SCUDDER TAX FREE TRUST, N-30D, 1996-02-23

SCUDDER TAX FREE TRUST
N-30D, 1996-02-23

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This information must be preceded or accompanied by a current prospectus.

Portfolio changes should not be considered recommendations for action by
individual investors.

Scudder
Medium Term
Tax Free Fund

Annual Report
December 31, 1995

o A fund that seeks to provide a high level of tax-free income and limited
principal fluctuation by investing in high-grade municipal securities of
intermediate maturity.

o A pure no-load(TM) fund with no commissions to buy, sell, or exchange
shares.

<PAGE>

SCUDDER MEDIUM TERM TAX FREE FUND

CONTENTS

2 In Brief

3 Letter from the Fund's President

4 Performance Update

5 Portfolio Summary

6 Portfolio Management Discussion

10 Investment Portfolio

20 Financial Statements

23 Financial Highlights

24 Notes to Financial Statements

27 Report of Independent Accountants

28 Tax Information

29 Officers and Trustees

30 Investment Products and Services

31 How to Contact Scudder

IN BRIEF

- - Scudder Medium Term Tax Free Fund posted a strong total return of 14.32%
for the 12-month period ended December 31, 1995, as the municipal bond
market made a dramatic recovery after disappointing investors in 1994.

- - The Fund's 30-day net annualized SEC yield was 4.22% on December 31, 1995.
For investors in the top federal tax brackets of 36% and 39.6%, the Fund's
yield was equivalent to a 6.59% and 6.99% taxable yield, respectively.

BAR CHART TITLE The Tax-Free Advantage
CHART DATA
The Fund's
30-Day Net Taxable-Equivalent Taxable-Equivalent
Annualized Yield at 36% Yield at 39.6%
SEC Yield Tax Bracket Tax Bracket
--------- ----------- -----------

4.22% 6.59% 6.99%

- - The Fund placed in the top quartile of performance versus similar funds
over one-, two-, three-, four-, and five-year periods, according to Lipper
Analytical Services. Please see page 6 for additional Lipper performance
information.

2
<PAGE>

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

Scudder Medium Term Tax Free Fund's objective is to provide a
high level of tax-free income by investing in high-grade,
intermediate-term municipal bonds. The Fund's managers work to sort
through the municipal marketplace to find attractively valued
individual bonds or classes of bonds. They seek to provide investors a
higher level of income than short-term tax-free investments, and
greater price stability than investments in long-term municipal bonds.

Your Fund performed extremely well in 1995, as you'll see in
the Portfolio Management Discussion beginning on page 6. How did the
municipal market overall perform last year? Very well, considering the
continued low level of demand from individual investors for tax-free
bonds. While individual investors focused primarily on the stock
market, insurance companies and other institutional buyers purchased
short- and intermediate-term municipals. Tax-free bonds made gains in
1995, but still represent appreciable value versus U.S. Treasuries.
Consider the relative yields of AAA municipal bonds versus Treasuries
of the same maturity as of the close of 1995: 10-year municipals
yielded 4.65%, while 10-year Treasuries yielded 3.88% if taxed at the
31% rate and only 3.39% at the 39.6% level. We believe that demand for
municipals will rise as investors continue to recognize this
disparity. We also continue to believe that when budget and taxation
matters are resolved in Washington, municipal bonds will remain
attractive to investors in higher tax brackets.

If you have any questions concerning your Scudder Medium Term
Tax Free Fund investment, please call a Scudder Investor Relations
representative at 1-800-225-2470. Thank you for investing with Scudder.

Sincerely,

/s/David S. Lee

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

3
<PAGE>

SCUDDER MEDIUM TERM TAX FREE FUND
PERFORMANCE UPDATE as of December 31, 1995
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
SCUDDER MEDIUM TERM TAX FREE FUND
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,432 14.32% 14.32%
5 Year $14,950 49.50% 8.37%
10 Year* $20,166 101.66% 7.27%

LEHMAN BROTHERS MUNICIPAL BOND INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,746 17.46% 17.46%
5 Year $15,262 52.62% 8.82%
10 Year $24,202 142.02% 9.24%

A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:

YEARLY PERIODS ENDED DECEMBER 31

Scudder Medium Term Tax Free Fund
Year Amount
- ----------------------
85 $10,000
86 $11,054
87 $11,412
88 $11,973
89 $12,691
90 $13,490
91 $15,125
92 $16,476
93 $18,279
94 $17,640
95 $20,166

Lehman Brothers Municipal Bond Index
Year Amount
- ----------------------
85 $10,000
86 $11,931
87 $12,111
88 $13,342
89 $14,781
90 $15,858
91 $17,784
92 $19,352
93 $21,729
94 $20,606
95 $24,202

The unmanaged Lehman Brothers Municipal Bond Index is a market
value-weighted measure of the long-term, investment grade tax-exempt
bond market consisting of municipal bonds with a maturity of at
least two years. Generally, the Index's average effective maturity
is longer than the Fund's. 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.

YEARLY PERIODS ENDED DECEMBER 31

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
--------------------------------------------------------------------------------
NET ASSET VALUE... $10.34 $10.07 $10.02 $10.04 $10.11 $10.62 $10.86 $11.36 $10.39 $11.26
INCOME DIVIDENDS.. $ .62 $ .54 $ .54 $ .56 $ .54 $ .67 $ .65 $ .60 $ .53 $ .54
CAPITAL GAINS
DIVIDENDS......... $ .10 $ .05 $ -- $ -- $ -- $ .01 $ .03 $ .06 $ .05 $ .05
FUND TOTAL
RETURN (%)........ 10.54 3.23 4.92 6.00 6.29 12.13 8.93 10.94 -3.50 14.32
INDEX TOTAL
RETURN (%)........ 19.31 1.51 10.16 10.79 7.29 12.14 8.82 12.28 -5.17 17.46
</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 50.34% and 8.34%,
respectively.
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 temporarily capped expenses for the period
November 1, 1990 through October 31, 1995, the average annual total return
of the Fund for the one year, five year and ten year periods would have
been lower.

4
<PAGE>

PORTFOLIO SUMMARY as of December 31, 1995
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Core Cities/Lease 19%
Electric Utility
Revenue 19%
Hospital/Health 12% As of December 31, the Fund
Other General held securities in 37 states
Obligation/Lease 7% plus the District of Columbia
State General Obligation 7% and the Virgin Islands.
Toll Revenue 4%
Sales & Special Tax 4%
School District/Lease 4%
Housing Finance
Authority 4%
Other 20%
----
100%
====

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

- ---------------------------------------------------------------------------
QUALITY
- ---------------------------------------------------------------------------
AAA 58%
AA 14% Portfolio quality remains
A 16% high, with over 70% of Fund
BBB 10% assets rated AAA, AA, or the
Below BBB 1% equivalent.
NR 1%
----
100%
====
Weighed 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% Our strategy during the past
1 - 5 years 15% calendar year was to keep the
5 - 10 years 55% Fund's average effective
10 - 15 years 21% maturity on par with that of
---- our benchmark index.
100%
====
Weighted average effective maturity: 7 years

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

5
<PAGE>

SCUDDER MEDIUM TERM TAX FREE FUND
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

Municipal bonds--especially bonds with intermediate- to longer-term
maturities--performed extremely well in 1995 as inflation fears eased and
interest rates declined. Scudder Medium Term Tax Free Fund participated in the
market's price recovery, posting a total return of 14.32% for the 12-month
period ended December 31, and exceeding the 12.85% average return for similar
funds compiled by Lipper Analytical Services, Inc. The Fund's net asset value
rose 8.37% from $10.39 per share on December 31, 1994, to $11.26 on December 31,
1995. The Fund's total return also included reinvestment of income distributions
totalling $0.54 per share and a capital gain distribution of $0.05 per share.
Scudder Medium Term Tax Free Fund provided a 30-day net annualized SEC yield of
4.22% as of December 31, 1995, equivalent to a 6.59% taxable yield for investors
in the 36% federal income tax bracket.

