SCUDDER TAX FREE TRUST, 497, 1998-03-06

SCUDDER TAX FREE TRUST
497, 1998-03-06

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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 diversified series of Scudder Tax Free Trust; Scudder Managed
Municipal Bonds and Scudder High Yield Tax Free Fund, each a diversified series
of Scudder Municipal Trust. All three Trusts are open-end management investment
companies. Please retain this prospectus for future reference.

SCUDDER HIGH YIELD TAX FREE FUND MAY INVEST UP TO 50% OF ITS ASSETS IN LOWER
QUALITY BONDS, COMMONLY REFERRED TO AS JUNK BONDS. BONDS OF THIS TYPE ARE
CONSIDERED TO BE SPECULATIVE WITH REGARD TO THE PAYMENT OF INTEREST AND RETURN
OF PRINCIPAL. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN
INVESTMENT IN THE FUND.

If you require more detailed information, the Funds' Statement of Additional
Information dated March 1, 1998, as amended from time to time, may be obtained
without charge by writing Scudder Investor Services, Inc., Two International
Place, Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission and is available along with other related
materials on the SEC's Internet web site (http://www.sec.gov).

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.

- -----------------------------------------
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
- -----------------------------------------

code [LOGO] PRINTED WITH [LOGO] Printed on recycled paper
goes SOYINK
here

SCUDDER [LOGO]

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, 1998

Prospectus

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

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 a stable net asset value will
be maintained.

<PAGE>

- ---------------------------------------
Expense information
- ---------------------------------------

- --------------------------------------------------------------------------------
How to compare a Scudder Family of Funds 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.

<TABLE>
<CAPTION>
Scudder Tax Free Scudder Medium
Money Fund Term Tax Free Fund
---------- ------------------

<S> <C> <C>
Sales commissions to purchase shares (sales load) NONE NONE
Commissions to reinvest dividends NONE NONE
Redemption fees NONE* NONE*
Fees to exchange shares NONE NONE
</TABLE>

2) Annual Fund operating expenses: 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, 1997.

Investment management fees 0.50% + 0.58%
12b-1 fees NONE NONE
Other expenses 0.26% 0.16%
---- ----
Total Fund operating expenses 0.76% + 0.74%
==== ====

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 $ 8
Three years 24 24
Five years 42 41
Ten years 94 92

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."
+ Until April 30, 1998, the Adviser has agreed to waive a portion of its fee
to the extent necessary so that the total annualized expenses of the Fund
do not exceed 0.65% of average daily net assets. Expenses shown above are
restated to reflect what the Fund would have paid during the fiscal year
ended December 31, 1997, absent such waiver. Actual expenses for the
fiscal year ended December 31, 1997 were: investment management fee 0.39%,
other expenses 0.26% and total Fund operating expenses 0.65%.

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2
<PAGE>

- ---------------------------------------
Expense information
- ---------------------------------------

- --------------------------------------------------------------------------------
How to compare a Scudder Family of Funds 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.

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

Investment management fees 0.51% 0.67%
12b-1 fees NONE NONE
Other expenses 0.13% 0.23%
---- ----
Total Fund operating expenses 0.64% 0.90%
==== ====

Example

One year 7 $9
Three years 20 29
Five years 36 50
Ten years 80 111

* 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."

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

--
3
<PAGE>

- ---------------------------------------
Expense information
- ---------------------------------------

- --------------------------------------------------------------------------------
How to compare a Scudder Family of Funds 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 load) NONE

Commissions to reinvest dividends NONE

Redemption fees NONE*

Fees to exchange shares NONE

2) Annual Fund operating expenses: 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,
1997.

Investment management fee (after waiver) 0.52%**

12b-1 fees NONE

Other expenses (after reimbursement) 0.23%**
----
Total Fund operating expenses (after waiver and reimbursements) 0.75%**
====

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
------ ------- ------- --------
$8 $24 $42 $93

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."

** Until February 28, 1999, the Adviser has agreed to reimburse Fund
operating expenses and waive a portion of its fee to the extent necessary
so that the total annualized expenses of the Fund do not exceed 0.75% of
average daily net assets. If the Adviser had not agreed to waive and/or
reimburse a portion of its fee for the fiscal period ended October 31,
1997, the Fund's expenses would have been: investment management fee
0.60%, other expenses 0.23% and total operating expenses 0.83%.

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

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4
<PAGE>

- ---------------------------------------
Financial highlights
- ---------------------------------------

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

If you would like more detailed information concerning the Fund's performance, a
complete portfolio listing and audited financial statements are available in the
Fund's Annual Report dated December 31, 1997, which may be obtained without
charge by writing or calling Scudder Investor Services, Inc.

