Ogden Martin System,
6.125%, 7/1/03(b) (e) . . . . . . . . . . . . . . . . . . . 10,635,000 A 10,242,249
Connecticut Development Authority, Airport Facility,
Series A, Windsor Locks, 5.8%, 10/1/97 . . . . . . . . . . 7,610,000 AA 7,836,169
DELAWARE Delaware Housing Authority, Multi-Family Mortgage
Revenue, High Coupon Escrow Obligation, Series C,
7.25%, 1/1/07 . . . . . . . . . . . . . . . . . . . . . . . 2,565,000 A 2,633,178
DISTRICT OF District of Columbia Certificate of Participation:
COLUMBIA Series 1993, 6%, 1/1/97 . . . . . . . . . . . . . . . . . . 5,173,000 BBB 5,294,462
Series 1993, 6.875%, 1/1/03 . . . . . . . . . . . . . . . . 2,500,000 BBB 2,515,150
District of Columbia General Obligation:
1993 Series A, 4.95%, 6/1/05(b) . . . . . . . . . . . . . . 3,940,000 AAA 3,611,837
Series C, 8.9%, 6/1/96 . . . . . . . . . . . . . . . . . . 5,505,000 A 5,810,087
Series B, 9.4%, 6/1/97, Prerefunded 6/1/95(c) . . . . . . . 3,000,000 AAA 3,203,880
Series D, 4.7%, 12/1/99(b) . . . . . . . . . . . . . . . . 8,035,000 AAA 7,776,996
8%, 6/1/05, Prerefunded 6/1/96(c) . . . . . . . . . . . . . 4,000,000 AAA 4,330,960
Refunding, 1993 Series A, 4.85%, 6/1/04(b) . . . . . . . . 2,000,000 AAA 1,834,020
Refunding, 1993 Series A, 5.8%, 6/1/04 . . . . . . . . . . 7,250,000 A 7,179,602
Refunding Series B, Zero Coupon, 6/1/01(b) . . . . . . . . 2,500,000 AAA 1,674,650
Refunding, Series B, 5.3%, 6/1/05(b) . . . . . . . . . . . 8,000,000 AAA 7,660,560
FLORIDA Sunrise, FL, Utility System Revenue, Series A1,
7.375%, 10/1/06(b) . . . . . . . . . . . . . . . . . . . . 2,400,000 AAA 2,583,480
GEORGIA Burke County, GA, Development Authority, Pollution
Control Revenue, Ogelthorpe Power, Vogtle Project,
9.2%, 1/1/98 . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 A 1,048,320
Georgia General Obligation, Series B, 6%, 3/1/04 . . . . . . 3,000,000 AAA 3,143,130
Gwinnet County, GA, School District General
Obligation, Series B, 6.35%, 2/1/04 . . . . . . . . . . . . 2,000,000 AA 2,140,600
Metropolitan Atlanta Rapid Transit Authority, GA,
Sales Tax Refunding Revenue, Series P,
5.9%, 7/1/03(b) . . . . . . . . . . . . . . . . . . . . . . 4,820,000 AAA 4,986,531
Municipal Electric Authority of Georgia, Power
Revenue:
Series A, 5.1%, 1/1/05(b) . . . . . . . . . . . . . . . . 4,450,000 AA 4,180,819
Series V, 6.2%, 1/1/03. . . . . . . . . . . . . . . . . . 3,550,000 AA 3,709,608
Series U, 6.6%, 1/1/01. . . . . . . . . . . . . . . . . . 1,000,000 AA 1,063,940
HAWAII Hawaii Airport System Refunding, Series 1993,
5.95%, 7/1/03(b) . . . . . . . . . . . . . . . . . . . . . 7,000,000 AAA 7,256,480
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>

INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IDAHO Idaho Falls, ID, General Obligation, Zero
Coupon:
4/1/00(b) . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 AAA 730,650
4/1/01(b) . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 AAA 687,330
ILLINOIS Alton, IL, Health Facilities Revenue, 6.7%, 2/15/00 . . . . 2,000,000 AAA 2,150,580
Chicago, IL, General Obligation, 6.2%,
1/1/04(b) . . . . . . . . . . . . . . . . . . . . . . . . 4,110,000 AAA 4,311,390
Chicago, IL, General Obligation, School Finance
Authority:
Series A, 4.9%, 6/1/05(b) . . . . . . . . . . . . . . . 6,000,000 AAA 5,521,620
1994 Series A, 4.5%, 6/1/02(b) . . . . . . . . . . . . . 4,000,000 AAA 3,680,440
Illinois Development Authority, Pollution Control
Revenue, Commonwealth Edison Co. Project,
11.375%, 10/15/14, Prerefunded 10/15/94(c) . . . . . . . . 8,500,000 BBB 8,861,335
Illinois Development Finance Authority, Refunding
Revenue, Commonwealth Edison, 5.3%, 1/15/04. . . . . . . . 5,000,000 BBB 4,672,450
Illinois Educational Facilities Authority Revenue,
Loyola University, Revenue Refunding 1991
Series A, Zero Coupon, 7/1/02(b) . . . . . . . . . . . . 2,130,000 AAA 1,347,885
Illinois General Obligation, 5.6%, 6/1/03 . . . . . . . . . 3,000,000 AA 3,014,460
Illinois Health Facilities Authority:
Elmhurst Memorial Hospital, Series A:
4.85%, 1/1/02(b) . . . . . . . . . . . . . . . . . . . . 1,185,000 AAA 1,131,142
5.1%, 1/1/04(b) . . . . . . . . . . . . . . . . . . . . 1,315,000 AAA 1,254,931
Evangelical Hospitals, Series B, 6.1%, 4/15/01(b) . . . . 1,240,000 AAA 1,292,254
Francisan Sisters Health Care Corporation,
1992 Series C, 5.5%, 9/1/02(b) . . . . . . . . . . . . . 2,045,000 AAA 2,048,824
Sherman Hospital Project, Revenue Refunding,
6.5%, 8/1/01(b) . . . . . . . . . . . . . . . . . . . . 1,025,000 AAA 1,091,830
Sisters Services:
Series C, 5.875%, 6/1/98(b) . . . . . . . . . . . . . . 2,400,000 AAA 2,482,416
Series C, 6%, 6/1/99(b) . . . . . . . . . . . . . . . . 2,500,000 AAA 2,598,875
Series C, 6.1%, 6/1/00(b) . . . . . . . . . . . . . . . 2,500,000 AAA 2,614,525
Series C, 6.2%, 6/1/01(b) . . . . . . . . . . . . . . . 1,900,000 AAA 1,985,557
Kane, Cook, and Du Page Counties, IL, School
District, General Obligation, 6.75%, 1/1/03(b) . . . . . 1,000,000 AAA 1,085,400
Kendall, Kane and Will Counties, IL, School District,
Zero Coupon, 3/1/03(b) . . . . . . . . . . . . . . . . . 1,345,000 AAA 812,434
Macon and Decatur County, IL, Public Building
Commission, Certificate of Participation, General
Obligation, 6.3%, 1/1/00(b) . . . . . . . . . . . . . . . 1,320,000 AAA 1,386,132
McHenry County, IL, Conservation District,
Zero Coupon, 2/1/99(b) . . . . . . . . . . . . . . . . . 1,515,000 AAA 1,180,200
</TABLE>

The accompanying notes are an integral part of the financial statements.

SCUDDER MEDIUM TERM TAX FREE FUND
- -------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Metropolitan Pier and Exposition Authority of Illinois:
Dedicated State Tax Revenue, 6.25%,
6/1/01(b) . . . . . . . . . . . . . . . . . . . . . . . 2,675,000 AAA 2,820,440
McCormick Place Expansion Project, Coupon
Receipts, Zero Coupon, 6/15/04(b) . . . . . . . . . . . 10,500,000 AAA 5,826,975
Rosemont, IL, Zero Coupon:
12/1/02(b) . . . . . . . . . . . . . . . . . . . . . . . 3,345,000 AAA 2,072,963
Tax Increment, Secondary, Series B, 12/1/02(b) . . . . . 2,785,000 AAA 1,720,907
Sangamon County, IL, Springfield School District #186,
School Bond:
6.05%, 3/1/04(b) . . . . . . . . . . . . . . . . . . . . 3,350,000 AAA 3,453,482
6.4%, 3/1/05(b) . . . . . . . . . . . . . . . . . . . . 3,625,000 AAA 3,813,536
INDIANA Madison County, IN, Hospital Authority, Holy Cross
Health System, 6.7%, 12/1/02(b) . . . . . . . . . . . . . 1,385,000 AAA 1,500,564
Porter County, IN, Hospital Authority, Porter Memorial
Hospital, Series 1993, 5.2%, 6/1/05(b) . . . . . . . . . 1,500,000 AAA 1,432,530
IOWA Cedar Rapids, IA, Hospital Revenue, St. Luke's
Methodist Hospital, 5.85%, 8/15/04(b). . . . . . . . . . . 1,315,000 AAA 1,328,900
Iowa Certificate of Participation, 1992 Series A,
6.25%, 7/1/02 . . . . . . . . . . . . . . . . . . . . . . 5,000,000 AAA 5,240,100
KANSAS Kansas City, KS, Utility System Revenue,
Zero Coupon, 3/1/03(b) . . . . . . . . . . . . . . . . . 7,000,000 AAA 4,256,910
KENTUCKY Kentucky Turnpike Authority, Economic Development,
Revenue Refunding:
1986 Series A, 7.7%, 1/1/00, Prerefunded 7/1/96(c) . . . 5,000 A 5,405
1986 Series A, 7.7%, 1/1/00 . . . . . . . . . . . . . . 700,000 A 753,697
Kentucky Turnpike Authority, Toll Road Revenue,
13.375%, 7/1/10, Prerefunded, 8/15/95(c) . . . . . . . . 955,000 AAA 1,059,190
LOUISIANA Alexandria, LA, Health Public Trust Authority, Hospital
Revenue, Rapides Regional Medical Center,
5.3%, 2/1/04(b) . . . . . . . . . . . . . . . . . . . . . 3,165,000 AAA 3,085,970
Louisiana Public Facilities Authority Revenue, Student
Loan Revenue, Series A1, 6.2%, 3/1/01 . . . . . . . . . . 3,000,000 AA 3,070,230
Louisiana Recovery District, Sales Tax Revenue,
7.375%, 7/1/95(b) . . . . . . . . . . . . . . . . . . . . 3,190,000 AAA 3,287,167
St. Tammany Parish, LA, Sales Tax Revenue,
District #3, Series A, 11%, 12/1/96(b) . . . . . . . . . 1,065,000 AAA 1,217,178
MARYLAND Northeast Maryland Waste Disposal Authority,
Southwest Resource Recovery System Revenue,
Series 1993:
6.75%, 1/1/98(b) . . . . . . . . . . . . . . . . . . . . 4,715,000 AAA 4,964,706
6.85%, 1/1/99(b) . . . . . . . . . . . . . . . . . . . . 1,500,000 AAA 1,599,450
</TABLE>
The accompanying notes are an integral part of the financial statements.

INVESTMENT PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MASSACHUSETTS Brockton, MA, General Obligation, 7.75%, 12/15/95 . . . . 2,510,000 A 2,666,499
Lawrence, MA, General Obligation, State Qualified
Bond, 5%, 9/15/02 . . . . . . . . . . . . . . . . . . . . 1,030,000 A 989,027
Massachusetts Bay Transportation Authority:
General Transportation System Bond:
Refunding, 1993 Series A, 5%, 3/1/03(b) . . . . . . . . 3,500,000 AAA 3,392,025
Series A, 5.2%, 3/1/03(b) . . . . . . . . . . . . . . . 6,005,000 AAA 5,877,514
Series A, 5.3%, 3/1/05 . . . . . . . . . . . . . . . . . 6,055,000 A 5,839,381
Massachusetts General Obligation:
Series A, 6.4%, 8/1/03 . . . . . . . . . . . . . . . . . 1,000,000 A 1,062,890
Series B, Zero Coupon, 6/1/00 . . . . . . . . . . . . . . 14,000,000 A 10,224,620
Series B, Zero Coupon, 6/1/01 . . . . . . . . . . . . . . 4,765,000 A 3,277,891
4.8%, 8/1/03(b) . . . . . . . . . . . . . . . . . . . . . 5,000,000 AAA 4,700,900
Refunding, Series B, 6.25%, 8/1/01 . . . . . . . . . . . 3,600,000 A 3,799,620
Series C, 6.9%, 12/1/96(b) . . . . . . . . . . . . . . . 1,000,000 AAA 1,054,140
Consolidated Loan, Series B, Zero Coupon, 6/1/99 . . . . 7,150,000 A 5,530,311
Refunding, Series A, 6.375%, 8/1/02 . . . . . . . . . . . 2,150,000 A 2,285,751
Massachusetts Housing Finance Agency, 1992
Series C, FNMA Collateralized:
6.25%, 5/15/02 . . . . . . . . . . . . . . . . . . . . . 2,000,000 AAA 2,073,980
6.25%, 11/15/02 . . . . . . . . . . . . . . . . . . . . 3,420,000 AAA 3,550,473
Massachusetts Industrial Finance Agency:
Massachusetts Biomedical Research Corp.,
Series A, 6.9%, 8/1/94 . . . . . . . . . . . . . . . . . 1,000,000 A 1,000,240
Resource Recovery, North Andover Solid Waste,
Series A, 6.15%, 7/1/02 . . . . . . . . . . . . . . . . 3,250,000 BBB 3,266,250
Sturdy Memorial Hospital, 7.9%, 6/1/09 . . . . . . . . . 2,000,000 BBB 2,101,660
Massachusetts Municipal Wholesale Electric Co.,
Power Supply System Revenue, Series A,
6.625%, 7/1/03 . . . . . . . . . . . . . . . . . . . . . 3,165,000 BBB 3,362,053
Massachusetts Water Resource Authority, Series A,
7.25%, 4/1/01 . . . . . . . . . . . . . . . . . . . . . . 1,000,000 A 1,099,840
New England Education Loan Marketing Corp.,
Massachusetts Student Loan Revenue Refunding:
Issue A, 5.8%, 3/1/02 . . . . . . . . . . . . . . . . . 13,825,000 AAA 13,815,184
Issue E, 5%, 7/1/99 . . . . . . . . . . . . . . . . . . 8,000,000 A 7,857,840
Series F, 4.75%, 7/1/98 . . . . . . . . . . . . . . . . 3,500,000 A 3,417,785
MICHIGAN Detroit, MI, Sewage Disposal System, Series A,
5.1%, 7/1/04(b) . . . . . . . . . . . . . . . . . . . . . 4,225,000 AAA 4,046,113
Detroit, MI, Water Supply Systems Revenue,
6%, 7/1/02(b) . . . . . . . . . . . . . . . . . . . . . . 5,000,000 AAA 5,196,100
</TABLE>

The accompany notes are an integral part of the financial statements.