The Fund's solid 1995 performance versus the competition is in keeping
with its longer-term record; Scudder Medium Term Tax Free Fund has outperformed
the Lipper average of similar municipal bond funds over one-, two-, three-,
four-, and five-year periods and placed in the top quartile of all such funds
over the same periods, as shown in the chart below. Please turn to the
Performance Update on page 4 for more information on the Fund's long-term
progress, including comparisons with the Lehman Brothers Municipal Bond Index.

Scudder Medium Term Tax Free Fund's Total Return
Versus the Averages of Similar Funds
(Average annual total returns for periods ended December 31, 1995)

Scudder
Medium Number of
Term Tax Lipper Quartile Funds
Period Free Fund Average Ranking Tracked
------ --------- ------- ------- -------

1 year 14.32% 12.85% 1st quartile 121
2 years 5.04 4.47 1st quartile 86
3 years 6.97 6.37 1st quartile 52
4 years 7.46 6.69 1st quartile 35
5 years 8.37 7.39 1st quartile 31
10 years* 7.27 7.60 3rd quartile 14

* 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; its objective was to provide high tax-free income and
current liquidity. Performance statistics compiled by Lipper Analytical
Services, Inc.

6
<PAGE>

A Solid Comeback in 1995

Following one of the worst years in history for fixed-income
securities, municipal bonds rallied during most of 1995, posting gains in every
month except July. Discount bonds and noncallable bonds performed best, favored
by investors because of their greater upside potential versus other bonds of
equivalent maturity.

BAR CHART AT SIDE - TITLE
Municipal Issuance: 1994-1996
(in billions)

1994 1995 1996
---- ---- ----
$163 $156 $150*

*Estimated for full year

As encouraging as the performance of tax-free bonds was, returns did
not match those of U.S. Treasuries. For example, while yields of long-term
Treasury bonds declined almost two percentage points and their prices rose
25.10% during 1995, yields of municipal bonds of similar maturity declined 1.25
percentage points, with prices rising only 10.45%. As always, supply and demand
played a significant role in municipal market returns: Demand for municipals was
held back by several factors, including the outstanding performance of the stock
market and continued reluctance to invest in bonds due to the negative impact of
1994's interest rate increases.

While weak demand for municipals has been a hindrance, the continued
limited supply of newly-issued bonds was a bright spot. New issue volume for
1995 was $156 billion, down approximately 5% from the $163 billion of new issues
sold in 1994. With refinancing activity diminished, we believe the supply of
tax-exempt bonds will remain relatively low in the near term. In fact, we expect
that in 1996, for the second year running, the net supply of municipal bonds
outstanding will actually decline as the sum of maturities and calls will amount
to approximately $190 billion.

Portfolio Review

Our strategy during the past calendar year was to keep the Fund's
average effective maturity close to even with that of our benchmark index. In
actuality, this requires us to extend the Fund's maturity slightly from time to
time, because bonds the Fund already holds gradually shorten as they approach
their maturity dates. The Fund's average effective maturity was 7.21 years as of
December 31, 1995. Our philosophy amid the current uncertainty over the course
of the U.S. economy is to buy municipal bonds based on careful credit analysis
and our estimation of a bond's relative value, rather than on the basis of
interest rate forecasts. As such, we intend to maintain a neutral maturity
stance and hope to add value through a careful structuring of the portfolio,
seeking individual bonds which are undervalued.

7
<PAGE>

Our long-term investment strategy remains the same as in the past. In
conjunction with our primary goals of maximizing the Fund's yield while
maintaining as much price stability as possible, we continue to purchase
high-grade, intermediate-maturity municipal bonds. On December 31, bonds with
effective maturities between 10 and 15 years represented approximately 21% of
the Fund's portfolio. Bonds in this maturity range continue to offer attractive
value -- providing nearly as much yield as bonds with longer maturities, but
with less price volatility.

Purchasing bonds with call protection is a fundamental part of our
portfolio management strategy. When long-term interest rates on municipal bonds
are declining, as happened in 1995, we believe it is important to protect a
significant portion of the Fund's bonds from being called in by their issuers
before maturity. (Generally, a bond is called in by its issuer so that it can be
refinanced at a lower prevailing rate.) Our call-protection strategy provides a
more reliable income stream than would exist if the portfolio held significant
amounts of bonds that could be called in before their stated maturities. As of
December 31, 83% of the Fund's portfolio was invested in noncallable bonds.

Diversification remains an important investment strategy for Scudder
Medium Term Tax Free Fund, allowing us to spread the portfolio's risk over a
large number of geographic areas, bond sectors, and maturities. The Fund held
securities issued in 37 states plus the District of Columbia and the Virgin
Islands as of the close of 1995. In addition, Fund assets were distributed among
electric utility revenue bonds, lease rental bonds, hospital/healthcare bonds,
general obligation bonds, and several other categories.

Lastly, portfolio credit quality remains high, with over 70% of Fund
assets rated AAA, AA, or the equivalent. Securities are rated by Standard &
Poor's, Moody's Investor Service, Fitch Investors Service, or assigned an
equivalent rating by Scudder. The Portfolio Summary on page 5 provides more
information about the Fund's holdings, including quality, maturity, and sector
representation.

8
<PAGE>

Outlook

Our view of the municipal bond market has not changed significantly
from six months ago. We expect the present economic environment of slow growth
and low inflation--which has been with us for some time--to continue in the near
term, with the possibility of a brief economic slowdown occurring in the second
half of 1996. We believe the municipal bond market and bonds in general would
benefit from either environment, but we expect more modest declines in interest
rates this year than last year. Though municipals staged a rally in the latter
half of 1995, municipal bond yields remain at historical highs relative to
Treasury bonds. Our ongoing strategy as portfolio managers will reflect our
commitment to seek high tax-free income and competitive total returns for our
shareholders.