<PAGE>

<TABLE>

SCUDDER MEDIUM TERM TAX FREE FUND
- -----------------------------------------------------------------------------------------------------------------------------

<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michigan Municipal Bond Authority Revenue, Local
Government Loan Program, School Improvement,
Zero Coupon:
AD Valorem Tax, 5/15/01(b) . . . . . . . . . . . . . . . 3,065,000 AAA 2,088,981
AD Valorem Tax, Series D, 5/15/02(b) . . . . . . . . . . 2,170,000 AAA 1,393,487
Series D, 12/1/03(b) . . . . . . . . . . . . . . . . . . 4,870,000 AAA 2,855,086
Michigan State Hospital, Sisters of Mercy:
4.5%, 8/15/01(b) . . . . . . . . . . . . . . . . . . . . 2,755,000 AAA 2,567,991
1993 Series P, 4.6%, 8/15/02(b) . . . . . . . . . . . . . 2,025,000 AAA 1,872,882
Wayne, MI, Detroit Airport, Series A, 5.25%,
12/1/01(b) . . . . . . . . . . . . . . . . . . . . . . . 3,500,000 AAA 3,487,085
MISSISSIPPI Mississippi Higher Education Assistance Corp., Student
Loan Revenue, 1992 Series B, 6.2%, 1/1/02 . . . . . . . . 1,450,000 A 1,457,729
MISSOURI Jackson County, MO, Industrial Development Authority,
St. Joseph Health Center, Series 1993,
4.8%, 7/1/03(b) . . . . . . . . . . . . . . . . . . . . . 3,615,000 AAA 3,390,725
NEBRASKA Omaha, NE, Public Power District, Electric Revenue,
4.5%, 2/1/04 . . . . . . . . . . . . . . . . . . . . . . 9,500,000 AA 8,516,845
NEVADA Clark County, NV, Highway Revenue, Motor Vehicle
Fuel Tax, Series 1992, 5.7%, 7/1/03(b) . . . . . . . . . 1,800,000 AAA 1,824,012
Clark County, NV, Sanitation District, General
Obligation, Limited Tax, 6.3%, 7/1/04(b) . . . . . . . . 4,330,000 AAA 4,542,040
Nye County, NV, School District, 8.875%,
5/1/96(b) . . . . . . . . . . . . . . . . . . . . . . . . 500,000 AAA 537,440
NEW HAMPSHIRE New Hampshire Higher Education and Health Facilities
Authority, Hospital Revenue, Frisbie Memorial
Hospital, Series 1993, 5.25%, 10/1/99 . . . . . . . . . . 3,765,000 BBB 3,673,661
NEW YORK Metropolitan Transportation Authority of New York,
Commuter Facilities Revenue:
6.75%, 7/1/00 . . . . . . . . . . . . . . . . . . . . . 1,200,000 BBB 1,275,804
6.9%, 7/1/01 . . . . . . . . . . . . . . . . . . . . . . 1,280,000 BBB 1,375,296
Metropolitan Transportation Authority of New York,
Transit Facilities Revenue:
6.75%, 7/1/00 . . . . . . . . . . . . . . . . . . . . . 2,270,000 BBB 2,413,396
6.9%, 7/1/01 . . . . . . . . . . . . . . . . . . . . . . 2,415,000 BBB 2,594,797
Series M, 5.2%, 7/1/05(b) . . . . . . . . . . . . . . . 3,150,000 AAA 3,034,994
Series M, 5.3%, 7/1/06(b) . . . . . . . . . . . . . . . 4,750,000 AAA 4,574,440
New York City General Obligation:
Series A, 7.2%, 8/15/95 . . . . . . . . . . . . . . . . . 4,320,000 A 4,452,883
Series A, ETM, 7.2%, 3/15/95** . . . . . . . . . . . . . 1,000,000 A 1,026,470
Series B, 6.6%, 10/1/03 . . . . . . . . . . . . . . . . . 10,200,000 A 10,687,458
Series B, 7%, 2/1/96 . . . . . . . . . . . . . . . . . . 2,000,000 A 2,072,800
Series C, 6.3%, 8/1/03(b) . . . . . . . . . . . . . . . . 50,000 AAA 52,790
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>

INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series C, ETM, 7.4%, 8/1/96** . . . . . . . . . . . . . . 1,560,000 AAA 1,654,786
Series D, 5.5%, 8/15/04 . . . . . . . . . . . . . . . . . 2,800,000 A 2,688,532
Series D, 5.5%, 8/15/04(b) . . . . . . . . . . . . . . . 3,400,000 AAA 3,371,134
Series D, ETM, 7.75%, 8/1/95** . . . . . . . . . . . . . 45,000 AAA 46,861
Series D, 7.75%, 8/1/95 . . . . . . . . . . . . . . . . . 955,000 A 987,585
Series D, 7.875%, 8/1/97 . . . . . . . . . . . . . . . . 2,025,000 A 2,179,265
Series D, ETM, 7.875%, 8/1/97** . . . . . . . . . . . . . 530,000 AAA 575,877
Series E, 5.4%, 8/1/04 . . . . . . . . . . . . . . . . . 3,000,000 A 2,951,790
Series 1992 B, 6.4%, 10/1/02 . . . . . . . . . . . . . . 4,905,000 A 5,088,790
Series 1992 H, 6.9%, 2/1/01 . . . . . . . . . . . . . . . 6,000,000 A 6,376,800
1994 Series H1, 5.8%, 8/1/04 . . . . . . . . . . . . . . 5,000,000 A 4,913,700
1993 Series A, 6.1%, 8/1/02(b) . . . . . . . . . . . . . 5,000,000 AAA 5,229,900
New York City Municipal Water Finance Authority,
Zero Coupon:
12/15/95 . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 A 971,370
6/15/96 . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 A 946,170
New York Dormitory Authority:
City University, Series A, 5.5%, 7/1/03 . . . . . . . . . 9,250,000 BBB 9,127,438
College & University Pooled Capital Program,
7.8%, 12/1/05(b) . . . . . . . . . . . . . . . . . . . . 1,390,000 AAA 1,551,949
State University, 6.8%, 5/15/00(b) . . . . . . . . . . . 3,915,000 AAA 4,234,464
State University, Zero Coupon, 11/1/96 . . . . . . . . . 1,710,000 AAA 1,529,578
New York State Medical Care Facilities, Finance
Agency Revenue, Mount Sinai Hospital, Series 1983,
5.95%, 5/1/99 . . . . . . . . . . . . . . . . . . . . . . 10,880,000 AAA 10,772,179
New York State Urban Development Corporation,
Correctional Facilities Revenue Bond, Revenue
Refunding, 1993 Series A:
5.3%, 1/1/05 . . . . . . . . . . . . . . . . . . . . . . 9,250,000 BBB 8,689,080
5.3%, 1/1/05 . . . . . . . . . . . . . . . . . . . . . . 1,105,000 BBB 1,037,993
5.4%, 1/1/06 . . . . . . . . . . . . . . . . . . . . . . 3,500,000 BBB 3,302,320
NORTH CAROLINA Charlotte, NC, Equipment Lease Agreement, 6.75%,
9/1/95 . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000 AA 1,236,264
North Carolina Municipal Power Agency, Catawaba
Electric Revenue, 5.75%, 1/1/02(b) . . . . . . . . . . . 3,345,000 AAA 3,430,933
NORTH DAKOTA Bismarck, ND, Hospital Revenue, St. Alexius Medical
Center, Series 1991, Zero Coupon:
5/1/00(b) . . . . . . . . . . . . . . . . . . . . . . . 2,850,000 AAA 2,073,774
5/1/01(b) . . . . . . . . . . . . . . . . . . . . . . . 2,855,000 AAA 1,953,619
Grand Forks, ND, Health Facilities, United Hospital
Obligation Group, Series A, 6%, 12/1/02(b) . . . . . . . 1,160,000 AAA 1,204,138
OHIO Clermont County, OH, Mercy Hospital Facilities
Revenue, Series B, 5.3%, 9/1/04(b) . . . . . . . . . . . 3,000,000 AAA 2,919,360
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 4,463,850
PENNSYLVANIA Allegheny County, PA, Hospital Development Authority:
Magee Women's Hospital, 6%, 10/1/03(b) . . . . . . . 2,300,000 AAA 2,383,973
6.4%, 7/1/99(b) . . . . . . . . . . . . . . . . . . . 1,010,000 AAA 1,066,419
6.5%, 7/1/00(b) . . . . . . . . . . . . . . . . . . . 1,000,000 AAA 1,065,230
Armstrong County, PA, Hospital Authority, St. Frances
Medical Center, Series A, 6.2%, 6/1/03(b) . . . . . . 3,090,000 AAA 3,240,699
Erie County, PA, School District,
Zero Coupon, 6/1/99 . . . . . . . . . . . . . . . . . 2,085,000 A 1,573,549
Montgomery County, PA, Redevelopment Authority,
Multi Family Housing Revenue Refunding, KBF
Associates, LP Pro, 6%, 7/1/04 . . . . . . . . . . . 2,685,000 BBB 2,675,012
Pennsylvania Certificate of Participation, Lease
Revenue, Series A, 4.9%, 7/1/02(b) . . . . . . . . 4,380,000 AAA 4,177,556
Philadelphia, PA, Gas Works Revenue, Fourteenth
Series, 5.5%:
7/1/03 . . . . . . . . . . . . . . . . . . . . . . 5,245,000 AAA 5,200,942
7/1/04 . . . . . . . . . . . . . . . . . . . . . . 4,250,000 AAA 4,173,160
Philadelphia, PA, General Obligation, Revenue
Refunding, Series A, 11.5%, 8/1/99(b) . . . . . . . . 1,000,000 AAA 1,269,070
Philadelphia, PA, School District, General Obligation,
Series A, 6.7%, 7/1/99(b) . . . . . . . . . . . . . . 3,000,000 AAA 3,202,770
Schuylkill County, PA, Redevelopment Authority, Lease
Rental, Series A, 6.55%, 6/1/00(b) . . . . . . . . . 1,105,000 AAA 1,183,588
Somerset County, PA, General Authority,
Commonwealth Lease Revenue, ETM, 6.45%,
10/15/00**(b) . . . . . . . . . . . . . . . . . . . . 2,000,000 AAA 2,140,240
RHODE ISLAND Rhode Island Public Building Authority, State Public
Projects Revenue, Series A, 5%, 2/1/04(b) . . . . . . 2,245,000 AAA 2,134,815
West Warwick, RI, Zero Coupon, 5/1/03(b) . . . . . . . 1,000,000 AAA 602,330
SOUTH CAROLINA Piedmont Municipal Power Agency, SC, Electric
Revenue, 6%, 1/1/02(b) . . . . . . . . . . . . . . . 3,000,000 AAA 3,122,940
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 3,396,299
South Carolina Public Service Authority Revenue,
Santee Cooper, Series B, 6.6%, 7/1/01 . . . . . . . . 3,000,000 A 3,232,950
Sumter County, SC, Hospital Facility Revenue
Refunding, Tuomey Medical Center, 6.375%,
11/15/99(b) . . . . . . . . . . . . . . . . . . . . . 1,000,000 AAA 1,053,930
SOUTH DAKOTA South Dakota Student Loan Assistance Corp. Revenue,
Series A, 7%, 8/1/98 . . . . . . . . . . . . . . . . 1,000,000 A 1,072,640

The accompanying notes are an integral part of the financial statements.

</TABLE>

TENNESSEE Knox County, TN, Health, Education and Housing
Facilities Board, Fort Sanders Alliance,
4.8%, 1/1/05(b) . . . . . . . . . . . . . . . . . . . . 7,325,000 AAA 6,858,837
TEXAS Austin, TX, Utility District, Water, Sewer & Electric
Revenue, 11%, 11/15/02, Prerefunded 5/15/97(c) . . . . 4,180,000 AAA 4,853,064
Austin, TX, Utility System Revenue, Prior Lien,
9.25%, 11/15/95 . . . . . . . . . . . . . . . . . . . . 1,050,000 A 1,118,418
Carrollton, TX, Farmers Branch Independent School
District, ETM, 9.4%, 6/1/96** . . . . . . . . . . . . . 100,000 AAA 109,080
Dallas County , TX, Hospital District, 9.75%, 4/10/96 . . 750,000 A 812,032
Dallas, TX, Civic Center, Senior Lien, 8.6%, 1/1/06 . . . 1,115,000 A 1,173,058
Dallas-Fort Worth, TX, International Airport Revenue
Series A:
7.7%, 11/1/00(b) . . . . . . . . . . . . . . . . . . . 780,000 AAA 879,551
7.75%, 11/1/01(b) . . . . . . . . . . . . . . . . . . 540,000 AAA 616,324
Harris County, TX, General Obligation, Flood Control
District, Zero Coupon, 10/1/00(b) . . . . . . . . . . . 3,000,000 AAA 2,142,060
Harris County, TX, Toll Road Authority Revenue:
Senior Lien, 8.1%, 8/15/00(b) . . . . . . . . . . . . 1,275,000 AAA 1,428,204
Sub Lien, Series A, Zero Coupon, 8/15/01(b) . . . . . 3,235,000 AAA 2,189,480
Harris County, TX, Unlimited Tax, General Obligation,
8.8%, 10/1/95 . . . . . . . . . . . . . . . . . . . . . 100,000 AAA 105,671
Lubbock, TX, Health Facilities Development Corp.,
Methodist Hospital, Series B,
5.3%, 12/1/04(b) . . . . . . . . . . . . . . . . . . . 3,555,000 AAA 3,460,544
Port of Houston Authority of Harris County, TX,
8.8%, 10/1/96 . . . . . . . . . . . . . . . . . . . . . 150,000 AA 158,316
San Antonio, TX, Electric & Gas, Refunding Revenue,
Series A, Zero Coupon:
2/1/02(b) . . . . . . . . . . . . . . . . . . . . . . 4,600,000 AAA 3,032,182
2/1/03 . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 AAA 1,856,190
Texas Municipal Power Agency, Zero Coupon,
9/1/04(b) . . . . . . . . . . . . . . . . . . . . . . . 6,870,000 AAA 3,821,918
Texas Turnpike Authority, North Dallas Tollway
Revenue, 6.7%, 1/1/98(b) . . . . . . . . . . . . . . . 1,310,000 AAA 1,385,482
Travis County, TX, Housing Finance Corp., Series A,
8.625%, 9/1/95(b) . . . . . . . . . . . . . . . . . . . 200,000 AAA 206,842
University of Texas Board of Regents, Refunding
Revenue, Series A, 6.5%, 8/15/01 . . . . . . . . . . . 2,500,000 AA 2,668,275
UTAH Intermountain Power Agency, UT, Power Supply Revenue:
Series B, Zero Coupon, 7/1/02(b) . . . . . . . . . . . 2,500,000 AAA 1,591,925
Series B, Zero Coupon, 7/1/01(b) . . . . . . . . . . . 10,495,000 AAA 7,114,036
Series H, 9%, 7/1/19, Crossover Refunded 7/1/95 . . . 2,200,000 AA 2,332,924

The accompanying notes are an integral part of the financial statements.
</TABLE>

<PAGE>

<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series I, 9%, 7/1/19, Crossover Refunded 7/1/95 . . . 2,500,000 AA 2,651,050
Salt Lake County, UT, Water Conservation District,
Series A, Zero Coupon, 10/1/03(b) . . . . . . . . . . 3,200,000 AAA 1,868,448
Utah Associated Municipal Power System, Hunter
Project, Refunding Revenue, Zero Coupon:
7/1/01(b) . . . . . . . . . . . . . . . . . . . . . 5,895,000 AAA 4,016,617
7/1/03(b) . . . . . . . . . . . . . . . . . . . . . 5,900,000 AAA 3,495,396

VIRGIN ISLANDS Virgin Islands, General Obligation, Public Finance
Authority Revenue, Matching Fund Loan, Series A:
6.7%, 10/1/99 . . . . . . . . . . . . . . . . . . . 1,690,000 BBB 1,704,585
6.8%, 10/1/00 . . . . . . . . . . . . . . . . . . . 1,035,000 BBB 1,042,162
VIRGINIA Southeastern, VA, Public Service Authority, Refunding,
Series A, 4.8%, 7/1/05(b) . . . . . . . . . . . . . . 9,500,000 AAA 8,720,620
Virginia Housing Development Authority, Residential
Mortgage Revenue, Series H, 6.1%, 7/1/03 . . . . . . . 6,050,000 AA 6,074,866
WASHINGTON King County, WA, Water District #107, ETM, 8.7%,
3/1/96** . . . . . . . . . . . . . . . . . . . . . . 120,000 AAA 128,225
Seattle, WA, Municipal Light and Power Revenue,
9.7%, 9/1/07, Prerefunded 9/1/95(c) . . . . . . . . . 1,380,000 AAA 1,493,533
Snohomish County, WA, Public Utility District #1, 1991
Series B, 6.4%, 1/1/00 . . . . . . . . . . . . . . . 2,000,000 A 2,112,580
Washington Health Care Facilities Authority, Empire
Health Services, Series 1993:
4.35%, 11/1/96(b) . . . . . . . . . . . . . . . . . 1,760,000 AAA 1,752,942
5.4%, 11/1/02(b) . . . . . . . . . . . . . . . . . . 2,000,000 AAA 1,995,860
5.5%, 11/1/03(b) . . . . . . . . . . . . . . . . . . 3,000,000 AAA 2,973,870
5.6%, 11/1/04(b) . . . . . . . . . . . . . . . . . . 2,000,000 AAA 1,993,620
Washington Health Care Facilities Authority, Franciscan
Health System, St. Joseph's/Tacoma, 5.2%,
1/1/04(b). . . . . . . . . . . . . . . . . . . . . . 2,160,000 AAA 2,089,260
Washington Public Power Power Supply System,
Nuclear Project #1, Refunding Revenue:
Series A, 5.25%, 7/1/03(b) . . . . . . . . . . . . . 10,000,000 AAA 9,748,200
Series A, 7%, 7/1/96 . . . . . . . . . . . . . . . . 1,000,000 AA 1,040,750
Series B, 5%, 7/1/01 . . . . . . . . . . . . . . . . 2,000,000 AA 1,942,520
Series B, 5.15%, 7/1/02 . . . . . . . . . . . . . . 5,275,000 AA 5,123,555
Series B, 5.25%, 7/1/03 . . . . . . . . . . . . . . 5,555,000 AA 5,380,795
Series D, 15%, 7/1/17, Prerefunded 7/1/96(c) . . . . 2,595,000 AAA 3,183,157
Washington Public Power Power Supply System,
Nuclear Project #2, Refunding Revenue:
Series A, 4.9%, 7/1/05 . . . . . . . . . . . . . . . 4,000,000 AA 3,637,280
Series A, 5.25%, 7/1/03(b) . . . . . . . . . . . . . 2,310,000 AAA 2,255,022

The accompanying notes are an integral part of the financial statements.

</TABLE>

<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO

</TABLE>

(a) The cost for federal income tax purposes was $859,847,877.
At June 30, 1994, net unrealized depreciation for all
securities was $908,634. This consisted of aggregate gross
unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $16,816,636
and aggregate gross unrealized depreciation for all investment
securities in which there was an excess of tax cost over
market value of $17,725,270.
(b) Bond is insured by one of these companies: AMBAC, FGIC, or
MBIA.
(c) 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.
(d) 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.
(e) When-issued or forward delivery securities (See Note A
in Notes to Financial Statements).

The accompanying notes are an integral part of the financial statements.

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

(f) At June 30, 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

JUNE 30, 1994 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $859,847,877)
(Note A) . . . . . . . . . . . . . . . . . . . . . . . $858,939,243
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 49,103
Receivables:
Investments sold . . . . . . . . . . . . . . . . . . . 17,208,205
Interest . . . . . . . . . . . . . . . . . . . . . . . 14,352,672
Fund shares sold . . . . . . . . . . . . . . . . . . . 310,188
Other assets . . . . . . . . . . . . . . . . . . . . . . 11,005
------------
Total assets. . . . . . . . . . . . . . . . . . . . 890,870,416

LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . $14,027,324
When-issued and forward delivery securities (Note A) . 10,555,238
Dividends . . . . . . . . . . . . . . . . . . . . . . 1,476,307
Fund shares redeemed . . . . . . . . . . . . . . . . . 576,913
Accrued management fee (Note C) . . . . . . . . . . . 401,291
Accrued expenses (Note C) . . . . . . . . . . . . . . 163,343
------------
Total liabilities . . . . . . . . . . . . . . . . 27,200,416
------------
Net assets at market value . . . . . . . . . . . . . . . $863,670,000
============
NET ASSETS
Net assets consist of:
Net unrealized depreciation on investments . . . . . . $ (908,634)
Accumulated net realized gain . . . . . . . . . . . . . 737,419
Shares of beneficial interest . . . . . . . . . . . . . 805,992
Additional paid-in capital. . . . . . . . . . . . . . . 863,035,223
------------
Net assets, at market value . . . . . . . . . . . . . . . $863,670,000
============

NET ASSET VALUE, offering and redemption price per share
($863,670,000 / 80,599,198 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) . . . . . . . . . . . . . . . . . $10.72
The accompanying notes are an integral part of the financial statements. ======
</TABLE>

<PAGE>

<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- ----------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 26,921,781

Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . $1,950,631
Services to shareholders (Note C) . . . . . . . . . . . 401,870
Trustees' fees (Note C) . . . . . . . . . . . . . . . . 22,625
Custodian fees . . . . . . . . . . . . . . . . . . . . 127,446
Reports to shareholders . . . . . . . . . . . . . . . . 59,850
Legal . . . . . . . . . . . . . . . . . . . . . . . . . 4,917
Auditing . . . . . . . . . . . . . . . . . . . . . . . 24,638
State registration . . . . . . . . . . . . . . . . . . 35,372
Other . . . . . . . . . . . . . . . . . . . . . . . . . 38,668 2,666,017
---------- ------------
Net investment income . . . . . . . . . . . . . . . . . 24,255,764
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS
Net realized gain on investments . . . . . . . . . . . 1,232,459
Net unrealized depreciation on investments
during the period . . . . . . . . . . . . . . . . . . (57,539,923)
------------
Net loss on investments . . . . . . . . . . . . . . . . (56,307,464)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $ 32,051,700)
============

The accompanying notes are an integral part of the financial statements.

<PAGE>

</TABLE>
<TABLE>
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1994 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . . $ 24,255,764 $ 47,547,165
Net realized gain from investment
transactions . . . . . . . . . . . . . . . . . . . 1,232,459 7,169,142
Net unrealized appreciation (depreciation)
on investments during the period . . . . . . . . . (57,539,923) 35,118,275
-------------- ---------------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . . . (32,051,700) 89,834,582
-------------- ---------------
Distributions to shareholders:
From net investment income ($.28 and $.60 per
share, respectively) . . . . . . . . . . . . . . . (24,255,764) (47,547,165)
-------------- ---------------
From net realized gains from investment transactions
($.03 and $.06 per share, respectively) . . . . . . (2,391,633) (5,211,174)
-------------- ---------------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . . . . 175,132,382 642,445,394
Net asset value of shares issued to shareholders
in reinvestment of distributions . . . . . . . . . 18,595,922 32,691,411
Cost of shares redeemed . . . . . . . . . . . . . . . (288,783,698) (355,778,251)
-------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions. . . . . . . . . . . . . . . . . . (95,055,394) 319,358,554
-------------- ---------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . (153,754,491) 356,434,797
============== ===============
Net assets at beginning of period . . . . . . . . . . 1,017,424,491 660,989,694
-------------- ---------------
NET ASSETS AT END OF PERIOD . . . . . . . . . . . . . $ 863,670,000 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 . . . . . . . . . . . . . . . . . . . . . 15,928,950 57,535,746
Shares issued to shareholders in reinvestment
of distributions . . . . . . . . . . . . . . . . . 1,520,567 2,916,150
Shares redeemed . . . . . . . . . . . . . . . . . . . (26,396,182) (31,748,769)
-------------- ---------------
Net increase (decrease) in Fund shares. . . . . . . . (8,946,665) 28,703,127
-------------- ---------------
Shares outstanding at end of period . . . . . . . . . 80,599,198 89,545,863
============== ===============

The accompanying notes are an integral part of the financial statements.
</TABLE>

<PAGE>
SCUDDER MEDIUM TAX FREE FUND
FINANCIAL HIGHLIGHTS

<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.

<CAPTION>
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1994 --------------------------------------------------------------------------------
(UNAUDITED) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
------------- --------------------------------------------------------------------------------
<S> <C> <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 $ 9.65
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------

Income from investment
operations:
Net investment income (a) . . .28 .60 .65 .67 .54 .56 .54 .54 .62 .68 .73
Net realized and unrealized
gain (loss) on investments . (.61) .56 .27 .52 .07 .02 (.05) (.22) .41 .36 .02
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations . . . . . . . . . (.33) 1.16 .92 1.19 .61 .58 .49 .32 1.03 1.04 .75
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
from:
From net investment income . (.28) (.60) (.65) (.67) (.54) (.56) (.54) (.54) (.62) (.68) (.73)
From net realized gains on
investments . . . . . . . . (.03) (.06) (.03) (.01) -- -- -- (.05) (.10) -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions . . . . . . (.31) (.66) (.68) (.68) (.54) (.56) (.54) (.59) (.72) (.68) (.73)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period. $10.72 $11.36 $10.86 $10.62 $10.11 $10.04 $10.02 $10.07 $10.34 $10.03 $ 9.67
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) (B) . . . . . (2.96)* 10.94 8.93 12.13 6.29 6.00 4.92 3.23 10.54 11.02 8.10
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) . . . . . 864 1,017 661 268 27 54 99 125 104 59 31
Ratio of operating expenses
net, to average net
assets (%) (a) . . . . . . . .56** .14 -- -- .97 .91 .79 .80 .82 .85 .83
Ratio of net investment income
to average net assets (%) . . 5.10** 5.35 6.07 6.44 5.37 5.62 5.05 5.37 6.00 6.76 7.66
Portfolio turnover rate (%) . . 37.2** 37.3 22.4 14.0 116.9 15.7 31.2 32.6 44.3 132.2 96.2
(a) Portion of expenses
reimbursed by the
Adviser . . . . . . . . . $ -- $.005 $.014 $.020 $.001 $ -- $ -- $ -- $ -- $ -- $ --
Management fee and other
fees not imposed . . . . $ .008 $.063 $.064 $.062 $.002 $ -- $ -- $ -- $ -- $ .001 $ .02
<FN>
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 six months
ended June 30, 1994 and for the years ended December 31, 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 seven years
in the period ended December 31, 1990 should not be considered representative
of the present Fund.
* Not annualized ** Annualized
</FN>
</TABLE>

<PAGE>

NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
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.

FUTURES CONTRACTS. The Fund may enter into financial 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,

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

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.

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.

<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
For the six months ended June 30, 1994 purchases and sales of
investments (excluding short-term) aggregated $170,651,016 and $274,164,936,
respectively.

C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Management Agreement (the "Man- agement Agree- ment") 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.
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. 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 October
31, 1994. For the six months ended June 30, 1994, the management fee not
imposed amounted to $695,921 and the fee imposed aggregated $1,950,631 of which
$401,291 is unpaid at June 30, 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 six months ended June 30, 1994 the amount charged to the Fund by
SSC $294,456 of which $45,873 is unpaid at June 30, 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 six months ended June 30, 1994, Trustees' fees aggregated $22,625.
<PAGE>

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 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

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. #These funds, advised by Scudder, Stevens & Clark,
Inc., are traded on the New York Stock Exchange. +++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.
++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 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 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

Semiannual Report
June 30, 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
29 Officers and Trustees
30 Investment Products and Services
31 How to Contact Scudder

HIGHLIGHTS

* Tax-free bonds declined in price across the board as interest rates
rose persistently during the period. Reflecting this new environment,
the yield of Scudder Managed Municipal Bonds increased from 4.66% on
December 31, 1993, to a 5.45% federally tax-free 30-day net annualized
yield as of June 30, 1994.

* Following more than ten consecutive years of positive performance, the
total return of the Fund for the first six months of 1994 was -5.46%,
reflecting the uncertain market environment. This compares with the
-5.27 six-month average total return of the 184 general municipal bond
funds tracked by Lipper.

* Over longer time periods, the Fund's total return outpaced its peer
group average for the one-, two-, three-, four-, five-, and ten-year
periods through June 30, 1994, according to Lipper.

* For investors in the top federal tax bracket of 39.6%, the Fund's
5.45% tax-free yield as of June 30, 1994, was equivalent to a 9.02%
taxable yield. For investors in the 36% bracket, the Fund's yield was
equivalent to a taxable yield of 8.52%.

(BAR CHART TITLE) The Fund's Yield and Taxable Equivalent Yields as of
June 30, 1994

(CHART DATA)
Taxable-Equivalent Taxable-Equivalent
Yield at 36% Tax Yield at 39.6% Tax
Tax-Free Yield Bracket Bracket
-------------- ------- -------
5.45% 8.52% 9.02%

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

Please call Scudder Investor Information at 1-800-225-2470 if you have
questions about your Fund or your investments. Page 31 provides more
information on how to contact Scudder. Thank you for choosing Scudder
Managed Municipal Bonds to help meet your investment needs.

Sincerely,

/s/David S. Lee
David S. Lee
President,
Scudder Managed Municipal Bonds

<PAGE>
Scudder Managed Municipal Bonds
Performance Update as of June 30, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
Scudder Managed Municipal Bonds
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
6/30/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,920 -.80% -.80%
5 Year $14,495 44.95% 7.71%
10 Year $27,162 171.62% 10.51%

Lehman Brothers Municipal Bond Index
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
6/30/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $10,020 .20% .20%
5 Year $14,599 45.99% 7.86%
10 Year $27,869 178.69% 10.79%

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 June 30

Scudder Managed Municipal Bonds
Year Amount
- --------------------
84 10000
85 12622
86 14174
87 15240
88 16452
89 18739
90 19737
91 21539
92 24216
93 27380
94 27162

Lehman Brothers Index
Year Amount
- --------------------
84 10000
85 12605
86 14687
87 15954
88 17137
89 19089
90 20389
91 22226
92 24843
93 27814
94 27869

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 June 30
- ----------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
-------------------------------------------------------------------------------
Net Asset Value... $ 8.27 $ 8.68 $ 8.43 $ 8.41 $ 8.82 $ 8.36 $ 8.47 $ 8.86 $ 9.17 $ 8.35
Income Dividends.. $ .66 $ .58 $ .62 $ .61 $ .60 $ .57 $ .54 $ .47 $ .50 $ .46
Capital Gains
Distributions..... $ -- $ -- $ .30 $ .05 $ .12 $ .33 $ .09 $ .12 $ .29 $ .31
Fund Total
Return (%)........ 26.22 12.30 7.53 7.95 13.90 5.32 9.13 12.43 13.06 -.80
Index Total
Return (%)........ 26.05 16.52 8.63 7.42 11.39 6.81 9.01 11.77 11.96 .20
</TABLE>

All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so that an investor's
shares, when redeemed, may be worth more or less than when purchased.

Scudder Managed Municipal Bonds
Portfolio Summary as of June 30, 1994
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------

Electric Utility Revenue 27%
General Obligation 20%
Lease Rentals 10% As of June 30, the Fund
Housing Finance Authority 7% held securities issued in 31
Hospital/Health 6% states, plus the District of
Pollution Control Revenue 6% Columbia. We also spread Fund
Toll Revenue 6% assets among general obligation
Water/Sewer Revenue 4% bonds and many different types
Port/Airport Revenue 3% of revenue bonds.
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 50%
AA 21% Portfolio quality remains
A 19% high, with roughly 71% of
BBB 9% Fund assets invested in
Not Rated 1% bonds rated AAA, AA, or the
---- equivalent.
100%
====

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

1 - 5 years 4%
1 - 5 years 10% Bonds with effective maturities
5 - 10 years 20% between five and 20 years
10 - 15 years 35% represented 73% of the Fund's
Greater than 15 years 31% portfolio as of June 30, 1994.
----
100%
====

Weighted average effective maturity: 12 years

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

For more complete details about the Fund's Investment Portfolio,
see page 10.

<PAGE>

PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

During the six months ended June 30, 1994, a period marked by
persistently rising interest rates across the board, shareholders in
Scudder Managed Municipal Bonds received a total of $0.23 per share in
tax-free income dividends. At the end of the period, the Fund provided a
30-day net annualized yield of 5.45%, higher than its 4.66% yield at
year-end, reflecting the changed interest rate environment. For
shareholders subject to the 39.6% maximum federal income tax rate, the
Fund's yield was worth 9.02%. For investors in the 36% federal income tax
bracket, this was the equivalent of an 8.52% taxable yield, higher than
yields provided by comparable taxable investments on an after-tax basis.

Reflecting the price weakness in the municipal market, the Fund's net
asset value declined from $9.09 per share on December 31, 1993, to $8.35 as
of June 30, 1994. At the close of the six-month period, the Fund's price
change and income distributions combined for a total return of -5.46%. The
total return of the unmanaged Lehman Brothers Municipal Bond Index was
- -4.42% for the six-month period.

The Fund's negative performance during the first six months of this
year contrasts with its strong longer-term investment results. 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.

<TABLE>
Scudder Managed Municipal Bonds' Average Annual Return Versus Lipper
Average of All General Municipal Bond Funds
(Returns for periods ended June 30, 1994)
<CAPTION>
Scudder
Managed
Municipal Lipper Average Number of
Period Bonds Return Annual Return Funds Tracked
------ ------------ ------------- -------------
<S> <C> <C> <C>
1 year -0.80% -0.93% 156
2 years 5.92 5.35 117
3 years 8.04 7.62 105
4 years 8.31 7.73 95
5 years 7.71 7.23 87
10 years 10.51 10.26 47

Source: Lipper Analytical Services, Inc. (Lipper is an independent firm
that tracks performance of mutual funds.) Performance is historical and is
not indicative of future results.
</TABLE>

Interest Rates: A Departure from 1993

In contrast to 1993, when interest rates dropped substantially, the
first six months of 1994 brought higher interest rates, increased
volatility, and generally lower bond prices to the tax-exempt bond market,
as well as to fixed-income markets worldwide. Several factors contributed
to market volatility through the first six months of the Fund's fiscal
year. First and foremost were investors' worries over the possibility of an
overheating U.S. economy and its usual result, rising inflation. Although
economic reports were decidedly mixed, the market focused on those that
seemed to signal increasing inflation. On February 4, after reports of
increased U.S. economic activity during the fourth quarter of 1993 began to
filter into the markets, the Federal Reserve raised the federal funds rate
0.25%--the first such move by the Fed in five years. While this move was
designed to preempt even higher rates, investors' pent up inflation fears
only increased, resulting in even stronger negative market sentiment. The
Fed eventually raised short-term interest rates three more times during the
period--in March, April, and May--but these additional moves also fueled
municipal bond price declines across the maturity spectrum, as yields of
municipal bonds rose 80 to 100 basis points (100 basis points = one
percentage point of yield).