Sincerely,

Your Portfolio Management Team

/s/Donald C. Carleton /s/M. Ashton Patton
Donald C. Carleton M. Ashton Patton

Scudder Medium Term
Tax Free Fund:
A Team Approach to Investing

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

Lead Portfolio Manager Donald C. Carleton has had responsibility for
Scudder Medium Term Tax Free Fund's day-to-day operations since he joined
Scudder in 1983. Don, who has worked in the investment industry for more than 25
years, also serves as Lead Portfolio Manager for Scudder Managed Municipal Bonds
and as a Portfolio Manager of Scudder California and New York Tax Free Funds and
Scudder Tax Free Money Fund. M. Ashton Patton, Portfolio Manager, became a
member of the team in 1989. Ashton, who has worked with municipal investments
since joining Scudder in 1986, focuses on the Fund's security selection.

9
<PAGE>

<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
INVESTMENT PORTFOLIO as of December 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-----------------------------------------
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------
3.1% SHORT-TERM MUNICIPAL INVESTMENTS
--------------------------------------------------------------------------------------------------
ALABAMA Birmingham, AL, Health Services, University of
Alabama Medical Clinic, Daily Demand Note, 6.1%,
12/1/26*............................................. 2,000,000 A1+ 2,000,000

CALIFORNIA California Community College Finance Authority,
Pooled Tax and Revenue Anticipation Notes,
Series B, 5%, 8/30/96................................ 2,000,000 SP1+ 2,017,400

California State Revenue Anticipation Warrants,
Series C, 5.75%, 4/25/96............................. 2,000,000 MIG1 2,012,200

Irvine Ranch Water District, CA, California Refunding,
Series B, Daily Demand Notes, 6.1%, 10/1/99*......... 200,000 A1 200,000

GEORGIA Georgia Pooled Hospitals Equipment Loan Program,
Series 1991, Daily Demand Note, 5.95%, 3/1/01*....... 300,000 A1 300,000

LOUISIANA Louisiana Recovery District, Sales Tax Revenue
Bonds, Series 1988, Daily Demand Notes,
6%, 7/1/98 (b)*...................................... 1,200,000 MIG1 1,200,000

MINNESOTA Rochester, MN, Health Care Facilities, Mayo Medical
Center, Auction Rate Securities, 4.15%, 11/15/15*.... 5,650,000 AA 5,650,000

MISSOURI Missouri Environment Improvement Energy Resource
Authority, Union Electric Project, Auction Reset
Security, 3.95%, 12/1/22*............................ 7,800,000 A 7,800,000

NEW YORK New York State Energy Research & Development
Authority, Pollution Control Revenue, Niagara
Mohawk Co., Daily Demand Note, 5.5%, 7/1/15*......... 500,000 A1+ 500,000

WASHINGTON Washington State Health Care Facilities Authority,
Fred Hutchinson Cancer Research Center, Series C,
Daily Demand Notes, 6%, 1/1/18*...................... 475,000 MIG1 475,000
------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $22,142,609)................................... 22,154,600
------------
-------------------------------------------------------------------------------------------------
96.9% LONG-TERM MUNICIPAL INVESTMENTS
-------------------------------------------------------------------------------------------------
ALABAMA University of South Alabama, Hospital and Auxiliary
Revenue, 4.875%, 5/15/04 (b)......................... 6,680,000 AAA 6,736,780

ALASKA North Slope Borough, AK, General Obligation:
Series A, Zero Coupon, 6/30/02 (b)................... 3,275,000 AAA 2,422,485
Series A, Zero Coupon, 6/30/03 (b)..................... 7,000,000 AAA 4,912,880
Series A, Zero Coupon, 6/30/06 (b)..................... 12,200,000 AAA 7,209,346
Series B, Zero Coupon, 6/30/04 (b)..................... 19,500,000 AAA 12,920,310
</TABLE>

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

10
<PAGE>

ARIZONA Arizona Health Facilities Authority, Phoenix Baptist
Hospital and Medical Center, 6.1%, 9/1/03 (b)........ 2,000,000 AAA 2,185,180
Maricopa County, AZ, School District #28, Kyrene
Elementary, Series B:
Zero Coupon, 1/1/03 (b).............................. 4,150,000 AAA 3,009,041
Zero Coupon, 7/1/03 (b).............................. 2,000,000 AAA 1,413,820
Maricopa County, AZ, Unified School District #41:
Capital Appreciation Bond, Zero Coupon:
7/1/03 (b).......................................... 4,500,000 AAA 3,181,095
1/1/04 (b).......................................... 6,000,000 AAA 4,118,760
7/1/04 (b).......................................... 7,000,000 AAA 4,676,140
7/1/06 (b).......................................... 7,605,000 AAA 4,539,653
Gilbert, 1/1/06 (b)................................. 2,925,000 AAA 1,809,464
Maricopa County, AZ, Unified School District #97,
Deer Valley, Zero Coupon, 7/1/05 (b)................. 4,060,000 AAA 2,575,014

CALIFORNIA California General Obligation, 6.5%, 2/1/08............ 7,000,000 A 7,842,170
California Housing Finance Agency, Multi-Unit Rental
Housing Revenue, Series A, 7.25%, 8/1/98............. 2,270,000 A 2,433,145
California State Department of Water Resources,
Central Valley Project, Revenue Water System,
Series 1995 O, 7%, 12/1/06........................... 6,095,000 AA 7,156,079
California State Public Works Lease Board Revenue,
Del Norte Prison, Series C, 4.75%, 12/1/05........... 4,750,000 A 4,709,055
Foothill Eastern Transportation Corridor Agency, CA,
Toll Road Revenue, Senior Lien, Series A, Zero
Coupon, 1/1/09....................................... 7,275,000 BBB 4,336,773
Long Beach, CA, Aquarium of the Pacific Project,
5.75%, 7/1/05........................................ 1,300,000 BBB 1,300,000
Los Angeles, CA, Public Works Authority, Lease
Revenue, Project #4, 5%, 12/1/08 (b)................. 3,300,000 AAA 3,306,105
Los Angeles, CA, Department of Airports Revenue,
Series B, 6.5%, 5/15/04 (b).......................... 7,000,000 AAA 7,915,600
Orange County, CA, Local Transportation Authority,
Sales Tax Revenue, Measure M, 5.1%, 2/15/01 (b)...... 5,100,000 AAA 4,992,135
Orange County, CA, Special Financing Authority,
Teeter Plan Revenue, Series C, 6.15%, 11/1/14........ 2,600,000 A 2,630,680
University of California, Multiple Purpose Projects,
Series C, 4.7%, 9/1/06 (b)........................... 3,250,000 AAA 3,208,498

COLORADO Colorado Health Facilities Authority, Hospital Revenue:
Rose Medical Center Project, 8.5%, 11/1/96 (b)....... 260,000 AAA 270,634
Rocky Mountain Adventist Healthcare Project, 6%,
2/1/98............................................... 3,500,000 BBB 3,554,565
</TABLE>