One bright spot for the municipal marketplace during this otherwise
difficult period was the shrinking supply of tax-exempt bonds. While the
1993 municipal market featured declining interest rates and a heavy supply
of bonds, thanks in large part to a record amount of refinancings, this
year's market has seen a significant reduction in refinancing activity due
to rising rates. New issue volume during the first six months of 1994 of
$89 billion compares to $149 billion during the same period a year ago, a
40% decrease. Supply also declined because large numbers of outstanding
bonds matured during the period. Decreased supply helped to moderate price
declines in bonds the Fund held during the first six months of the year,
since the relatively higher demand for existing issues provided a measure
of price support.

(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - The shrinking supply of
municipal bonds helped to moderate price declines in bonds the Fund held
during the period.

Portfolio Strategy Review

Notwithstanding short-term pressures on the municipal marketplace, our
long-term outlook is positive. At current price levels, we believe yields
of high-grade, long-term municipal bonds are attractive, and we are keeping
to our long-term strategy of remaining focused on these bonds. Over the
six-month period, we continued to buy bonds with maturities in the 15- to
20-year range. On June 30, 1994, bonds with effective maturities between
five and 20 years represented 73% of the portfolio. We believe bonds in
this maturity range continue to offer good value, providing nearly as much
yield as bonds with longer (30-year) maturities, with less price
volatility.

We also maintained the Fund's emphasis on non-callable bonds, which
the issuer cannot redeem before the maturity date. During this period of
rising interest rates and falling bond prices, non-callable holdings helped
to keep the Fund's overall volatility lower than it otherwise would have
been, while ensuring a dependable income stream. When yields rise and
prices drop, the average effective maturity of a callable bond may actually
increase (since the likelihood decreases that these bonds will be called),
boosting the bond's volatility. By contrast, the average effective maturity
of non-callable bonds remains the same. We also maintained our position in
several "cushion bonds"--bonds that can be called in a relatively short time
but offer yields high enough to compensate for the likelihood of their
being redeemed early by the issuer. To minimize portfolio volatility, we
also sold futures contracts, thus defensively hedging our holdings against
losses.

Diversification among municipal holdings remains an important strategy
for the Fund. As of June 30, the portfolio held securities issued in 31
states, plus the District of Columbia. We also spread Fund assets among
general obligation bonds and many different types of revenue bonds.
Portfolio quality also remains high, with approximately 71% of Fund assets
invested in bonds rated AAA, AA, or the equivalent. The portfolio's average
quality is AA, the second highest quality grade. In addition, 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 details on the Fund's holdings, including quality, maturity,
and sector representations.

Outlook for the Balance of 1994

We expect long-term bond yields to remain higher than last year's
yields, even though we believe the inflation rate will remain in the 3-3.5%
range. Consequently, the market may continue to exhibit greater volatility
than it has in recent years, when prices benefited from declining rates. We
also expect the U.S. economy to grow at only a moderate pace of about 3%.
However, if the U.S. economy slows down, we believe that long-term interest
rates could ratchet slightly lower sometime before the end of 1994--at least
temporarily. In addition, we believe the supply of municipals will remain
comparatively light, which should also help support prices. If demand for
tax-free bonds rises, aided by investors who are continuing to feel the
effects of the recent federal tax increases, the municipal market should
benefit further. As always, our strategy reflects our commitment to seeking
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

<PAGE>
<TABLE>
SCUDDER MANAGED MUNICIPAL BONDS
INVESTMENT PORTFOLIO as of June 30, 1994 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1.3% SHORT-TERM MUNICIPAL INVESTMENTS
----------------------------------------------------------------------------------------------

CALIFORNIA Southern California Public Power Authority,
Power Project Revenue Refunding, Palo Verde,
Auction Reset, 2.95%, 7/1/12* (d) . . . . . . . . . 3,350,000 AAA 3,350,000
TEXAS Angelina & Neches River Authority, TX,
Solid Waste Disposal, 1984 Series C, Daily Demand
Note, 3.55%, 5/1/14* . . . . . . . . . . . . . . . 4,800,000 P1 4,800,000
North Central Texas, Health Development Corp.,
Methodist Hospital of Dallas, Daily Demand
Note, 3.5%, 10/1/15*(d) . . . . . . . . . . . . . . 1,700,000 A1 1,700,000
----------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $9,850,000) . . . . . . . . . . . . . . . . . 9,850,000
----------
98.7% LONG-TERM MUNICIPAL INVESTMENTS
----------------------------------------------------------------------------------------------

ALASKA North Slope Borough, AK, General Obligation:
Series B, Zero Coupon, 1/1/03 (d) . . . . . . . . . 10,290,000 AAA 6,276,068
Series I, 6.6%, 6/30/96 (d) . . . . . . . . . . . . 1,000,000 AAA 1,036,440
ARIZONA Maricopa County, AZ, School District #28, Kyrene
Elementary School, Series B, Zero Coupon,
1/1/06 (d) . . . . . . . . . . . . . . . . . . . . 4,905,000 AAA 2,419,146
Paradise Valley, AZ, Unified School District #69,
Maricopa County, Zero Coupon, 7/1/02 (d) . . . . . 2,100,000 AAA 1,328,901
ARKANSAS Arkansas Development Finance Authority,
Single Family Mortgage Revenue, Series B,
7.7%, 12/1/14 . . . . . . . . . . . . . . . . . . . 3,075,000 A 3,126,045
CALIFORNIA California General Obligation:
6.25%, 10/1/07 (b) (d) . . . . . . . . . . . . . . 7,500,000 AAA 7,794,075
6.25%, 4/1/08 (d) . . . . . . . . . . . . . . . . . 5,000,000 AAA 5,153,150
5%, 6/1/09 (d) . . . . . . . . . . . . . . . . . . 5,000,000 AAA 4,506,800
5.5%, 10/1/09 (b) (d) . . . . . . . . . . . . . . . 12,500,000 AAA 11,867,750
California Housing Finance Agency, Multi-Unit Rent
Housing Revenue, Series A, 7.7%, 8/1/10 . . . . . . 1,000,000 A 1,090,350
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 9,291,523
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Regents of The University of California,
Series A, 5.5%, 6/1/14 . . . . . . . . . . . . . . . 9,350,000 A 8,246,794
California Statewide Community Development
Corporation, Certificate of Participation,
Lutheran Homes, 5.5%, 11/15/08 . . . . . . . . . . . 2,250,000 A 2,063,273
Los Angeles County, CA, Certificate of Participation,
Disney Parking Project:
Zero Coupon, 9/1/07 . . . . . . . . . . . . . . . . 4,030,000 A 1,638,598
Zero Coupon, 9/1/09 . . . . . . . . . . . . . . . . 5,425,000 A 1,910,034
Oakland, CA, Redevelopment Agency, Tax
Allocation, Central District, 5%, 9/1/21 (d) . . . . . 2,500,000 AAA 2,035,150
Palomar Pomerado, CA, Health Systems, Series B,
Zero Coupon, 11/1/04 (d) . . . . . . . . . . . . . . 2,325,000 AAA 1,281,075
San Joaquin Hills, CA, Transportation Corridor
Agency, Orange County, Senior Lien Toll Road
Revenue, Zero Coupon to 1/1/02, 7.5% to 1/1/09 . . . . 21,585,000 BBB 12,593,552
San Jose, CA, Redevelopment Authority, Merged
Area Redevelopment Project, Tax Allocation, 6%,
8/1/08 (d) . . . . . . . . . . . . . . . . . . . . . 1,500,000 AAA 1,504,140
COLORADO Colorado Housing Finance Authority Revenue,
Series A:
8.1%, 10/1/05 . . . . . . . . . . . . . . . . . . . 2,030,000 AA 2,229,813
8.15%, 10/1/06 . . . . . . . . . . . . . . . . . . . 2,145,000 AA 2,362,846
8.25%, 10/1/10 . . . . . . . . . . . . . . . . . . . 1,940,000 AA 2,149,151
8.25%, 10/1/11 . . . . . . . . . . . . . . . . . . . 1,680,000 AA 1,861,121
8.25%, 10/1/12 . . . . . . . . . . . . . . . . . . . 1,945,000 AA 2,157,316
Colorado Housing Finance Authority, Multi-Family
Mortgage Revenue, Series A:
8.15%, 10/1/07 . . . . . . . . . . . . . . . . . . . 2,320,000 AA 2,554,065
8.2%, 10/1/08 . . . . . . . . . . . . . . . . . . . 2,510,000 AA 2,774,429
8.2%, 10/1/09 . . . . . . . . . . . . . . . . . . . 2,725,000 AA 3,012,079
Denver, CO, City and County Airport Revenue,
8.875%, 8/1/15 . . . . . . . . . . . . . . . . . . 1,200,000 BBB 1,222,200
CONNECTICUT Connecticut Development Authority, Airport Facilities,
Windsor Locks Hotel, Series A, 5.8%, 10/1/25 . . . . . 3,000,000 AA 3,089,160
DELAWARE Delaware Housing Authority, Multi-Family Mortgage
Revenue, High Coupon Escrow Obligation,
Series C, 7.375%, 1/1/15 . . . . . . . . . . . . . . . 4,145,000 A 4,271,588
DISTRICT OF COLUMBIA District of Columbia, Certificate of Participation,
Series 1993, 6.875%, 1/1/03 . . . . . . . . . . . . . 2,500,000 BBB 2,515,150
District of Columbia, General Obligation:
5.3%, 6/1/05 (d) . . . . . . . . . . . . . . . . . . 1,350,000 AAA 1,292,720
Series A, 5.875%, 6/1/05 . . . . . . . . . . . . . . 3,300,000 A 3,254,130
Series B, Zero Coupon, 6/1/03 (d) . . . . . . . . . . 2,000,000 AAA 1,171,220
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
SCUDDER MANAGED MUNICIPAL BONDS
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series B3, 5.5%, 6/1/07 (d) . . . . . . . . . . . . 1,000,000 AAA 960,630
FLORIDA Dade County, Aviation Department, Series K, 9.6%,
10/1/05 . . . . . . . . . . . . . . . . . . . . . . 2,500,000 A 2,513,375
Escambia County, FL, Utility Revenue, Series B:
6.25%, 1/1/12 . . . . . . . . . . . . . . . . . . . 5,485,000 AAA 5,557,951
6.25%, 1/1/13 . . . . . . . . . . . . . . . . . . . 5,860,000 AAA 5,930,613
Florida Housing Finance Revenue, Home
Ownership Mortgage Revenue, GNMA Backed, "A",
8.595%, 8/1/95 . . . . . . . . . . . . . . . . . . 4,380,000 AAA 4,544,250
Florida Municipal Power Agency, Stanton II Project,
Refunding Revenue, Series 1993, 4.5%, 10/1/16 (d). . 8,000,000 AAA 6,304,400
Orlando, FL, Utilities Commission, Water and Electric
Revenue, 5.125%, 10/1/19 . . . . . . . . . . . . . 3,220,000 AA 2,726,599
GEORGIA Burke County, GA, Development Authority, Pollution
Control Revenue, Ogelthorpe Power Corp., Vogtle
Project, 7.7%, 1/1/06 (d) . . . . . . . . . . . . . 11,000,000 AAA 12,550,010
Georgia Municipal Electric Authority, Power Revenue,
Series V, 6.5%, 1/1/12 . . . . . . . . . . . . . . 5,000,000 AA 5,175,050
Metropolitan Atlanta Rapid Transit Authority, GA,
Sales Tax, Series P:
6.1%, 7/1/06 (d) . . . . . . . . . . . . . . . . . 2,500,000 AAA 2,588,225
6.2%, 7/1/07 (d) . . . . . . . . . . . . . . . . . 2,000,000 AAA 2,074,160
6.25%, 7/1/08 (d) . . . . . . . . . . . . . . . . 2,000,000 AAA 2,066,080
Monroe County, GA, Development Authority,
Pollution Control, Ogelthorpe Power Corporation,
Scherer Project, 6.7%, 1/1/09 . . . . . . . . . . . 3,255,000 AA 3,365,019
Municipal Electric Authority of Georgia,
Power Revenue:
1st Crossover, 6.5%, 1/1/20 . . . . . . . . . . . 5,000,000 AA 5,056,050
4th Crossover, Series X, Project #1, 6.5%, 1/1/12. 3,500,000 AA 3,562,405
HAWAII City and County of Honolulu, HI, General Obligation,
Series 1990 A, Refunding Bond, 7.25%, 7/1/02 . . . . 1,500,000 AA 1,687,725
ILLINOIS Central Lake County, IL, Joint Action Water System
Revenue, Zero Coupon, 5/1/04 (d) . . . . . . . . . . 2,445,000 AAA 1,366,902
Chicago, IL, Board of Education, General Obligation
Lease, Series A, 6.25%, 1/1/15 (d) . . . . . . . . 2,725,000 AAA 2,706,279
Chicago, IL, General Obligation, Emergency
Telephone System, 5.6%, 1/1/09 (d) . . . . . . . . 7,200,000 AAA 6,850,008
Chicago, IL, Motor Fuel Tax Revenue, 5.375%,
1/1/14 (d) . . . . . . . . . . . . . . . . . . . . 5,000,000 AAA 4,459,100
Chicago, IL, Public Building Commission, Building
Revenue, Series A:
5.25%, 12/1/07 (d) . . . . . . . . . . . . . . . . 5,000,000 AAA 4,701,300
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5.25%, 12/1/08 (d) . . . . . . . . . . . . . . . . . 2,655,000 AAA 2,464,477
Du-Page, IL, Industrial Development Revenue,
Weyerhaeuser Company Project, Series 1983,
8.65%, 11/1/08 . . . . . . . . . . . . . . . . . . . 3,600,000 NR 3,733,704
Illinois Development Finance Authority Refunding
Revenue, Commonwealth Edison Company,
5.85%, 1/15/14 . . . . . . . . . . . . . . . . . . . 5,000,000 BBB 4,510,250
Illinois Educational Facilities Authority Revenue,
Loyola University, Zero Coupon, 7/1/05 (d) . . . . . . 3,100,000 AAA 1,596,128
Illinois Health Facilities Authority:
Delnor Community Hospital, 5.5%, 5/15/13 (d) . . . . . 1,500,000 AAA 1,356,210
Memorial Medical Center-Springfield,
5.25%, 10/1/09 (d) . . . . . . . . . . . . . . . . . 1,000,000 AAA 915,350
Illinois State Sales Tax Revenue, Series P,
6.5%, 6/15/13 . . . . . . . . . . . . . . . . . . . 2,100,000 AAA 2,164,827
Northern Illinois University, Board of Regents,
Series 1992, Zero Coupon:
4/1/05 (d) . . . . . . . . . . . . . . . . . . . . . 1,865,000 AAA 974,836
10/1/05 (d) . . . . . . . . . . . . . . . . . . . . 1,865,000 AAA 945,853
4/1/06 (d) . . . . . . . . . . . . . . . . . . . . . 1,865,000 AAA 905,812
10/1/06 (d) . . . . . . . . . . . . . . . . . . . . 1,865,000 AAA 878,415
4/1/07 (d) . . . . . . . . . . . . . . . . . . . . . 1,865,000 AAA 837,217
10/1/07 (d) . . . . . . . . . . . . . . . . . . . . 1,865,000 AAA 811,331
Northwest Suburban Municipal Joint Action Water
Agency, IL, ETM, 6.5%, 5/1/15** . . . . . . . . . . . 2,000,000 AAA 2,093,420
Oak Lawn, IL, Water & Sewer Revenue,
Series A, Zero Coupon:
10/1/03 (d) . . . . . . . . . . . . . . . . . . . . 1,295,000 AAA 756,138
10/1/04 (d) . . . . . . . . . . . . . . . . . . . . 1,295,000 AAA 706,371
10/1/05 (d) . . . . . . . . . . . . . . . . . . . . 1,295,000 AAA 656,772
10/1/06 (d) . . . . . . . . . . . . . . . . . . . . 1,295,000 AAA 609,945
Rosemont, IL, Zero Coupon:
Tax Increment, 12/1/04 (d) . . . . . . . . . . . . . 6,000,000 AAA 3,240,660
Tax Increment-3, Series C, 12/1/05 (d) . . . . . . . 7,060,000 AAA 3,544,826
State University Retirement System, IL, Special
Revenue, Zero Coupon, 10/1/05 (d) . . . . . . . . . . 7,000,000 AAA 3,550,120
University of Chicago, IL, Hospital Refunding,
5.5%, 8/15/08 (d) . . . . . . . . . . . . . . . . . . 2,500,000 AAA 2,370,425
Will County, IL, School District #201-U, Crete Monee,
Zero Coupon, 12/15/06 (d) . . . . . . . . . . . . . . 3,725,000 AAA 1,732,460
Winnebago County, IL, School District #122:
6.55%, 6/1/09 (d) . . . . . . . . . . . . . . . . . . 1,675,000 AAA 1,754,747
6.55%, 6/1/10 (d) . . . . . . . . . . . . . . . . . . 1,825,000 AAA 1,907,764
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
SCUDDER MANAGED MUNICIPAL BONDS
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDIANA Indiana Health Facilities Finance Authority, Hospital
Revenue, Ancilla Systems Inc., Series A,
6%, 7/1/18 (d) . . . . . . . . . . . . . . . . . . . . 3,965,000 AAA 3,762,507
Indiana Municipal Power Agency, Power Supply
System, Series B:
6%, 1/1/12 (d) . . . . . . . . . . . . . . . . . . . 1,750,000 AAA 1,716,558
5.5%, 1/1/16 (d) . . . . . . . . . . . . . . . . . . 30,860,000 AAA 27,839,423
Indiana Transportation Finance Authority, Highway
Revenue, Series A:
5.75%, 6/1/12 (d) . . . . . . . . . . . . . . . . . . 5,000,000 AAA 4,763,500
5.25%, 6/1/15 (d) . . . . . . . . . . . . . . . . . . 15,330,000 AAA 13,407,618
Petersburg, IN, Indianapolis Power and Light,
5.4%, 8/1/17 . . . . . . . . . . . . . . . . . . . . . 2,500,000 AA 2,165,325
Porter County, IN, Hospital Authority, Porter
Memorial Hospital, Series 1993:
5.3%, 6/1/06 (d) . . . . . . . . . . . . . . . . . . 1,570,000 AAA 1,501,721
5.4%, 6/1/07 (d) . . . . . . . . . . . . . . . . . . 1,660,000 AAA 1,581,266
5.4%, 6/1/08 (d) . . . . . . . . . . . . . . . . . . 1,750,000 AAA 1,647,013
KENTUCKY Kentucky State Turnpike Authority, Toll Road Revenue,
Series A, Prerefunded, 8.5%, 7/1/96 (e) . . . . . . . . 3,275,000 AAA 3,589,728
LOUISIANA Bastrop, LA, Industrial Development Board Pollution
Control Revenue, International Paper Company
Project, 6.9%, 3/1/07 . . . . . . . . . . . . . . . . . 10,000,000 A 10,704,800
New Orleans, LA, General Obligation, Zero Coupon:
9/1/05 (d) . . . . . . . . . . . . . . . . . . . . . . 7,500,000 AAA 3,858,375
9/1/06 (d) . . . . . . . . . . . . . . . . . . . . . . 15,775,000 AAA 7,539,030
West Feliciana Parish, LA, Pollution Control Revenue,
Gulf States Utility Project, Series A,
10.625%, 5/1/14 . . . . . . . . . . . . . . . . . . . . 6,500,000 AA 6,869,135
MAINE Maine Housing Authority, Mortgage Purchase
Revenue, 1987 Series A2, 7.65%, 11/15/15 . . . . . . . 2,700,000 A 2,708,640
MARYLAND Northeast Maryland Waste Disposal Authority,
Southwest Resource Recovery System Revenue:
6.85%, 1/1/99 (d) . . . . . . . . . . . . . . . . . . 1,925,000 AAA 2,052,628
6.9%, 1/1/00 (d) . . . . . . . . . . . . . . . . . . 3,195,000 AAA 3,437,820
7.2%, 1/1/06 (d) . . . . . . . . . . . . . . . . . . 3,440,000 AAA 3,857,582
7.2%, 1/1/07 (d) . . . . . . . . . . . . . . . . . . 3,390,000 AAA 3,788,189
MASSACHUSETTS Lowell, MA, Bond Anticipation Note, 4.625%,
3/1/95 . . . . . . . . . . . . . . . . . . . . . . . . 2,550,000 AA 2,568,692
Massachusetts Bay Transportation Authority:
5.25%, 3/1/06 (d) . . . . . . . . . . . . . . . . . . . 7,500,000 AAA 7,171,425
6.25%, 3/1/12 . . . . . . . . . . . . . . . . . . . . . 10,000,000 A 10,084,100
Series B, 6.2%, 3/1/16 . . . . . . . . . . . . . . . . 2,500,000 A 2,464,550
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts General Obligation, Series B,
6.5%, 5/1/05 (d) . . . . . . . . . . . . . . . . . . . 1,000,000 AAA 1,052,910
Massachusetts Port Authority, Series B,
9.375%, 7/1/15 . . . . . . . . . . . . . . . . . . . . 1,155,000 AA 1,232,270
Massachusetts Water Resource Authority, Series A:
6.5%, 7/15/09 . . . . . . . . . . . . . . . . . . . . . 7,625,000 A 7,778,873
6.5%, 7/15/19 . . . . . . . . . . . . . . . . . . . . . 13,445,000 A 13,527,418
New England Education Loan Marketing
Corporation, Student Loan Revenue Refunding,
Series F, 4.75%, 7/1/98 . . . . . . . . . . . . . . . . 5,000,000 A 4,882,550
MICHIGAN Michigan Strategic Fund, Limited Obligation,
Revenue Refunding, Ford Motor Company Project,
Series A, 7.1%, 2/1/06 . . . . . . . . . . . . . . . . . 3,000,000 A 3,249,000
MONTANA Montana Board of Housing, Single-Family Program,
Federally Insured or Guaranteed Mortgage Loans,
Zero Coupon, 6/1/10 . . . . . . . . . . . . . . . . . . 38,980,000 AA 6,710,797
NEVADA Nevada Housing Division, Series A, Zero Coupon,
10/15/96 . . . . . . . . . . . . . . . . . . . . . . . . 49,555,000 AA 4,457,472
NEW YORK Metropolitan Transportation Authority of New York,
Transit Facilities Revenue:
7%, 7/1/02 . . . . . . . . . . . . . . . . . . . . . . 2,595,000 BBB 2,809,373
Service Contract, Series O, 5.75%, 7/1/13 . . . . . . 6,775,000 BBB 6,252,783
New York City, General Obligation:
Series A, 7.2%, 8/15/95 . . . . . . . . . . . . . . . 5,000,000 A 5,153,800
Series A, 6.37%, 8/1/04 . . . . . . . . . . . . . . . 5,000,000 A 5,132,400
Series B, 7.1%, 2/1/97 . . . . . . . . . . . . . . . . 2,695,000 A 2,825,195
Series D, 7%, 8/1/02 . . . . . . . . . . . . . . . . . 4,345,000 A 4,649,932
Series D, 7%, 8/1/02 (d) . . . . . . . . . . . . . . . 3,250,000 AAA 3,535,155
Series E, 7%, 12/1/97 . . . . . . . . . . . . . . . . 2,500,000 A 2,649,575
Series E, 5.5%, 8/1/05 . . . . . . . . . . . . . . . . 6,000,000 A 5,648,040
Series G, 5.25%, 8/1/03 . . . . . . . . . . . . . . . 1,250,000 A 1,192,563
Series H, 7.2%, 8/1/01 (d) . . . . . . . . . . . . . . 2,260,000 AAA 2,488,011
Series H, 5.8%, 8/1/04 . . . . . . . . . . . . . . . . 5,000,000 A 4,913,700
Series H, 7%, 2/1/05 . . . . . . . . . . . . . . . . . 4,000,000 A 4,210,640
New York State Mortgage Agency Revenue, Home . . . . . . .
Owner Mortgage, Series 00, 7.9%, 10/1/98 . . . . . . . . 1,695,000 AA 1,731,985
New York State Dormitory Authority, City University
System Consolidated Revenue:
Series A, 5.75%, 7/1/06 . . . . . . . . . . . . . . . 9,000,000 BBB 8,877,420
Series E, 5.75%, 7/1/06 . . . . . . . . . . . . . . . 5,255,000 BBB 5,183,427
College and University Pooled Capital Program,
7.8%, 12/1/05 (d) . . . . . . . . . . . . . . . . . . 4,955,000 AAA 5,532,307

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER MANAGED MUNICIPAL BONDS
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
State University Educational Facility Revenue:
Series B, 5.375%, 5/15/07 . . . . . . . . . . . 5,000,000 BBB 4,633,200
Series B, 5.25%, 5/15/10 . . . . . . . . . . . . 5,000,000 BBB 4,443,000
New York State Energy Research and Development
Authority, New York State Electric and Gas
Corporation, Series C, Prerefunded,
12.3%, 7/1/94 (e) . . . . . . . . . . . . . . . 3,425,000 BBB 3,528,572
New York State Medical Care Facilities, Finance
Agency Revenue, Mount Sinai Hospital, Series 1983,
5.95%, 8/15/09 . . . . . . . . . . . . . . . . 6,220,000 AAA 6,158,360
New York State Development Corporation,
Correctional Facilities Revenue Refunding,
Series 1993A:
5.3%, 1/1/05 . . . . . . . . . . . . . . . . . . 2,625,000 BBB 2,465,820
5.4%, 1/1/06 . . . . . . . . . . . . . . . . . . 6,000,000 BBB 5,656,400
5.45%, 1/1/07 . . . . . . . . . . . . . . . . . 6,475,000 BBB 6,062,089
5.1%, 1/1/08 . . . . . . . . . . . . . . . . . . 6,735,000 AAA 6,220,446
NORTH CAROLINA North Carolina Eastern Municipal Power Agency:
Series B, 6%, 1/1/22 . . . . . . . . . . . . . . 14,140,000 A 12,870,794
Series C, 7%, 1/1/07 . . . . . . . . . . . . . 7,965,000 A 8,442,422
North Carolina Municipal Power Agency #1,
Catawba Electric Refunding Revenue:
Series B, Prerefunded, 8.5%, 1/1/96 (e) . . . . 7,000,000 AAA 7,556,850
5.25%, 1/1/09 . . . . . . . . . . . . . . . . . 8,500,000 A 7,689,440
OHIO Cleveland, OH, General Obligation:
5.3%, 9/1/07 (d) . . . . . . . . . . . . . . . 2,115,000 AAA 2,022,109
Series 1993, 5.3%, 9/1/08 (d) . . . . . . . . . 1,100,000 AAA 1,038,125
RHODE ISLAND Rhode Island Convention Center Authority, Refunding
Revenue, 1993 Series B, 5.25%, 5/15/15 (d) . . . 2,250,000 AAA 1,958,715
Rhode Island Housing and Mortgage Finance Corp.,
Home Ownership Opportunity Bond, Series 2,
7.5%, 9/1/95 . . . . . . . . . . . . . . . . . 2,990,000 AA 3,040,292
SOUTH CAROLINA Piedmont Municipal Power Agency, SC, Electric
Revenue, 5.5%, 1/1/10 (d) . . . . . . . . . . . 2,600,000 AAA 2,457,416
TENNESSEE Knox County, TN, Health, Education and Housing
Facilities Board, Fort Sanders Alliance,
Series B, 7.25%, 1/1/09 (d) . . . . . . . . . . 3,250,000 AAA 3,623,003
TEXAS Austin TX, Utility Systems Revenue Refunding,
Series A, Zero Coupon, 5/15/03 (d) . . . . . . 2,890,000 AAA 1,747,410
Dallas Fort Worth, International Airport, TX, Revenue
Series A:
7.8%, 11/1/07 (d) . . . . . . . . . . . . . . 2,390,000 AAA 2,791,114
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7.375%, 11/1/09 (d) . . . . . . . . . . . . . . 4,500,000 AAA 5,065,515
7.375%, 11/1/11 (d) . . . . . . . . . . . . . . 5,000,000 AAA 5,604,250
Harris County, TX, Detention Center, Certificate of
Participation:
6%, 12/15/10 . . . . . . . . . . . . . . . . . . 5,820,000 AA 5,771,752
6%, 12/15/11 . . . . . . . . . . . . . . . . . . 4,295,000 AA 4,258,192
Harris County, TX, Toll and Sub Lien, Series A,
Zero Coupon, 8/15/04 (d) . . . . . . . . . . . . 4,050,000 AAA 2,258,928
Harris County, Texas, Toll Road Revenue,
Subordinate Lien, General Obligation, Series A,
6.5%, 8/15/13 (d) . . . . . . . . . . . . . . . . 4,000,000 AAA 4,146,640
Houston, TX, Independent School District,
Revenue Refunding, School House, Zero
Coupon, 8/15/02 (d) . . . . . . . . . . . . . . . 1,405,000 AAA 893,454
Houston, TX, Water Conveyance System Contract,
Certificate of Participation, Series J, 6.125%,
12/15/05 (d) . . . . . . . . . . . . . . . . . . 2,500,000 AAA 2,579,925
Katy, TX, Independent School District, Series A,
Refunding Bond, Zero Coupon, 8/15/07 . . . . . . 3,355,000 AAA 1,499,651
Lower Colorado River Authority, TX, Revenue
Refunding, Zero Coupon, 1/1/03 (d) . . . . . . . 8,900,000 AAA 5,496,017
San Antonio, TX, Airport Systems Revenue Refunding:
7%, 7/1/02 (d) . . . . . . . . . . . . . . . . . 1,695,000 AAA 1,872,806
7%, 7/1/03 (d) . . . . . . . . . . . . . . . . . 3,305,000 AAA 3,663,196
San Antonio, TX, Electric and Gas, Capital
Appreciation, Revenue Refunding:
8.5%, 2/1/96 . . . . . . . . . . . . . . . . . . 5,000,000 AAA 5,390,000
Series A, Zero Coupon, 2/1/05 (d) . . . . . . . 7,000,000 AAA 3,786,230
UTAH Intermountain Power Agency, UT, Power Supply
Revenue:
Series C, 5.25%, 7/1/14 . . . . . . . . . . . . 4,000,000 AA 3,480,960
Series I, Crossover Refunded, 9%, 7/1/19 . . . . 2,175,000 AA 2,306,414
Salt Lake City, UT, Hospital Revenue, Intermountain
Health Care, Series 1992, Inversed Inflow,
8.36%, 2/15/12*** . . . . . . . . . . . . . . . . 1,500,000 AA 1,440,465
VIRGINIA Virginia Beach, VA, Development Authority, Virginia
Beach General Hospital Project, 5.125%,
2/15/18 (d) . . . . . . . . . . . . . . . . . . . 3,000,000 AAA 2,540,250
WASHINGTON Washington Healthcare Facilities Authority:
Empire Health Services-Spokane,
5.8%, 11/1/08 (d) . . . . . . . . . . . . . . . 3,865,000 AAA 3,780,047
Franciscan Health System-St. Joseph's/Tacoma:
5.4%, 1/1/07 (d) . . . . . . . . . . . . . . . . 2,000,000 AAA 1,907,300
5.4%, 1/1/08 (d) . . . . . . . . . . . . . . . . 2,645,000 AAA 2,490,188
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER MANAGED MUNICIPAL BONDS
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sisters of St. Joseph of Peace, 5.3%, 3/1/09 (d) . . 4,315,000 AAA 3,983,047
Washington Public Power Supply System,
Nuclear Project #1, Revenue Refunding:
Series A, 7.15%, 7/1/02 (d) . . . . . . . . . . . . 2,550,000 AAA 2,774,222
Series A, Zero Coupon, 7/1/07 (d) . . . . . . . . . 8,570,000 AAA 3,825,562
Series A, 7%, 7/1/11 . . . . . . . . . . . . . . . . 4,725,000 AA 4,888,391
Series B, 5.5%, 7/1/06 . . . . . . . . . . . . . . . 3,415,000 AA 3,259,139
Series B, 7.25%, 7/1/09 . . . . . . . . . . . . . . 11,350,000 AA 12,363,442
Washington Public Power Supply System,
Nuclear Project #2, Revenue Refunding:
Series A, 7.25%, 7/1/06 . . . . . . . . . . . . . . 7,000,000 AA 7,646,800
Series A, 6%, 7/1/07 . . . . . . . . . . . . . . . . 7,000,000 AA 6,888,420
Series B, 5.5%, 7/1/06 . . . . . . . . . . . . . . . 4,000,000 AA 3,817,440
Series B, 7%, 7/1/12 . . . . . . . . . . . . . . . . 11,385,000 AA 11,707,196
Series C, 7.2%, 7/1/99 . . . . . . . . . . . . . . . 5,000,000 AA 5,394,500
Washington Public Power Supply System,
Nuclear Project #3, Refunding Revenue:
Series B, 7.2%, 7/1/99 . . . . . . . . . . . . . . . 1,000,000 AA 1,078,900
Series B, Prerefunded, 7.25%, 1/1/00 (e) . . . . . . 5,000,000 AA 5,560,650
Series B, Zero Coupon, 7/1/02 (d) . . . . . . . . . 11,925,000 AAA 7,593,482
Series B, 7.375%, 7/1/04 . . . . . . . . . . . . . . 750,000 AA 816,615
Series B, 5.5%, 7/1/06 . . . . . . . . . . . . . . . 10,160,000 AA 9,696,298
Series B, 5.65%, 7/1/08 . . . . . . . . . . . . . . 3,000,000 AA 2,849,700
Series C, 5%, 7/1/06 . . . . . . . . . . . . . . . . 10,000,000 AA 9,097,100
WISCONSIN Green Bay, WI, Industrial Development Revenue,
Weyerhaeuser Company Project,
Series A, 9%, 9/1/06 . . . . . . . . . . . . . . . . 1,700,000 A 1,737,791
Wisconsin Health and Educational Facilities Authority:
Lutheran Hospital, Lacrosse, L. Benevolent,
5.6%, 2/15/09 (d) . . . . . . . . . . . . . . . . . 2,000,000 AAA 1,885,520
Hospital Sisters Services Inc., Obligated Group:
5.25%, 6/1/10 (d) . . . . . . . . . . . . . . . . . 3,250,000 AAA 2,925,033
Series 1993, 5.375%, 6/1/13 (d) . . . . . . . . . . 1,500,000 AAA 1,332,615
------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(Cost $763,673,836) . . . . . . . . . . . . . . . . 773,360,882
------------
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $773,523,836) (a) . . . . . . . . . . . . . . 783,210,882
============
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------

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

(a) The cost for federal income tax purposes was $773,523,836. At
June 30, 1994, net unrealized appreciation for all securities based
on tax cost was $9,687,046. This consisted of aggregate gross
unrealized appreciation for all securities in which there was an
excess of market value over tax cost of $25,753,582 and aggregate
gross unrealized depreciation for all securities in which there was
an excess of tax cost over market value of $16,066,536.