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

11
<PAGE>

DISTRICT OF
COLUMBIA District of Columbia, Certificate of Participation:
Series 1993, 6%, 1/1/97.............................. 1,828,000 BB 1,846,134
Series 1993, 6.875%, 1/1/03.......................... 2,500,000 BB 2,543,650
District of Columbia, General Obligation:
1993 Series A#1, 4.95%, 6/1/05 (b)................... 3,940,000 AAA 3,913,484
8%, 6/1/05, Prerefunded 6/1/96 (c)................... 4,000,000 AAA 4,150,760
Refunding, 1993 Series B, 5.875%, 6/1/05 (b)......... 3,650,000 AAA 3,879,038
Refunding, Series B, 5.3%, 6/1/05 (b)................ 8,000,000 AAA 8,160,160
Refunding, 1993 Series A, 4.85%, 6/1/04 (b).......... 2,000,000 AAA 1,989,000
Refunding, Series B, Zero Coupon, 6/1/01 (b)......... 7,100,000 AAA 5,485,815
Series A, 5.625%, 6/1/02 (b)......................... 8,360,000 AAA 8,769,891
Series A, 5.8%, 6/1/04 (b)........................... 6,950,000 AAA 7,362,344
Series C, 8.9%, 6/1/96............................... 5,505,000 BB 5,592,970
Series D, 4.7%, 12/1/99 (b).......................... 8,035,000 AAA 8,123,626

FLORIDA Dade County Florida, Guaranteed Entitlement
Revenue, Prerefunded 2/1/06:
Zero Coupon, 8/1/14 (b) (c)......................... 4,000,000 AAA 1,366,080
Zero Coupon, 8/1/18 (b) (c)......................... 6,000,000 AAA 1,502,340

GEORGIA Georgia, General Obligation:
Series B, 6.3%, 3/1/08............................... 5,000,000 AAA 5,655,300
Series B, 6.75%, 9/1/10.............................. 5,370,000 AAA 6,363,074
Series C, 5%, 7/1/09................................. 4,000,000 AAA 4,043,120

ILLINOIS Alton, IL, Health Facilities Revenue, 6.7%, 2/15/00 (b) 2,000,000 AAA 2,134,380
Chicago, IL, School Finance Authority, Series A,
4.9%, 6/1/05 (b)..................................... 6,000,000 AAA 5,990,820
Chicago, IL, Public Building Commission, Series A,
5.25%, 12/1/06 (b)................................... 4,500,000 AAA 4,651,065
Illinois Development Finance Authority, Refunding
Revenue, Commonwealth Edison, 5.3%, 1/15/04.......... 7,500,000 BBB 7,412,925
Illinois Educational Facilities Authority Revenue,
Loyola University, Revenue Refunding, 1991
Series A, Zero Coupon, 7/1/02 (b).................... 2,130,000 AAA 1,575,348
Illinois General Obligation:
6.7%, 6/1/03......................................... 3,640,000 AA 4,002,107
4.6%, 12/1/05........................................ 5,000,000 AA 4,874,600
Illinois Health Facilities Authority:
Elmhurst Memorial Hospital, Series A, 4.85%,
1/1/02............................................... 1,185,000 AAA 1,201,009
Evangelical Hospitals, Series B, 6.1%, 4/15/01 (b)..... 1,240,000 AAA 1,332,442
</TABLE>

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

12
<PAGE>

<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-----------------------------------------
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sisters Services, Series C:
5.875%, 6/1/98 (b)................................. 2,400,000 AAA 2,496,624
6%, 6/1/99 (b)..................................... 2,500,000 AAA 2,641,150
6.1%, 6/1/00 (b)................................... 1,500,000 AAA 1,606,995
6.2%, 6/1/01 (b)................................... 1,900,000 AAA 2,057,605
Illinois State Sales Tax Revenue, Series U, 4.7%,
6/15/06.............................................. 3,865,000 AAA 3,754,809
Kendall, Kane and Will Counties, IL, School District,
Zero Coupon, 3/1/03 (b).............................. 1,345,000 AAA 960,155
Macon and Decatur County, IL, Public Building
Commission, Certificate of Participation, General
Obligation, 6.3%, 1/1/00 (b)......................... 1,320,000 AAA 1,416,690
Metropolitan Pier and Exposition Authority of Illinois,
McCormick Place Expansion Project, Coupon
Receipts, Zero Coupon, 6/15/04 (b)................... 10,500,000 AAA 6,971,160
Rosemont, IL, Tax Increment#2, Secondary, Series B,
Zero Coupon, 12/1/02 (b)............................. 2,785,000 AAA 2,014,641
Rosemont, IL, Tax Increment#3, Secondary, Series C,
Zero Coupon, 12/1/02 (b)............................. 3,345,000 AAA 2,419,740

INDIANA Indiana Housing Finance Authority, Single Family
Mortgage Revenue, Series 1995 C#1, 5.25%, 7/1/12..... 3,180,000 AAA 3,201,688
Indianapolis, IN, Resource Recovery Revenue, Ogden
Martin Systems Inc. Project, 6.75%, 12/1/07 (b) (f).. 6,000,000 AAA 6,717,600
Madison County, IN, Hospital Authority, Holy Cross
Health System, 6.7%, 12/1/02 (b)..................... 1,385,000 AAA 1,560,770

IOWA Iowa Certificate of Participation, 1992 Series A,
6.25%, 7/1/02 (b).................................... 5,000,000 AAA 5,450,500

KANSAS Kansas City, KS, Utility System Revenue:
Zero Coupon, 3/1/03 (b).............................. 3,850,000 AAA 2,784,282
Zero Coupon, 3/1/03 (b).............................. 2,750,000 AAA 1,976,948

KENTUCKY Kentucky Turnpike Authority, Economic Development,
Revenue Refunding, 1986 Series A, 7.7%, 1/1/00....... 700,000 AAA 728,000

LOUISIANA Louisiana State General Obligation, Series A,
7%, 5/1/02 (b)....................................... 3,000,000 AAA 3,430,710
Louisiana Housing Finance Agency, Mortgage
Revenue Refunding, Single Family,
Series 1995 C#1, 5.125%, 12/1/10 (b)................. 3,000,000 AAA 2,991,210
New Orleans, LA, General Obligation, Zero Coupon,
9/1/05 (b)........................................... 3,355,000 AAA 2,100,196
Orleans, LA, Levee District, Levee Improvement
Bonds, Series 1986, 5.95%, 11/1/14 (b)............... 1,980,000 AAA 1,981,901
St. Tammany Parish, LA, Sales Tax Revenue,
District #3, Series A, 11%, 12/1/96 (b).............. 1,065,000 AAA 1,134,385
</TABLE>