(b) At June 30, 1994 these securities, in part, have been pledged to
cover initial margin requirements for open futures contracts.

<TABLE>
AT JUNE 30, 1994, OPEN FUTURES CONTRACTS SOLD SHORT WERE AS FOLLOWS (NOTE A):
<CAPTION>
Aggregate Market
Futures Expiration Contracts Face Value ($) Value ($)
------- ---------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Muni Bond Index Sep. 1994 50 4,555,906 4,439,063
30 Year U.S.
Treasury Bonds Sep. 1994 50 5,182,313 5,060,937
--- --------- ---------
100 9,738,219 9,500,000
=== ========= =========
Total net unrealized appreciation on open futures contracts sold short . . . . 238,219
=========

</TABLE>

(c) 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.

(d) Bond is insured by one of these companies: AMBAC, FGIC, FSA or MBIA.

(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 June 30, 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

<CAPTION>
JUNE 30, 1994 (UNAUDITED)
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $773,523,836)
(Note A) . . . . . . . . . . . . . . . . . . . . . . . $783,210,882
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 53,437
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . . . . 15,833,798
Investments sold . . . . . . . . . . . . . . . . . . . 24,389,631
Fund shares sold . . . . . . . . . . . . . . . . . . . 65,283
Daily variation margin on open futures contracts
(Note A) . . . . . . . . . . . . . . . . . . . . . 97,108
Other assets . . . . . . . . . . . . . . . . . . . . . . 10,366
------------
Total assets . . . . . . . . . . . . . . . . . . . 823,660,505

LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . $17,720,996
Dividends . . . . . . . . . . . . . . . . . . . . . . 1,814,648
Fund shares redeemed . . . . . . . . . . . . . . . . . 2,319,705
Accrued management fee (Note C) . . . . . . . . . . . 346,745
Other accrued expenses and payables (Note C) . . . . . 91,129
-----------
Total liabilities . . . . . . . . . . . . . . . . . 22,293,223
------------
Net assets, at market value . . . . . . . . . . . . . . . $801,367,282
============

NET ASSETS
Net assets consist of:
Unrealized appreciation on:
Investments . . . . . . . . . . . . . . . . . . . . $ 9,687,046
Futures . . . . . . . . . . . . . . . . . . . . . . 238,219
Accumulated distributions in excess
of net realized capital gains . . . . . . . . . . . (4,260,874)
Shares of beneficial interest . . . . . . . . . . . . 959,316
Additional paid-in capital . . . . . . . . . . . . . . 794,743,575
------------
Net assets, at market value . . . . . . . . . . . . . . . $801,367,282
============

NET ASSET VALUE, offering and redemption price per share
($801,367,282 -:- 95,931,602 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) . . . . . . . . . . . . . . . . $8.35
=====
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 24,996,834

Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . $ 2,161,413
Services to shareholders (Note C) . . . . . . . . . . . . 256,462
Trustees' fees (Note C) . . . . . . . . . . . . . . . . . 26,724
Custodian fees . . . . . . . . . . . . . . . . . . . . . 95,636
Reports to shareholders . . . . . . . . . . . . . . . . . 31,772
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . 11,180
Auditing . . . . . . . . . . . . . . . . . . . . . . . . 23,468
State registration . . . . . . . . . . . . . . . . . . . 17,642
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 34,800 2,659,097
----------- ------------
Net investment income . . . . . . . . . . . . . . . . . . 22,337,737
------------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS
Net realized gain from:
Investments . . . . . . . . . . . . . . . . . . . . . 54,465
Futures . . . . . . . . . . . . . . . . . . . . . . . 861,074 915,539
-----------
Net unrealized appreciation (depreciation) during
the period on:
Investments . . . . . . . . . . . . . . . . . . . . . (71,513,331)
Futures . . . . . . . . . . . . . . . . . . . . . . . 186,344 (71,326,987)
----------- ------------
Net loss on investment transactions . . . . . . . . . . . (70,411,448)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $(48,073,711)
============
</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>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1994 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . $ 22,337,737 $ 46,552,598
Net realized gain from investment
transactions . . . . . . . . . . . . . . . . 915,539 27,884,563
Net unrealized appreciation (depreciation)
on investment transactions
during the period . . . . . . . . . . . . . (71,326,987) 35,631,436
------------ ------------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . (48,073,711) 110,068,597
------------ ------------
Distributions to shareholders from:
Net investment income ($.23 and $.47 per
share, respectively) . . . . . . . . . . . . (22,337,737) (46,552,598)
------------ ------------
Net realized gains from investment
transactions ($.02 and $.29 per share,
respectively) . . . . . . . . . . . . . . . (1,966,549) (27,858,435)
------------ ------------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . 80,834,391 162,473,484
Net asset value of shares issued to
shareholders in reinvestment
of distributions . . . . . . . . . . . . . . 14,493,259 45,760,164
Cost of shares redeemed . . . . . . . . . . . . (131,677,331) (163,363,165)
------------ ------------
Net increase (decrease) in net assets from
Fund share transactions . . . . . . . . . . (36,349,681) 44,870,483
------------ ------------

INCREASE (DECREASE) IN NET ASSETS . . . . . . . (108,727,678) 80,528,047
Net assets at beginning of period . . . . . . . 910,094,960 829,566,913
------------ ------------

NET ASSETS AT END OF PERIOD . . . . . . . . . . $801,367,282 $910,094,960
============ ============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . . . . 100,151,558 95,109,417
------------ ------------
Shares sold . . . . . . . . . . . . . . . . . . . . 9,635,979 17,920,103
Shares issued to shareholders in
reinvestment of distributions . . . . . . . . . 1,472,124 5,077,030
Shares redeemed . . . . . . . . . . . . . . . . . . (15,328,059) (17,954,992)
------------ ------------
Net increase (decrease) in Fund shares . . . . . . (4,219,956) 5,042,141
------------ ------------
Shares outstanding at end of period . . . . . . . . 95,931,602 100,151,558
============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.

SIX MONTHS
JUNE 30 YEARS ENDED DECEMBER 31,
1994 ---------------------------------------------------------------------------------------
(UNAUDITED) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
----------- ---------------------------------------------------------------------------------------
<S> <C> <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 $ 7.67
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:

Net investment
income . . . . . . . . . .23 .47 .51 .53 .55 .59 .60 .61 .61 .59 .70

Net realized and
unrealized gain
(loss) on
investments . . . . . . (.72) .66 .25 .47 -- .33 .38 (.58) .77 .71 .02
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations . . . . . . . (.49) 1.13 .76 1.00 .55 .92 .98 .03 1.38 1.30 .72
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment
income . . . . . . . . . (.23) (.47) (.51) (.53) (.55) (.59) (.60) (.61) (.61) (.59) (.70)

From net realized
gains on investment
transactions . . . . . . (.02) (.29) (.33) (.12) (.09) (.39) (.02) (.11) (.24) -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions . . . (.25) (.76) (.84) (.65) (.64) (.98) (.62) (.72) (.85) (.59) (.70)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period . . . . . $ 8.35 $ 9.09 $ 8.72 $ 8.80 $ 8.45 $ 8.54 $ 8.60 $ 8.24 $ 8.93 $ 8.40 $ 7.69
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL RETURN (%) . . . . . (5.46)** 13.32 8.98 12.23 6.77 11.19 12.27 .34 16.84 17.37 10.17

RATIOS AND
SUPPLEMENTAL DATA

Net assets, end of
period ($ millions) . . . 801 910 830 796 719 691 635 592 663 574 545

Ratio of operating
expenses to average
daily net assets (%) . . .63* .63 .63 .64 .61 .62 .61 .63 .58 .58 .61

Ratio of net investment
income to average
daily net assets (%) . . 5.29* 5.21 5.76 6.16 6.61 6.78 7.13 7.20 6.88 7.27 9.52

Portfolio turnover
rate (%) . . . . . . . . 33.9* 52.8 59.6 32.4 72.1 89.8 75.5 73.5 78.0 98.2 120.0
<FN>
* Annualized
** Not Annualized
</FN>
</TABLE>

<PAGE>
SCUDDER MANAGED MUNICIPAL BONDS
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------

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.

<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

AMORTIZATION AND ACCRETION. All premiums and original issue discounts are
amortized/accreted for both tax and financial reporting purposes.

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.

OTHER. Investment transactions are accounted for on a trade date basis.
Interest income is accrued pro rata to the earlier of call or maturity.

<PAGE>
SCUDDER MANAGED MUNICIPAL BONDS
- --------------------------------------------------------------------------------

B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
During the six months ended June 30, 1994, purchases and sales
of municipal securities (excluding short-term investments)
aggregated $138,071,305 and $167,453,021, respectively.

The aggregate face value of futures contracts opened and closed
during the six months ended June 30, 1994 was $68,109,083 and
$71,794,615, 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 six months ended June 30, 1994, the fee
pursuant to the agreement amounted to $2,161,413, 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 six months
ended June 30, 1994, the amount charged to the Fund by SSC
aggregated $202,768, of which $32,826 is unpaid at
June 30, 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 six months ended
June 30, 1994, Trustees' fees aggregated $26,724.
<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

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 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

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 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 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

Semiannual Report
June 30, 1994

* Offers convenient access to high tax-free yields, while 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 Officers and Trustees
26 Investment Products and Services
27 How to Contact Scudder

HIGHLIGHTS

* Tax-free bonds declined in price across the board as interest rates
rose persistently during the period. Reflecting this new environment,
Scudder High Yield Tax Free Fund's 30-day net annualized yield
increased from 5.06% on December 31, 1993, to a 5.97% federally
tax-free 30-day yield as of June 30, 1994.

* Following six consecutive years of positive performance, the total
return of the Fund for the first six months of 1994 was -5.59%,
reflecting the uncertain market environment. This compares with the -
4.13% six-month average total return of the 34 high yield municipal
bond funds tracked by Lipper.

* Over longer time periods, the Fund's total return was above its peer
group average for the two-, three-, four-, and five-year periods
through June 30, 1994, according to Lipper.

* For investors in the top federal tax bracket of 39.6%, the Fund's
tax-free yield was equivalent to a 9.88% taxable yield. For investors
in the 36% bracket, the Fund's yield was equivalent to a taxable yield
of 9.33%.

(BAR CHART TITLE) The Fund's Yield and Taxable Equivalent Yields as of
June 30, 1994
(CHART DATA)
Tax-Free Yield Taxable-Equivalent Taxable-Equivalent
-------------- Yield at 36% Tax Yield at 39.6% Tax
Bracket Bracket
------- -------
5.97% 9.33% 9.88%

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

Please call Scudder Investor Information at 1-800-225-2470 if you have
questions about your Fund or your investments. Page 27 provides more
information on how to contact Scudder. Thank you for choosing Scudder High
Yield Tax Free Fund to help meet your investment 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 June 30, 1994

<TABLE>
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Scudder High Yield Tax Free Fund
- --------------------------------
<CAPTION>
Total Return
Period Growth ------------
Ended of Average
6/30/94 $10,000 Cumulative Annual
- -------- ------- ---------- -------
<S> <C> <C> <C>
1 Year $ 9,934 -.66% -.66%
5 Year $14,764 47.64% 8.10%
Life of
Fund* $16,904 69.04% 7.33%
</TABLE>

<TABLE>
Lehman Brothers Municipal Bond Index
- ------------------------------------
<CAPTION>
Total Return
Period Growth ------------
Ended of Average
6/30/94 $10,000 Cumulative Annual
- -------- ------- ---------- -------
<S> <C> <C> <C>
1 Year $10,020 .20% .20%
5 Year $14,599 45.99% 7.86%
Life of
Fund* $16,897 68.97% 7.33%
</TABLE>
* The Fund commenced operations on January 22, 1987. Index comparisons begin
January 31, 1987.

<TABLE>
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 June 30

Scudder High Yield Tax Free Fund
<CAPTION>
- ---------------------
Year Amount
- ---------------------
<S> <C>
1/31/87 $10,000
87 9,363
88 10,030
89 11,450
90 12,060
91 13,179
92 14,998
93 17,016
94 16,904
</TABLE>

<TABLE>
Lehman Brothers Municipal Bond Index
<CAPTION>
Year Amount
- ---------------------
<S> <C>
1/31/87 $10,000
87 9,673
88 10,390
89 11,574
90 12,362
91 13,476
92 15,063
93 16,864
94 16,879
</TABLE>

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.

<TABLE>

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.

- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- --------------------------------------------------------------------------------
Yearly periods ended June 30
Description of bar graph:
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value . . . $10.90 $10.77 $11.45 $11.18 $11.35 $11.92 $12.51 $11.52
Income Dividends. . . $ .34 $ .86 $ .79 $ .76 $ .77 $ .74 $ .70 $ .66
Capital Gains
Distributions. . . . $ -- $ -- $ -- $ .11 $ .06 $ .19 $ .25 $ .26
Fund Total Return (%) -6.37 7.13 14.15 5.33 9.28 13.80 13.46 -.66
Index Total Return (%) -3.27 7.41 11.40 6.81 9.01 11.78 11.96 .20
</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 that 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.

<PAGE>
PORTFOLIO SUMMARY as of June 30, 1994

- --------------------------------------------------------------------------------
DIVERSIFICATION
- --------------------------------------------------------------------------------

/ / Hospital/Health 24% As of June 30, the Fund held
/ / Port/Airport Revenue 13% securities issued in 24 states,
/ / Electric Utility Revenue 11% plus the District of Columbia
/ / General Obligation 10% and the Virgin Islands. We
/ / Toll Revenue 9% also spread Fund assets among
/ / Pollution Control Revenue 6% general obligation bonds and
/ / Lease Rentals 5% many different types of
/ / Housing Finance Authority 5% revenue bonds.
/ / Escrow & Collateral 3%
/ / Other 14%
----
100%
====
A graph in the form of a pie chart appears here, illustrating the exact data
points found in the above table.
- --------------------------------------------------------------------------------
ASSET QUALITY
- --------------------------------------------------------------------------------

/ / AAA 16% Despite the Fund's focus on
/ / AA 10% high yield, roughly 26% of
/ / A 16% Fund assets were invested in
/ / BBB 42% bonds rated at least AA or
/ / Below BBB 1% the equivalent.
/ / Non-rated 15%
----
100%
====
A graph in the form of a pie chart appears here, illustrating the exact data
points found in the above table.
- --------------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------------

/ / Less than 1 year 3% Bonds in the intermediate- to
/ / 1 - 5 years 3% longer-maturity range offer
/ / 5 - 10 years 17% good value, providing most of
/ / 10 - 20 years 58% the yield of bonds with the
/ / Greater than 20 years 19% longest maturities, with less
---- price volatility.
100%
====

Weighted average effective maturity: 15 years
A graph in the form of a pie chart appears here, illustrating the exact data
points found in the above table.