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

13
<PAGE>

MASSACHUSETTS Boston, MA, General Obligation, Series A,
4.9%, 7/1/07 (b)..................................... 3,950,000 AAA 3,932,818
Brockton, MA, General Obligation, 7.75%, 12/15/96...... 840,000 A 865,561
Lawrence, MA, General Obligation, State Qualified
Bond, 5%, 9/15/02.................................... 1,030,000 A 1,047,541
Massachusetts General Obligation:
Refunding, Series B, 6.375%, 8/1/02.................. 2,150,000 A 2,378,846
Series A, 6.4%, 8/1/03............................... 1,000,000 A 1,114,840
Series C, 6.9%, 12/1/96 (b).......................... 1,000,000 AAA 1,029,610
Massachusetts Health and Educational Facilities
Authority, St. Joseph's Hospital, Series C,
9.5%, 10/1/20 Prerefunded 10/1/99 (c)................ 2,780,000 AAA 3,275,035
Massachusetts Housing Finance Agency, 1992
Series C, FNMA Collateralized:
6.25%, 5/15/02...................................... 2,000,000 AAA 2,142,840
6.25%, 11/15/02..................................... 3,420,000 AAA 3,680,399
Massachusetts Industrial Finance Agency, Resource
Recovery, North Andover Solid Waste, Series A,
6.15%, 7/1/02........................................ 3,250,000 BBB 3,378,603
Massachusetts Industrial Finance Agency, Sturdy
Memorial Hospital, 7.9%, 6/1/09...................... 1,900,000 BBB 2,069,442
Massachusetts Municipal Wholesale Electric Co.,
Power Supply System Revenue, Series A, 6.625%,
7/1/03............................................... 3,165,000 A 3,525,430
Massachusetts Water Resource Authority, Series A,
7.25%, 4/1/01........................................ 1,000,000 A 1,122,790
New England Education Loan Marketing Corp.,
Massachusetts Student Loan Revenue Refunding:
Issue A, 5.8%, 3/1/02............................... 8,825,000 AAA 9,257,337
Issue E, 5%, 7/1/99................................. 8,000,000 A 8,120,560

MICHIGAN Michigan Municipal Bond Authority, Local Government
Loan Program, School Improvement, Zero Coupon,
6/15/06 (b).......................................... 4,750,000 AAA 2,827,438
Michigan State Hospital Finance Authority, Hospital
Revenue, Sinai Hospital, Series 1995, 6%, 1/1/08..... 2,000,000 AAA 1,964,820
Romulus Township, MI, School District, Series II, Zero
Coupon, 5/1/22, Prerefunded 5/1/07 (b) (c)........... 7,400,000 AAA 1,527,360

MISSISSIPPI Mississippi Higher Education Assistance Corp.,
Student Loan Revenue, 1992 Series A,
6.2%, 1/1/02......................................... 1,200,000 A 1,263,108
</TABLE>

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

14
<PAGE>

NEW HAMPSHIRE New Hampshire Higher Education and Health
Facilities Authority, Hospital Revenue, Frisbie
Memorial Hospital, Series 1993, 5.25%, 10/1/99....... 2,635,000 BBB 2,670,599

NEW JERSEY New Jersey Economic Development, Series A,
7%, 7/1/04 (b)....................................... 2,500,000 AAA 2,922,250

NEW YORK Metropolitan Transportation Authority of New York,
Commuter Facilities Revenue:
6.75%, 7/1/00....................................... 1,200,000 BBB 1,303,908
6.9%, 7/1/01........................................ 1,280,000 BBB 1,409,216
Transit Facilities Revenue:
Series K, 6.25%, 7/1/05 (b)......................... 4,250,000 AAA 4,757,238
Series M, 5.3%, 7/1/06 (b).......................... 4,750,000 AAA 4,952,113
Series M, 5.5%, 7/1/08 (b).......................... 3,500,000 AAA 3,667,895
Service Contract, 6.75%, 7/1/00..................... 2,270,000 BBB 2,466,559
Service Contract, Series O, 5.75%, 7/1/07........... 1,975,000 BBB 2,041,696
Service Contract Lease Revenues, 6.9%, 7/1/01........ 2,415,000 BBB 2,658,794
Nassau County, NY, General Improvement, Series R,
5.125%, 11/1/01 (b).................................. 3,900,000 AAA 4,058,223
New York City, General Obligation:
Series A, 7%, 8/1/04................................. 5,150,000 A 5,635,954
Series A, 6%, 8/1/05 (b)............................. 2,560,000 AAA 2,804,045
Series 1992 B, 6.4%, 10/1/02......................... 4,905,000 A 5,193,267
Series B, 7%, 2/1/96................................. 2,000,000 A 2,005,320
Series B, 6.75%, 8/15/03............................. 7,000,000 A 7,547,610
Series B, 6.6%, 10/1/03.............................. 10,200,000 A 10,912,878
Series C, ETM, 7.4%, 8/1/96**........................ 1,560,000 A 1,594,616
Series C, 6.3%, 8/1/03 (b)........................... 50,000 AAA 55,489
Series D, 7.875%, 8/1/97............................. 2,025,000 A 2,136,395
Series D, ETM, 7.875%, 8/1/97**...................... 530,000 A 562,547
Series D, 5.5%, 8/15/04.............................. 2,800,000 A 2,784,628
Series 1996 G, 6.75%, 2/1/09 (f)..................... 5,000,000 5,421,550
Series 1992 H, 6.9%, 2/1/01.......................... 6,000,000 A 6,444,480
Series H, 5.8%, 8/1/04............................... 5,000,000 A 5,073,950
New York City Municipal Water Finance Authority,
Water and Sewer System Revenue, Zero Coupon,
6/15/96 (b).......................................... 1,000,000 AAA 1,012,460
New York State Dormitory Authority:
City University System, Consolidated Revenue
Lease:
Series A, 5.5%, 7/1/03............................. 8,000,000 BBB 8,147,520
Series A, 5.5%, 7/1/03 (b)......................... 1,250,000 AAA 1,327,238
</TABLE>

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

15
<PAGE>

NORTH DAKOTA Bismarck, ND, Hospital Revenue, St. Alexius Medical
Center, Series 1991, Zero Coupon, 5/1/00 (b)......... 2,850,000 AAA 2,356,950
Grand Forks, ND, Health Facilities, United Hospital
Obligation Group, Series A, 6%, 12/1/02 (b).......... 1,160,000 AAA 1,260,305

OHIO Hamilton County, OH, Health System Revenue,
Franciscan Sisters of the Poor Health System,
Providence Hospital, Series 1992, 6.375%, 7/1/04..... 4,495,000 BBB 4,737,505

PENNSYLVANIA Allegheny County, PA, Hospital Development
Authority, 6.5%, 7/1/00 (b).......................... 1,000,000 AAA 1,088,810
Armstrong County, PA, Hospital Authority, St. Frances
Medical Center, Series A, 6.2%, 6/1/03 (b)........... 3,090,000 AAA 3,389,625
Montgomery County, PA, Redevelopment Authority,
Multi Family Housing Revenue Refunding, KBF
Associates, LP Project, 6%, 7/1/04................... 2,685,000 BBB 2,692,062
Philadelphia, PA, General Obligation, Refunding
Revenue, Series A, 11.5%, 8/1/99 (b)................. 1,000,000 AAA 1,237,390
Schuykill County, PA, Redevelopment Authority, Lease
Rental, Series A, 6.55%, 6/1/00 (b).................. 1,105,000 AAA 1,204,572
Somerset County, PA, General Authority,
Commonwealth Lease Revenue, ETM, 6.45%,
10/15/00 (b)**....................................... 2,000,000 AAA 2,195,240

SOUTH
CAROLINA South Carolina Jobs Economic Development Authority
Revenue, Franciscan Sisters of the Poor Health
System Inc., St. Francis Hospital, 6.375%, 7/1/04.... 3,420,000 BBB 3,602,115
Sumter County, SC, Hospital Facility Revenue
Refunding, Tuomey Medical Center, 6.375%,
11/15/99 (b)......................................... 1,000,000 AAA 1,077,400
</TABLE>

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

16
<PAGE>

TENNESSEE Shelby County, TN, General Obligation, Series A, Zero
Coupon, 5/1/11, Prerefunded 5/1/05 (c)............... 3,700,000 AAA 1,669,366

TEXAS Austin, TX, Combined Utility System Revenue, Zero
Coupon, 11/15/09 (b)................................. 6,775,000 AAA 3,287,095
Austin, TX, Utility District, Water, Sewer & Electric
Revenue, 11%, 11/15/02, Prerefunded 5/15/97 (c)...... 2,430,000 AAA 2,660,753
Brownsville, TX, Utility System Revenue Refunding:
Series 1995, 6%, 9/1/08 (b).......................... 1,000,000 AAA 1,094,920
Series 1995, 6%, 9/1/09 (b).......................... 2,700,000 AAA 2,956,446
Carrollton, TX, Farmers Branch Independent
School District, ETM, 9.4%, 6/1/96**................. 100,000 AAA 102,436
Dallas County, TX, Hospital District, 9.75%, 4/10/96... 750,000 A 762,248
Dallas, TX, Civic Center, Senior Lien, 8.6%, 1/1/06.... 1,115,000 A 1,140,701
Harris County, TX, Toll Road Authority, Toll Road
Revenue, Subordinate Lien, Series A, Zero Coupon:
8/15/06 (b)......................................... 3,915,000 AAA 2,300,493
8/15/07 (b)......................................... 1,050,000 AAA 580,661
Texas Municipal Power Agency, Zero Coupon,
9/1/07 (b)........................................... 8,385,000 AAA 4,626,508
Texas Public Finance Authority, Building Revenue
Refunding, Zero Coupon, 2/1/09 (b)................... 5,860,000 AAA 2,962,464

UTAH Intermountain Power Agency, UT, Power Supply
Revenue, Series B:
Zero Coupon, 7/1/01 (b)............................. 10,495,000 AAA 8,162,486
Zero Coupon, 7/1/02 (b)............................. 2,500,000 AAA 1,849,000
6.25%, 7/1/06 (b) (f)............................... 8,000,000 AAA 8,785,680
Intermountain Power Agency, UT, Special Obligation,
7.5%, 7/1/16, Crossover Refunded 7/1/96 (b) (d)...... 3,000,000 AA 3,108,360
Salt Lake County, UT, Water Conservation District,
Series A, Zero Coupon, 10/1/03 (b)................... 3,200,000 AAA 2,216,736

VIRGIN
ISLANDS Virgin Islands, General Obligation, Public Finance
Authority Revenue, Matching Fund Loan Notes:
Series A, 6.7%, 10/1/99............................. 3,170,000 NR 3,329,990
Series A, 6.8%, 10/1/00............................. 1,035,000 NR 1,096,986

VIRGINIA Roanoke, Virginia, Industrial Development Authority,
Hospital Revenue, Carilion Health System, 6.5%,
7/1/25, Prefunded 7/1/00 (b) (c)..................... 5,000,000 AAA 5,471,900

WASHINGTON Benton County, WA, Public Utility District, Electric
Revenue:
6%, 11/1/03 (b) (f)................................. 3,275,000 AAA 3,491,903
6%, 11/1/04 (b) (f)................................. 1,735,000 AAA 1,851,193
</TABLE>

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

17
<PAGE>

<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-----------------------------------------
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Clark County, WA, Public Utility District #1, Generating
System Revenue Bonds, 6%, 1/1/07 (b)................. 12,150,000 AAA 13,115,439
King County, WA, Water District #107, ETM, 8.7%,
3/1/96**............................................. 120,000 AAA 121,042
Snohomish County, WA, Public Utility District #1, 1991
Series B, 6.4%, 1/1/00............................... 2,000,000 A 2,152,280
Washington Healthcare Facilities Authority, Empire
Health Services, Spokane, Series 1993, 4.35%,
11/1/96 (b).......................................... 1,760,000 AAA 1,770,155
Washington Public Power Supply System:
Nuclear Project #1, Refunding Revenue:
Series A, 7%, 7/1/96................................ 1,000,000 AA 1,016,120
Series B, 5.15%, 7/1/02............................. 5,275,000 AA 5,388,940
Series B, 5%, 7/1/01................................ 1,500,000 AA 1,523,790
Series B, 5.25%, 7/1/03............................. 5,555,000 AA 5,689,875
Series D, 15%, 7/1/17, Prerefunded 7/1/96 (c)....... 2,595,000 AAA 2,815,549
Nuclear Project #2, Refunding Revenue:
Series A, 6.3%, 7/1/01.............................. 6,000,000 AA 6,469,980
Series A, 4.9%, 7/1/05.............................. 4,930,000 AA 4,863,741
Series A, 5.8%, 7/1/07.............................. 2,120,000 AA 2,217,880
Series A, 5.25%, 7/1/08............................. 3,000,000 AA 2,970,210
Series B, 5.15%, 7/1/02............................. 6,085,000 AA 6,216,436
Nuclear Project #3, Refunding Revenue:
Series B, 5%, 7/1/01................................ 6,210,000 AA 6,308,491
Series B, 7.15%, 7/1/01............................. 1,310,000 AA 1,448,048
Series B, 5.15%, 7/1/02............................. 3,165,000 AA 3,233,364
Series B, 5.25%, 7/1/03............................. 6,100,000 AA 6,248,108
Series B, Zero Coupon, 7/1/04 (b)................... 8,000,000 AAA 5,299,920
Series C, 5%, 7/1/05................................ 10,905,000 AA 10,856,037
Washington State Housing Finance, Series A, 7.1%,
12/1/17.............................................. 3,165,000 AAA 3,299,418

WEST VIRGINIA South Charleston, WV, Pollution Control Revenue,
Union Carbide, 7.625%, 8/1/05........................ 2,000,000 BBB 2,340,980

WISCONSIN Wisconsin Health & Education Facilities Authority:
Columbia Hospital Inc., 6.125%, 11/15/01 (b)......... 1,000,000 AAA 1,082,030
Mercy Health System Corporation:
6%, 8/15/05 (b)..................................... 1,400,000 AAA 1,522,584
6.125%, 8/15/06 (b)................................. 1,480,000 AAA 1,622,272
6.25%, 8/15/07 (b).................................. 1,000,000 AAA 1,104,490
Wheaton Franciscan Hospital:
6%, 8/15/02 (b)..................................... 1,000,000 AAA 1,082,100
5.8%, 8/15/04 (b)................................... 1,675,000 AAA 1,798,213
</TABLE>

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

18
<PAGE>

<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-----------------------------------------
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WYOMING Wyoming Community Development Authority, Single
Family Mortgage Revenue, Zero Coupon,
6/1/96 (b)........................................... 2,150,000 AA 2,101,195
-----------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(Cost $670,828,881).................................. 703,173,918
-----------
=================================================================================================================
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $692,971,490) (a).............................. 725,328,518
===========
<FN>
(a) The cost for federal income tax purposes was $692,971,490. At December 31,
1995, net unrealized appreciation for all securities was $32,357,028. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $32,443,431 and
aggregate gross unrealized depreciation for all investment securities in
which there was an excess of tax cost over market value of $86,403.