<PAGE>

PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

During the six months ended June 30, 1994, a period marked by
persistently rising interest rates across the board, shareholders in
Scudder High Yield Tax Free Fund received a total of $0.33 per share in
tax-free income dividends. At the end of the period, the Fund provided a
30-day net annualized yield of 5.97%, higher than its yield of 5.06% at
year end, reflecting the changed interest rate environment. For
shareholders subject to the 39.6% maximum federal income tax rate, the
Fund's tax-free yield was equivalent to a 9.88% taxable yield. For
investors in the 36% federal income tax bracket, this was the equivalent of
a 9.33% taxable yield, higher than yields provided by comparable taxable
investments on an after-tax basis.

Reflecting the price weakness in the municipal bond market, the Fund's
net asset value declined from $12.55 per share on December 31, 1993, to
$11.52 as of June 30, 1994. At the close of the six-month period, the
Fund's price change and income distributions combined for a total return of
- -5.59%. The total return of the unmanaged Lehman Brothers Municipal Bond
Index was -4.42% for the six-month period.

<TABLE>
Scudder High Yield Tax Free Fund's Average Annual Return Versus Lipper
Average of All High Yield Tax-Free Funds
(Returns for periods ended June 30, 1994)
<CAPTION>
Scudder High
Yield Tax Free Lipper Average Number of
Period Fund Return Annual Return Funds Tracked
------ ----------- ------------- -------------
<S> <C> <C> <C>
1 year -0.66% 0.41% 29
2 years 6.16 5.52 25
3 years 8.65 7.57 23
4 years 8.81 7.54 23
5 years 8.10 7.10 22
Source: Lipper Analytical Services, Inc. (Lipper is an independent firm
that tracks performance of mutual funds.) Performance is historical and is
not indicative of future results.
</TABLE>

Interest Rates: A Departure From 1993

In contrast to 1993, when interest rates dropped substantially, the
first six months of 1994 brought higher interest rates, increased
volatility, and generally lower bond prices to the tax-exempt bond market,
as well as to fixed-income markets worldwide. Several factors contributed
to market volatility through the first six months of the Fund's fiscal
year. First and foremost were investor's worries over the possibility of an
overheating U.S. economy and its usual result, rising inflation. Although
economic reports were decidedly mixed, the market focused on those that
seemed to signal increasing inflation. On February 4, after reports of
increased U.S. economic activity during the fourth quarter of 1993 began to
filter into the markets, the Federal Reserve raised the federal funds rate
0.25%, the first such Fed action in five years. While the move was designed
to preempt even higher rates, investors' pent up inflation fears only
increased, resulting in even stronger negative market sentiment. The Fed
eventually raised short-term interest rates three more times during the
period--in March, April, and May--but these additional moves also fueled
declines in municipal bond prices across the maturity spectrum, as yields
of municipal bonds rose 80 to 100 basis points (100 basis points = one
percentage point of yield).

One bright spot for the municipal marketplace during this otherwise
difficult period was the shrinking supply of tax-exempt bonds. While the
1993 municipal market featured falling interest rates and a heavy supply of
bonds, thanks in large part to a record amount of refinancings, this year's
market has seen a significant reduction in refinancing activity due to
rising rates. New issue volume during the first six months of 1994 of only
$89 billion compares to $149 billion during the same period a year ago, a
40% decrease. Supply also declined because large numbers of outstanding
bonds matured during the period. Decreased supply helped to moderate price
declines in bonds the Fund held during the first six months of the year,
since the relatively higher demand for existing issues provided a measure
of price support.

Portfolio Strategy Review

Two factors negatively affected the Fund's relative short-term
performance during the semiannual period. First, the portfolio maintained a
slightly longer average effective maturity than many of its peers. The
longer maturity has helped the Fund's performance over the long term, but
caused its price to decline slightly more than the Lehman Index over the
six-month period (the Fund's average effective maturity was approximately
10% longer than that of the Index). Rather than trading a significant
number of bonds to reduce the portfolio's average maturity, thereby raising
transaction costs and cementing price declines, we held to our long-term
strategy. On June 30, 1994, bonds with effective maturities between five
and 20 years represented 75% of the portfolio. We believe bonds in this
intermediate- to longer-maturity range continue to offer good value,
providing most of the yield of bonds with the longest (30-year) maturities,
with less price volatility.

Second, our holdings in several Denver Airport System Revenue bonds,
which represented 9.5% of the Fund's portfolio as of June 30, 1994,
hampered performance. These bonds suffered significant but, we believe,
temporary price declines because of the continued postponement of the
opening of the new Denver airport. The delays stem from problems in
debugging the airport's innovative baggage system. We believe these bonds
should recover strongly once the airport opens.

(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - The shrinking supply of
municipal bonds helped to moderate price declines in bonds the Fund held
during the period.

To generate high income and potential price appreciation, we have
increased our holdings of select higher-yielding non-rated and
below-investment-grade securities as appropriate. Non-rated bonds and
issues rated below investment grade accounted for approximately 16% of the
Fund's portfolio as of the end of the period.

We also maintained the Fund's emphasis on non-callable bonds, which
the issuer cannot redeem before the maturity date. During this period of
rising interest rates and falling bond prices, non-callable holdings helped
to keep the Fund's overall share price volatility lower than a portfolio
made up entirely of callable bonds, while ensuring a dependable stream of
income. When yields rise and prices drop below par, the average effective
maturity of a callable bond actually increases (since the likelihood
decreases that these bonds will be called), boosting the bond's volatility.
By contrast, the average effective maturity of non-callable bonds remains
the same. We also maintained our position in several "cushion bonds"--bonds
that can be called in a relatively short time but offer income high enough
to compensate for the likelihood of their being redeemed early by the
issuer.

Diversification among municipal holdings remains an important strategy
for the Fund. As of June 30, the portfolio held securities issued in 24
states, plus the District of Columbia and the Virgin Islands. We also
spread Fund assets among general obligation bonds and many different types
of revenue bonds. Despite the Fund's focus on high yield, roughly 26% of
Fund assets were invested in bonds rated at least AA, or the equivalent,
and the Fund had an average portfolio quality of A- on June 30.

Outlook for the Balance of 1994

We expect long-term bond yields to remain higher than last year's
yields, even though we believe the inflation rate will remain in the 3 to
3.5% range. Consequently, the market may continue to exhibit more
volatility than it has in recent years, when prices benefited from
declining rates. We also expect the U.S. economy to grow at only a moderate
pace of about 3%. However, if the U.S. economy slows, we believe that
long-term interest rates could ratchet slightly lower sometime before the
end of 1994--at least temporarily. In addition, we believe the supply of
municipals will remain comparatively light, which should also help support
prices. If demand for tax-free bonds rises, the municipal market should
benefit further. As always, we remain committed to seeking 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 June 30, 1994 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2.0% SHORT-TERM MUNICIPAL INVESTMENTS (under 1 year)
------------------------------------------------------------------------------------------

OHIO Hamilton County, OH, Health Systems Revenue,
Franciscan Sisters of the Poor, Series A,
Daily Demand Note, 3.15%, 3/1/17* . . . . . . . . . . 2,900,000 MIG1 2,900,000
PENNSYLVANIA Montour County, PA, Geisinger Health Facilities
Authority, Series B, Daily Demand Note,
3.3%, 7/1/22* . . . . . . . . . . . . . . . . . . . . 2,000,000 A1+ 2,000,000
TEXAS North Central Texas, Health Facilities Development
Corp., Presbyterian Medical Center, Series D, Daily
Demand Note, 3.1%, 12/1/15(c)* . . . . . . . . . . . 1,000,000 A1+ 1,000,000
---------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $5,900,000) . . . . . . . . . . . . . . . . . . 5,900,000
---------
98.0% LONG-TERM MUNICIPAL INVESTMENTS (over 1 year)
------------------------------------------------------------------------------------------