(b) Bond is insured by one of these companies: AMBAC, Capital Guaranty, FGIC,
FHA, FSA, 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) Crossover refunded: Bonds which are crossover refunded are secured by an
escrow of securities which is used to pay principal on the tax exempt
issue and retire the bonds in full at the earliest refunding date, except
in the case of default by the issuer or inadequacy in the escrow account.

(e) All of the securities held have been determined to be of appropriate credit
quality as required by the Fund's investment objectives. Credit ratings are
either Standard & Poor's Rating Group, Moody's Investors Service, Inc. or
Fitch Investors Service, Inc. Unrated securities (NR) and securities rated
by Scudder (SS&C) have been determined to be of comparable quality to rated
eligible securities.

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

* 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.

</FN>
</TABLE>

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

19
<PAGE>

<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ----------------------------------------------------------------------------------------------
DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $692,971,490)
(Note A)................................................... $725,328,518
Cash.......................................................... 31,736
Receivables:
Interest................................................... 10,543,250
Investments sold........................................... 2,384,225
Fund shares sold........................................... 372,727
Other assets............................................... 4,747
------------
Total assets.................................. 738,665,203

LIABILITIES
Payables:
When-issued and forward delivery securities (Note A)....... $24,974,508
Dividends.................................................. 1,102,819
Fund shares redeemed....................................... 455,352
Accrued management fee (Note C)............................ 341,230
Accrued expenses (Note C).................................. 181,720
-----------
Total liabilities............................. 27,055,629
------------
Net assets, at market value................................... $711,609,574
============
NET ASSETS
Net assets consist of:
Net unrealized appreciation on investments................. $ 32,357,028
Accumulated net realized gain.............................. 747,469
Shares of beneficial interest.............................. 632,172
Additional paid#in capital................................. 677,872,905
------------
Net assets, at market value................................... $711,609,574
============
NET ASSET VALUE, offering and redemption price per share
($711,609,574 divided by 63,217,191 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) $11.26
======
</TABLE>

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

20
<PAGE>

<TABLE>
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest...................................................... $40,251,194

Expenses:
Management fee (Note C)....................................... $4,083,050
Services to shareholders (Note C)............................. 608,658
Custodian and accounting fees (Note C)........................ 222,418
Trustees' fees (Note C)....................................... 34,819
Reports to shareholders....................................... 89,288
Legal......................................................... 15,355
Auditing...................................................... 56,280
State registration............................................ 34,039
Other......................................................... 49,899
----------
Total expenses before reductions.............................. 5,193,806
Expense reductions (Note C)................................... (174,121)
----------
Expenses, net................................................. 5,019,685
-----------
Net investment income......................................... 35,231,509
-----------

NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS
Net realized gain on investments.............................. 4,031,600
Net unrealized appreciation on investments
during the period.......................................... 56,190,627
-----------
Net gain on investments....................................... 60,222,227
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $95,453,736
===========
</TABLE>

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

21
<PAGE>

<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- ----------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income......................................... $ 35,231,509 $ 43,643,974
Net realized gain from investments............................ 4,031,600 1,334,624
Net unrealized appreciation (depreciation)
on investments during the period........................... 56,190,627 (81,623,664)
------------ --------------
Net increase (decrease) in net assets
resulting from operations.................................. 95,453,736 (36,645,066)
------------ --------------
Distributions to shareholders:
From net investment income ($.54 and $.53 per
share, respectively)....................................... (35,231,509) (43,643,974)
------------ --------------
From net realized gains from investment
transactions ($.05 and $.05 per share, respectively)....... (3,199,100) (3,856,845)
------------ --------------
Fund share transactions:
Proceeds from shares sold..................................... 105,990,498 242,143,475
Net asset value of shares issued to
shareholders in reinvestment of distributions.............. 23,977,046 30,767,915
Cost of shares redeemed....................................... (176,818,110) (504,752,983)
------------ --------------
Net decrease in net assets from Fund share transactions....... (46,850,566) (231,841,593)
------------ --------------
INCREASE (DECREASE) IN NET ASSETS............................. 10,172,561 (315,987,478)
Net assets at beginning of period............................. 701,437,013 1,017,424,491
------------ --------------
NET ASSETS AT END OF PERIOD................................... $711,609,574 $ 701,437,013
============ ==============

OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period..................... 67,486,134 89,545,863
------------ --------------
Shares sold................................................... 9,691,714 22,098,846
Shares issued to shareholders in reinvestment
of distributions........................................... 2,182,653 2,858,978
Shares redeemed............................................... (16,143,310) (47,017,553)
------------ --------------
Net decrease in Fund shares................................... (4,268,943) (22,059,729)
------------ --------------
Shares outstanding at end of period........................... 63,217,191 67,486,134
============ ==============
</TABLE>

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

22
<PAGE>

<TABLE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------

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

<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.......................... $10.39 $11.36 $10.86 $10.62 $10.11 $10.04 $10.02 $10.07 $10.34 $10.03
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (a) ......... .54 .53 .60 .65 .67 .54 .56 .54 .54 .62
Net realized and
unrealized gain (loss)
on investments.................... .92 (.92) .56 .27 .52 .07 .02 (.05) (.22) .41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations..... 1.46 (.39) 1.16 .92 1.19 .61 .58 .49 .32 1.03
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
From net investment income......... (.54) (.53) (.60) (.65) (.67) (.54) (.56) (.54) (.54) (.62)
From net realized
gains on investments.............. (.05) (.05) (.06) (.03) (.01) -- -- -- (.05) (.10)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions................ (.59) (.58) (.66) (.68) (.68) (.54) (.56) (.54) (.59) (.72)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period..... $11.26 $10.39 $11.36 $10.86 $10.62 $10.11 $10.04 $10.02 $10.07 $10.34
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) (B)................. 14.32 (3.50) 10.94 8.93 12.13 6.29 6.00 4.92 3.23 10.54

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
($ millions)....................... 712 701 1,017 661 268 27 54 99 125 104
Ratio of operating expenses
net, to average daily net
assets (%) (a)..................... .70 .63 .14 -- -- .97 .91 .79 .80 .82
Ratio of net investment income
to average net assets (%).......... 4.92 4.94 5.35 6.07 6.44 5.37 5.62 5.05 5.37 6.00
Portfolio turnover rate (%).......... 36.1 33.8 37.3 22.4 14.0 116.9 15.7 31.2 32.6 44.3
(a) Portion of expenses
reimbursed by
the Adviser.................... $ -- $ -- $ .005 $ .014 $ .020 $ .001 $ -- $ -- $ -- $ --
Management fee and
other fees not imposed......... $ .003 $ .01 $ .063 $ .064 $ .062 $ .002 $ -- $ -- $ -- $ --

<FN>
Annualized ratio of operating expenses, including expenses reimbursed,
management fee and other expenses not imposed, to average daily net assets
aggregated 0.72%, 0.71%, 0.75%, 0.80%, 0.88% and 1.00% for the years ended
December 31, 1995, 1994, 1993, 1992, 1991 and 1990, respectively.

(b) Total returns may have been higher due to maintenance of the Fund's
expenses. On November 1, 1990, the Fund adopted its present name and
objective. Prior to that date, the Fund was known as the 1990 Portfolio
of the Scudder Tax Free Target Fund and its objective was to provide high
tax-free income and current liquidity. Financial information for each of
the five years in the period ended December 31, 1990 should not be
considered representative of the present Fund.
</FN>
</TABLE>

23
<PAGE>

SCUDDER MEDIUM TERM TAX FREE FUND
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

A. SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------

Scudder Medium Term Tax Free Fund (the "Fund") is a diversified series
of Scudder Tax Free Trust, a Massachusetts business trust (the "Trust"), which
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The policies described below are
followed consistently by the Fund in the preparation of its financial
statements in conformity with generally accepted accounting principles.

SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the Officers of the
Fund, which prices reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. All other debt securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Trustees. Short-term
investments having a maturity of sixty days or less are valued at amortized
cost.

WHEN-ISSUED AND FORWARD DELIVERY SECURITIES. The Fund may purchase securities
on a when-issued or forward delivery basis, for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
take place at a later time. At the time the Fund makes the commitment to
purchase a security on a when-issued or forward delivery basis, it will record
the transaction and reflect the value of the security in determining its net
asset value. During the period between purchase and settlement, no payment is
made by the Fund to the issuer and no interest accrues to the Fund. At the
time of settlement, the market value of the security may be more or less than
the purchase price.

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

FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements
of the Internal Revenue Code which are applicable to regulated investment
companies and to distribute all of its taxable and tax-exempt income to its
shareholders. The Fund accordingly paid no federal income taxes and no
provision for federal income taxes was required.

24
<PAGE>

NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

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. As a result,
net investment income and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.

The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.

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

B. PURCHASES AND SALES OF SECURITIES
- -------------------------------------------------------------------------------

For the year ended December 31, 1995, purchases and sales of investments
(excluding short-term) aggregated $250,562,247 and $302,033,268, respectively.

C. RELATED PARTIES
- -------------------------------------------------------------------------------

Under the Management Agreement (the "Management Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment objective, policies, and
restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides
certain administrative services in accordance with the Management Agreement.

25
<PAGE>

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

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. The Adviser agreed not to impose all or a portion of its
management fee until October 31, 1995, and during such period to maintain the
annualized expenses of the Fund at not more than 0.70% of average daily net
assets. For the year ended December 31, 1995, the management fee aggregated
$4,083,050 of which $174,121 was not imposed and $341,230 is unpaid at
December 31, 1995.

Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended December 31, 1995 the amount charged to the Fund by SSC amounted to
$446,459 of which $35,046 is unpaid at December 31, 1995.

Effective February 21, 1995, Scudder Fund Accounting Corporation ("SFAC"),
a subsidiary of the Adviser, assumed responsibility for determining the daily
net asset value per share and maintaining the portfolio and general accounting
records of the Fund. For the year ended December 31, 1995, the amount charged
to the Fund by SFAC aggregated $88,116, of which $8,494 is unpaid at December
31, 1995.

The Fund pays each Trustee not affiliated with the Adviser $4,000 annually,
plus specified amounts for attended board and committee meetings. For the year
ended December 31, 1995, Trustees' fees and expenses aggregated $34,819.

26
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------

TO THE TRUSTEES OF SCUDDER TAX FREE TRUST AND THE SHAREHOLDERS OF SCUDDER
MEDIUM TERM TAX FREE FUND:

We have audited the accompanying statement of assets and liabilities of Scudder
Medium Term Tax Free Fund, including the investment portfolio, as of December
31, 1995, and the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the ten years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Scudder Medium Term Tax Free Fund as of December 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the ten years in the period then ended in conformity with generally
accepted accounting principles.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.

February 2, 1995

27
<PAGE>

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

By now shareholders for whom year-end tax reporting is required by the IRS
should have received their Form 1099-DIV and tax information letter from the
Fund.

Of the dividends paid from net investment income for the fiscal year ended
December 31, 1995, 100% were exempt interest dividends which are tax exempt
for regular federal income tax purposes, and are not an item of tax preference
for purposes of the federal alternative minimum tax, if applicable.

Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$1,282,895 as capital gain dividends for the year ended December 31, 1995.

Please consult a tax adviser if you have questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Investor
Relations Representative at 1-800-225-5163.

<PAGE>

OFFICERS AND TRUSTEES

David S. Lee*
President and Trustee

Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director

Peter B. Freeman
Trustee; Corporate Director and Trustee

Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
College of Business Administration

Juris Padegs*
Trustee

Jean C. Tempel
Trustee; General Partner, TL Ventures

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

M. Ashton Patton*
Vice President

Coleen Downs Dinneen*
Assistant Secretary

* Scudder, Stevens & Clark, Inc.

29
<PAGE>

INVESTMENT PRODUCTS AND SERVICES
<TABLE>
<CAPTION>

The Scudder Family of Funds
-----------------------------------------------------------------------------------------------------------------
<C> <C>

Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder Global Bond Fund
Tax Free Money Market+ Scudder GNMA Fund
Scudder Tax Free Money Fund Scudder Income Fund
Scudder California Tax Free Money Fund* Scudder International Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Bond Fund
Tax Free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Small Company Fund
Scudder Massachusetts Tax Free Fund* Scudder Gold Fund
Scudder Medium Term Tax Free Fund Scudder Greater Europe Growth Fund
Scudder New York Tax Free Fund* Scudder International Fund
Scudder Ohio Tax Free Fund* Scudder Latin America Fund
Scudder Pennsylvania Tax Free Fund* Scudder Pacific Opportunities Fund
Growth and Income Scudder Quality Growth Fund
Scudder Balanced Fund Scudder Small Company Value Fund
Scudder Growth and Income Fund Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
-----------------------------------------------------------------------------------------------------------------

IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans

Closed-End Funds#
-----------------------------------------------------------------------------------------------------------------

The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
-----------------------------------------------------------------------------------------------------------------

Scudder Institutional Fund, Inc. Scudder Treasurers Trust(TM)++
Scudder Fund, Inc.
-----------------------------------------------------------------------------------------------------------------
<FN>

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.
</FN>
</TABLE>

30
<PAGE>

HOW TO CONTACT SCUDDER

<TABLE>

<S> <C>

Account Service and Information
-------------------------------------------------------------------------------------------------------------

For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163

For personalized information about your Scudder accounts;
exchanges and redemptions; or information on any Scudder fund
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 New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
-------------------------------------------------------------------------------------------------------------

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

<FN>

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.
</FN>
</TABLE>

31
<PAGE>

Celebrating Over 75 Years of Serving Investors

Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment counsel
firm in the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long- term investment management have helped shape
the investment industry. In 1928, we introduced the nation's first no-load
mutual fund. Today we offer 37 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 us 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 long-standing
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.