ARIZONA Salt River Project, AZ, Agricultural Improvement &
Power District, Electric Systems, 6%, 1/1/09. . . . . 5,000,000 AA 5,014,350
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 2,646,030
Los Angeles County, CA, Certificate of Participation,
Marina Del Ray, Series A:
6.25%, 7/1/03 . . . . . . . . . . . . . . . . . . . 3,000,000 NR 2,977,590
6.5%, 7/1/08 . . . . . . . . . . . . . . . . . . . . 4,000,000 NR 3,910,280
San Joaquin Hills, CA, Transportation Corridor Agency,
Orange County, Senior Lien Toll Road Revenue:
Zero Coupon to 1/1/02, 7.60% to 1/1/11 . . . . . . . 10,000,000 BBB 5,798,600
Zero Coupon to 1/1/02, 7.65% to 1/1/12 . . . . . . . 15,000,000 BBB 8,670,750
Zero Coupon to 1/1/02, 7.65% to 1/1/13 . . . . . . . 4,000,000 BBB 2,313,320
San Jose, CA, Redevelopment Authority,
Tax Allocation, 6%, 8/1/08(c) . . . . . . . . . . . . 3,000,000 AAA 3,008,280
COLORADO Colorado Health Facilities Authority Revenue, Rocky
Mountain Adventist Healthcare Project, Series 1993,
6.625%, 2/1/13 . . . . . . . . . . . . . . . . . . . 3,500,000 BBB 3,320,940
Denver, CO, Airport System Revenue:
Series A, Zero Coupon, 11/15/00 . . . . . . . . . . . 1,140,000 BBB 732,667
Series A, Zero Coupon, 11/15/01 . . . . . . . . . . . 5,120,000 BBB 3,048,499
Series A, Zero Coupon, 11/15/03 . . . . . . . . . . . 3,050,000 BBB 1,563,735
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A, Zero Coupon, 11/15/04 . . . . . . . . . . . 3,130,000 BBB 1,486,969
Series A, Zero Coupon, 11/15/05 . . . . . . . . . . . 1,855,000 BBB 815,792
6.75%, 11/15/13 . . . . . . . . . . . . . . . . . . . 8,650,000 BBB 7,740,885
1991 Series D, 7.75%, 11/15/13 (e) . . . . . . . . . 8,275,000 BBB 8,323,409
Series B, 7.25%, 11/15/23 . . . . . . . . . . . . . . 1,400,000 BBB 1,290,506
1992 Series C, 6.125%, 11/15/25 . . . . . . . . . . . 3,000,000 BBB 2,402,160
DISTRICT OF COLUMBIA District of Columbia, Hospital Refunding Revenue:
Metlantic Washington Hospital Center,
1992 Series A, 7.125%, 8/15/19 . . . . . . . . . . . 1,000,000 BBB 1,016,800
Medlantic Healthcare, 1993 Series A, 5.5%,
8/15/06(c) . . . . . . . . . . . . . . . . . . . . . 1,305,000 AAA 1,283,376
District of Columbia, Certificate of Participation,
Series 1993, 7.3%, 1/1/13 . . . . . . . . . . . . . . 4,500,000 BBB 4,622,715
District of Columbia, General Obligation:
Series A, 5.875%, 6/1/05 . . . . . . . . . . . . . . 4,300,000 A 4,240,230
Series A3, 5.6%, 6/1/07 . . . . . . . . . . . . . . . 3,300,000 A 3,081,045
FLORIDA Broward County, FL, Housing Finance Authority,
Single Family Mortgage Revenue, Zero Coupon,
4/1/14 . . . . . . . . . . . . . . . . . . . . . . . 7,695,000 BBB 1,045,443
ILLINOIS Chicago, IL, General Obligation Lease, Board of
Education, Series A, 6%, 1/1/16(c) . . . . . . . . . 5,000,000 AAA 4,813,200
Illinois Development Finance Authority:
Commonwealth Edison, 5.7%, 1/15/09 . . . . . . . . . 3,000,000 BBB 2,789,640
Solid Waste Revenue, Ford Heights Waste Tire
Project, 7.875%, 4/1/11 . . . . . . . . . . . . . . 3,000,000 NR 3,005,070
Illinois Health Facilities Authority Revenue:
Grant Hospital, 7.5%, 12/1/96*** . . . . . . . . . . 1,450,000 BB 1,568,697
Franciscan Sisters Health Care, Refunding,
Series C, 6%, 9/1/09(c) . . . . . . . . . . . . . . 4,475,000 AAA 4,404,608
Edward Hospital, Series A, 5.75%, 2/15/09 . . . . . . 1,000,000 A 931,580
Metropolitan Pier & Exposition Authority, IL,
McCormick Place Expansion Project, Series A,
6.5%, 6/15/22 . . . . . . . . . . . . . . . . . . . . 3,115,000 A 3,079,240
Winnebago County, IL, School District #122,
6.45%, 6/1/08(c) . . . . . . . . . . . . . . . . . . 1,500,000 AAA 1,561,530
INDIANA Fishers, IN, Economic Development Revenue,
First Mortgage/United Student Aid Inc. Project,
Series 1989, 8.25%, 9/1/09 . . . . . . . . . . . . . 2,000,000 NR 2,091,700
Indiana Health Facilities Finance Authority, Hospital
Refunding Revenue, Floyd Memorial Hospital,
6.625%, 2/15/13 . . . . . . . . . . . . . . . . . . . 3,000,000 A 2,972,790
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER HIGH YIELD TAX FREE FUND
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Indiana Municipal Power Agency, Power Supply
System Refunding Revenue, 1983 Series B,
5.875%, 1/1/09(c) . . . . . . . . . . . . . . . . . . 2,300,000 AAA 2,263,637
Indianapolis, IN, Airport Facilities Refunding Revenue,
Federal Express Corporation Project,
6.85%, 4/1/17(b) . . . . . . . . . . . . . . . . . . 5,000,000 BBB 4,995,650
Indianapolis, IN, Economic Development, Refunding
and Improvement Revenue, Robin Run Village
Project, Series 1992, 7.625%, 10/1/22 . . . . . . . . 1,500,000 BBB 1,568,640
LOUISIANA Bastrop, LA, Industrial Development Board, Pollution
Control Revenue, International Paper Co. Project,
6.9%, 3/1/07 . . . . . . . . . . . . . . . . . . . . 7,000,000 A 7,493,360
MARYLAND Northeast Maryland, Waste Disposal Authority,
Southwest Resource Recovery System:
7.15%, 1/1/04(c) . . . . . . . . . . . . . . . . . . 2,400,000 AAA 2,658,168
7.2%, 1/1/05(c) . . . . . . . . . . . . . . . . . . 1,000,000 AAA 1,108,130
Prince George's County, MD, Greater Southeast
Healthcare, 6.2%, 1/1/08 . . . . . . . . . . . . . . 1,000,000 BBB 977,680
MASSACHUSETTS Lowell, MA, General Obligation:
8.3%, 2/15/01*** . . . . . . . . . . . . . . . . . . 1,000,000 BBB 1,178,230
8.3%, 2/15/01 . . . . . . . . . . . . . . . . . . . . 365,000 BBB 408,245
Massachusetts Bay Transportation Authority, General
Transportation System, Series A, 5.4%, 3/1/07 . . . . 4,000,000 A 3,792,160
Massachusetts Health & Educational Facilities
Authority:
Falmouth Hospital, 5.5%, 7/1/08(c) . . . . . . . . . 1,000,000 AAA 955,800
Cooley Dickson Hospital Inc., 7.125%, 11/15/18 . . . 2,000,000 BBB 2,042,980
Massachusetts Housing Finance Agency, Multi-Family
Housing Project Revenue:
1988 Series A, 8.8%, 8/1/21 . . . . . . . . . . . . 665,000 A 695,171
1993 Series A, 6.375%, 4/1/21 . . . . . . . . . . . 4,000,000 A 3,867,600
Massachusetts Industrial Finance Agency, Cape Cod
Health Systems, Series 1990, 8.5%, 11/15/00*** . . . 2,000,000 AAA 2,382,880
Massachusetts Industrial Finance Authority, Resource
Recovery, North Andover Solid Waste, Series A,
6.3%, 7/1/05 . . . . . . . . . . . . . . . . . . . . 2,750,000 BBB 2,737,048
Massachusetts Municipal Wholesale Electric
Company, Power Supply System Revenue, Series A,
5.1%, 7/1/07(c) . . . . . . . . . . . . . . . . . . . 4,685,000 AAA 4,296,098
MICHIGAN Detroit, MI, Unlimited Tax, General Obligation,
Distributable State Aid, Refunding,
5.25%, 5/1/09(c) . . . . . . . . . . . . . . . . . . 2,450,000 AAA 2,259,611
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michigan Hospital Finance Authority Revenue, Gratiot
Community Hospital, 1988 Series A, 8.75%,
10/1/07 . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 B 2,034,800
Michigan Strategic Fund, Limited Obligation, Revenue
Refunding, Ford Motor Company Project, Series A,
7.1%, 2/1/06 . . . . . . . . . . . . . . . . . . . . 1,000,000 A 1,083,000
MINNESOTA St. Paul, MN, Housing & Redevelopment Authority,
Healtheast Hospital Project, 1993 Series A,
6.625%, 11/1/17 . . . . . . . . . . . . . . . . . . . 3,500,000 BBB 3,258,780
NEVADA Las Vegas, NV, Downtown Redevelopment Agency,
Tax Increment Revenue, Subordinate Lien,
6.1%, 6/15/14 . . . . . . . . . . . . . . . . . . . . 1,500,000 BBB 1,393,875
NEW HAMPSHIRE New Hampshire Higher Education & Health Facilities
Authority:
Catholic Charity, 8.4%, 8/1/11 . . . . . . . . . . . 600,000 BBB 654,468
Frisbie Memorial Hospital, Series 1993,
6.125%, 10/1/13 . . . . . . . . . . . . . . . . . 2,750,000 BBB 2,502,638
Exeter Hospital, Series 1993, 6%, 10/1/13 . . . . . 2,000,000 A 1,859,720
St. Joseph's Hospital, 7.5%, 1/1/16 . . . . . . . . 2,600,000 BBB 2,667,158
St. Joseph's Hospital, 7.5%, 1/1/07 . . . . . . . . 1,490,000 BBB 1,538,082
Monadnok Community Hospital, Series 1990,
9.125%, 10/1/20 . . . . . . . . . . . . . . . . . 1,485,000 NR 1,726,892
New Hampshire Industrial Development Authority,
Pollution Control Revenue, United Illuminating,
10.75%, 10/1/12 . . . . . . . . . . . . . . . . . . . 1,000,000 BBB 1,158,500
NEW JERSEY New Jersey Turnpike Authority, Series C:
6.5%, 1/1/08 . . . . . . . . . . . . . . . . . . . . 1,000,000 A 1,048,650
6.5%, 1/1/16 . . . . . . . . . . . . . . . . . . . . 5,000,000 A 5,213,200
NEW YORK Metropolitan Transportation Authority of New York,
7%, 7/1/09 . . . . . . . . . . . . . . . . . . . . . 1,000,000 BBB 1,053,150
OHIO Gateway Economic Development Corporation of
Cleveland, Ohio, Stadium Revenue, 6.5%, 9/15/14 . . . 4,000,000 NR 3,780,720
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 5,470,245
PENNSYLVANIA Clearfield, PA, Hospital Authority Revenue, Clearfield
Hospital, 6.875%, 6/1/16 . . . . . . . . . . . . . . 4,480,000 NR 4,237,990
Delaware County, PA, Health Facilities Revenue,
Mercy Health Corporation of Southeastern
Pennsylvania, Series B, 6%, 11/15/07 . . . . . . . . 3,300,000 BBB 3,064,677
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER HIGH YIELD TAX FREE FUND
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Montgomery County, PA, Redevelopment Authority,
Multi-Family Housing Revenue Refunding, 6.375%,
7/1/12 . . . . . . . . . . . . . . . . . . . . . . . 5,500,000 BBB 5,010,005
Pennsylvania Higher Education Authority, Medical
College of Pennsylvania, Series B, 7.25%, 3/1/05 . . 1,000,000 BBB 1,053,710
Philadelphia, PA, Hospital & Higher Educational
Facilities Authority, Hospital Revenue:
Albert Einstein Medical Center, 7.625%, 4/1/11 . . . 2,500,000 A 2,652,050
Graduate Health System, 6.25%, 7/1/13 . . . . . . . 5,000,000 BBB 4,638,800
Shenango Valley, PA, Osteopathic Hospital Authority,
Shenango Valley Medical Center, 7.875%, 4/1/10 . . . 1,350,000 BBB 1,443,920
SOUTH CAROLINA South Carolina Jobs Economic Development
Authority, Hospital Revenue, South Carolina
Baptist Hospital, Inverse Floater, 7.48%, 8/1/09(c)** 4,000,000 AAA 3,375,000
York County, SC, Public Facilities Corp., Certificate
of Participation, Series 1991, 7.5%, 6/1/01*** . . . 750,000 AAA 854,468
SOUTH DAKOTA South Dakota Health & Educational Facilities Authority
Revenue, Prairie Lakes Health Care System:
7.125%, 4/1/10 . . . . . . . . . . . . . . . . . . . 1,000,000 BBB 1,006,920
7.25%, 4/1/22 . . . . . . . . . . . . . . . . . . . 1,000,000 BBB 1,008,730
South Dakota Housing Development Authority, Home
Ownership Mortgage, Series A, 6.4%, 5/1/12 . . . . . 3,500,000 AA 3,462,900
TEXAS Austin, TX, Convention Center Revenue,
1989 Series B, 8.25%, 11/15/99*** . . . . . . . . . . 3,050,000 NR 3,495,148
Brazos River Authority, TX, Pollution Control Revenue,
Texas Utilities Electric Co., 9.25%, 3/1/18 . . . . . 1,000,000 BBB 1,120,160
Dallas-Fort Worth, TX, International Airport,
American Airlines:
7.5%, 11/1/25 . . . . . . . . . . . . . . . . . . . 3,910,000 BBB 3,835,436
7.25%, 11/1/30 . . . . . . . . . . . . . . . . . . . 5,000,000 BBB 4,778,350
Dallas-Fort Worth, TX, Airport Revenue,
Series A, 7.375%, 11/1/10(c) . . . . . . . . . . . . 2,500,000 AAA 2,812,125
Midland County, TX, Hospital District, Midland
Memorial Hospital, 7.5%, 6/1/16 . . . . . . . . . . . 1,500,000 BBB 1,557,195
Retama Development Corporation, Special Facilities
Revenue, Retama Racetrack Project, Series 1993,
8.75%, 12/15/18 . . . . . . . . . . . . . . . . . . . 5,000,000 NR 4,980,000
Rio Grande Valley, TX, Health Facilities Development
Corp., Retirement Facility Revenue, 6.2%,
8/1/06(c) . . . . . . . . . . . . . . . . . . . . . . 1,600,000 AAA 1,642,080
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTAH Salt Lake City, UT, Hospital Revenue, Intermountain
Healthcare Systems, 6.65%, 2/15/12 . . . . . . . . . 2,000,000 AA 1,959,740
VERMONT Swanton, VT, Electric System Revenue, Series 1993,
6.7%, 12/1/23 . . . . . . . . . . . . . . . . . . . . 1,155,000 BBB 1,100,911
Vermont Housing Finance Agency, Multi-Family
Housing Revenue, Northgate Housing Project,
8.25%, 6/15/20 . . . . . . . . . . . . . . . . . . . 1,080,000 NR 1,103,404
VIRGIN ISLANDS Virgin Islands Public Finance Authority, General
Obligation, Matching Fund Loan Note, Series A,
7.25%, 10/1/18 . . . . . . . . . . . . . . . . . . . 6,500,000 NR 6,854,705
VIRGINIA Pittsylvania County, VA, Industrial Development
Authority, Multitrade of Pittsylvania County,
L.P. Project:
7.45%, 1/1/09 . . . . . . . . . . . . . . . . . . . 1,500,000 NR 1,492,095
7.5%, 1/1/14 . . . . . . . . . . . . . . . . . . . . 3,500,000 NR 3,478,685
WASHINGTON King County, WA, Public Hospital District, Hospital
Revenue, Valley Medical Center, 6.25%, 9/1/09(c) . . 530,000 AAA 537,208
Washington Public Power Supply System,
Refunding Revenue:
Nuclear Project #1, Series B, 5.5%, 7/1/06 . . . . . 2,000,000 AA 1,908,720
Nuclear Project #2, Series B, 5.65%, 7/1/08. . . . . 3,030,000 AA 2,878,197
Nuclear Project #2, Series B, 7%, 7/1/12 . . . . . . 1,500,000 AA 1,542,450
Nuclear Project #2, Inverse Floater,
7.77%, 7/1/12** . . . . . . . . . . . . . . . . . 3,000,000 AA 2,302,500
Nuclear Project #3, 1993 Series C, 5.1%, 7/1/07 . . 5,500,000 AA 4,965,235
Nuclear Project #3, Series B, 5.65%, 7/1/08. . . . . 3,640,000 AA 3,457,634
Nuclear Project #3, 1989 Series B, 7.125%,
7/1/16 . . . . . . . . . . . . . . . . . . . . . . 2,500,000 AA 2,731,100
-----------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(Cost $282,668,028) . . . . . . . . . . . . . . . . . 282,039,640
-----------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $288,568,028) (a) . . . . . . . . . . . . . . . 287,939,640
===========
</TABLE>
(a) The cost for federal income tax purposes was $288,611,778. At
June 30, 1994, net unrealized depreciation for all securities was
$672,138. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market
value over tax cost of $7,298,891 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over market value of $7,971,029.

(b) When-issued or forward delivery securities (See Note A in
Notes to Financial Statements).

(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 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.

The accompanying notes are an integral part of the financial statements.

<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
- -------------------------------------------------------------------------------

(e) At June 30, 1994, this security, in part, 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.

** 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 June 30, 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

JUNE 30, 1994 (UNAUDITED)
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $288,568,028)
(Note A) . . . . . . . . . . . . . . . . . . . . . . . $287,939,640
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 79,516
Receivables:
Investments sold . . . . . . . . . . . . . . . . . . . 26,890,312
Interest . . . . . . . . . . . . . . . . . . . . . . . 5,149,290
Fund shares sold . . . . . . . . . . . . . . . . . . . 53,644
------------
Total assets . . . . . . . . . . . . . . . . . . . 320,112,402
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . $14,464,816
When-issued and forward delivery securities (Note A) . 5,000,000
Dividends . . . . . . . . . . . . . . . . . . . . . . 457,274
Fund shares redeemed . . . . . . . . . . . . . . . . . 127,411
Accrued management fee (Note C) . . . . . . . . . . . 130,395
Other accrued expenses (Note C) . . . . . . . . . . . 98,422
-----------
Total liabilities . . . . . . . . . . . . . . . . . 20,278,318
------------
Net assets, at market value . . . . . . . . . . . . . . . $299,834,084
============
NET ASSETS
Net assets consist of:
Unrealized depreciation on investments . . . . . . . . $ (628,388)
Accumulated distributions in excess
of net realized gain . . . . . . . . . . . . . . . (1,805,751)
Shares of beneficial interest . . . . . . . . . . . . 260,376
Additional paid-in capital . . . . . . . . . . . . . . 302,007,847
------------
Net assets, at market value . . . . . . . . . . . . . . . $299,834,084
============
NET ASSET VALUE, offering and redemption price per share
($299,834,084 / 26,037,637 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) . . . . . . . . . . . . . . . . $11.52
======
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
SCUDDER HIGH YIELD TAX FREE FUND
- ------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED)
- ------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 9,817,607
Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . $ 770,022
Services to shareholders (Note C) . . . . . . . . . . . . 267,294
Trustees' fees (Note C) . . . . . . . . . . . . . . . . . 28,367
Custodian fees . . . . . . . . . . . . . . . . . . . . . 55,606
Reports to shareholders . . . . . . . . . . . . . . . . . 30,931
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . 4,654
Auditing . . . . . . . . . . . . . . . . . . . . . . . . 18,422
State registration . . . . . . . . . . . . . . . . . . . 29,721
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 17,817 1,222,834
----------- ------------
Net investment income . . . . . . . . . . . . . . . . . . 8,594,773
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on:
Investments . . . . . . . . . . . . . . . . . . . . . 67,500
Futures contracts . . . . . . . . . . . . . . . . . . 18,394 85,894
-----------
Net unrealized depreciation during the period on:
Investments . . . . . . . . . . . . . . . . . . . . . (26,822,298)
Futures contracts . . . . . . . . . . . . . . . . . . (8,338) (26,830,636)
----------- ------------
Net loss on investments . . . . . . . . . . . . . . . . . (26,744,742)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $(18,149,969)
============
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED
1994 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1993
- ------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . $ 8,594,773 $ 14,828,169
Net realized gain from investment
transactions . . . . . . . . . . . . . . . . . . 85,894 4,969,517
Net unrealized appreciation (depreciation)
on investments during the period . . . . . . . . (26,830,636) 14,696,169
------------ ------------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . . . (18,149,969) 34,493,855
------------ ------------
Distributions to shareholders:
From net investment income ($.33 and $.67
per share) . . . . . . . . . . . . . . . . . . . (8,594,773) (14,828,169)
------------ ------------
From net realized gains from investment
transactions ($.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 . . . . . . . . . . . . . 77,707,684 166,336,215
Net asset value of shares issued to
shareholders in reinvestment of
distributions . . . . . . . . . . . . . . . . . 4,861,169 15,789,918
Cost of shares redeemed . . . . . . . . . . . . . . (73,019,903) (81,609,781)
------------ ------------
Net increase in net assets from Fund share
transactions . . . . . . . . . . . . . . . . . . 9,548,950 100,516,352
------------ ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . (17,195,792) 113,354,663
Net assets at beginning of period . . . . . . . . . 317,029,876 203,675,213
------------ ------------
NET ASSETS AT END OF PERIOD . . . . . . . . . . . . $299,834,084 $317,029,876
============ ============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . . . . 25,261,001 17,112,783
------------ ------------
Shares sold . . . . . . . . . . . . . . . . . . . . 6,443,860 13,421,387
Shares issued to shareholders in
reinvestment of distributions . . . . . . . . . 489,381 1,267,853
Shares redeemed . . . . . . . . . . . . . . . . . . (6,156,605) (6,541,022)
------------ ------------
Net increase in Fund shares . . . . . . . . . . . . 776,636 8,148,218
------------ ------------
Shares outstanding at end of period . . . . . . . . 26,037,637 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
SIX MONTHS (COMMENCEMENT
ENDED OF OPERATIONS)
JUNE 30, YEARS ENDED DECEMBER 31, TO
1994 ----------------------------------------------------- DECEMBER 31,
(UNAUDITED) 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). . . . .33 .67 .72 .76 .77 .76 .83 .78
Net realized and unrealized
gain (loss) on investments . . (1.03) .93 .50 .69 (.11) .35 .54 (1.48)
------ ------ ----- ----- ----- ----- ----- -----
Total from investment operations. (.70) 1.60 1.22 1.45 .66 1.11 1.37 (.70)
------ ------ ----- ----- ----- ----- ----- -----
Less distributions:
From net investment income . . . (.33) (.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 . . . . . . . (.33) (.95) (.99) (.97) (.82) (.82) (.83) (.78)
------ ------ ----- ----- ----- ----- ----- -----
Net asset value, end of period. . $11.52 $12.55 $11.90 $11.67 $11.19 $11.35 $11.06 $10.52
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%). . . . . . . . . (5.59)** 13.85 10.88 13.36 6.02 10.32 13.48 (5.81)**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
($ millions) . . . . . . . . . . 300 317 204 160 129 114 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 (%). 5.62* 5.38 6.10 6.65 6.88 6.72 7.65 8.45*

Portfolio turnover rate (%) . . . 28.9* 56.4 56.6 45.5 33.4 75.8 36.7 131.8*
(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 . . . . . . . . . . . . . $ .01 $ .01 $ -- $ -- $ .01 $ .01 $ .05 $ .06
Operating expense ratio,
including expenses
reimbursed, management
fee and other expenses
not imposed (%). . . . . . . .98* .98 .99 1.04 1.09 1.15 1.25 1.80*
<FN>
* Annualized
** Not annualized
</FN>
</TABLE>

<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------

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. 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

<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------

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.

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 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. 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 six months ended
June 30, 1994, were $43,934,881 and $51,629,974, respectively.

<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

The aggregate face value of futures contracts closed during the six months
ended June 30, 1994 was $1,040,213.

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.
For the six months ended June 30, 1994, the fee pursuant to the Agreement
amounted to $770,022 which was equivalent to an annual effective rate of 0.50%
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 0.80%
of average daily net assets. For the six months ended June 30, 1994, the
Adviser did not impose a portion of its management fee amounting to $281,852.

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 six months ended June 30, 1994, the amount charged to the Fund by SSC
aggregated $196,373 of which $31,790 is unpaid at June 30, 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

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 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

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. #These funds, advised by Scudder, Stevens & Clark,
Inc., are traded on the New York Stock Exchange. +++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.
++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 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