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

<TABLE>
<CAPTION>
Years Ended December 31,

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

--
5
<PAGE>

- ---------------------------------------
Financial highlights
- ---------------------------------------

Scudder Medium Term Tax Free Fund
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
Years Ended December 31,

1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------
Net asset value, beginning
of period ......................... $11.15 $11.26 $10.39 $11.36 $10.86 $10.62 $10.11 $10.04 $10.02 $10.07
--------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ............. .52 .53 .54 .53 .60 .65 .67 .54 .56 .54
Net realized and unrealized gain
(loss) on investments ............. .31 (.09) .92 (.92) .56 .27 .52 .07 .02 (.05)
--------------------------------------------------------------------------------------------
Total from investment operations .... .83 .44 1.46 (.39) 1.16 .92 1.19 .61 .58 .49
--------------------------------------------------------------------------------------------
Less distributions:
From net investment income .......... (.52) (.53) (.54) (.53) (.60) (.65) (.67) (.54) (.56) (.54)
From net realized gains on
investments ....................... (.05) (.02) (.05) (.05) (.06) (.03) (.01) -- -- --
--------------------------------------------------------------------------------------------
Total distributions ................. (.57) (.55) (.59) (.58) (.66) (.68) (.68) (.54) (.56) (.54)
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net asset value, end of period ...... $11.41 $11.15 $11.26 $10.39 $11.36 $10.86 $10.62 $10.11 $10.04 $10.02
--------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) ................ 7.69 4.02 14.32 (3.50) 10.94 8.93 12.13 6.29 6.00 4.92
Ratios and Supplemental Data
Net assets, end of period
($ millions) ...................... 657 651 712 701 1,017 661 268 27 54 99
Ratio of operating expenses net,
to average daily net assets (%) ... .74 .72 .70 .63 .14 -- -- .97 .91 .79
Ratio of operating expenses before
expense reductions, to average
daily net assets .................. .74 .72 .72 .71 .75 .80 .88 1.00 .91 .79
Ratio of net investment income to
average daily net assets (%) ...... 4.67 4.75 4.92 4.94 5.35 6.07 6.44 5.37 5.62 5.05
Portfolio turnover rate (%) ......... 13.4 14.1 36.1 33.8 37.3 22.4 14.0 116.9 15.7 31.2
</TABLE>

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 three years in the period ended
December 31, 1990 should not be considered representative of the present Fund.

(a) Total returns may have been lower had certain expenses not been reduced.

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

- --
6
<PAGE>

- ---------------------------------------
Financial highlights
- ---------------------------------------

Scudder Managed Municipal Bonds
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
Years Ended December 31,

1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
Net asset value, beginning of period .. $8.84 $8.94 $8.07 $9.09 $8.72 $8.80 $8.45 $8.54 $8.60 $8.24
------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ................. .46 .45 .48 .46 .47 .51 .53 .55 .59 .60
Net realized and unrealized gain
(loss) on investment transactions ... .34 (.10) .87 (1.00) .66 .25 .47 -- .33 .38
------------------------------------------------------------------------------------------
Total from investment operations ...... .80 .35 1.35 (.54) 1.13 .76 1.00 .55 .92 .98
------------------------------------------------------------------------------------------
Less distributions:
From net investment income ............ (.46) (.45) (.48) (.46) (.47) (.51) (.53) (.55) (.59) (.60)
From net realized gains on
investment transactions ............. (.05) -- -- -- (.29) (.33) (.12) (.09) (.39) (.02)
In excess of net realized gains ....... -- -- -- (.02) -- -- -- -- -- --
------------------------------------------------------------------------------------------
Total distributions ................... (.51) (.45) (.48) (.48) (.76) (.84) (.65) (.64) (.98) (.62)
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Net asset value, end of period ........ $9.13 $8.84 $8.94 $8.07 $9.09 $8.72 $8.80 $8.45 $8.54 $8.60
------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ...................... 9.29 4.15 17.12 (6.04) 13.32 8.98 12.23 6.77 11.19 12.27
Ratios and Supplemental Data
Net assets, end of period
($ millions) ........................ 728 737 775 709 910 830 796 719 691 635
Ratio of operating expenses to
average net assets (%) .............. .64 .63 .63 .63 .63 .63 .64 .61 .62 .61
Ratio of net investment income
to average net assets (%) ........... 5.12 5.20 5.59 5.41 5.21 5.76 6.16 6.61 6.78 7.13
Portfolio turnover rate (%) ........... 9.8 12.2 17.8 33.7 52.8 59.6 32.4 72.1 89.8 75.5
</TABLE>

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--
7
<PAGE>

- ---------------------------------------
Financial highlights
- ---------------------------------------

Scudder High Yield Tax Free Fund
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
Years Ended December 31,

1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------
Net asset value, beginning
of period .......................... $12.04 $12.19 $10.86 $12.55 $11.90 $11.67 $11.19 $11.35 $11.06 $10.52
-------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ................ .67 .66 .68 .70 .67 .72 .76 .77 .76 .83
Net realized and unrealized gain
(loss) on investments .............. .74 (.15) 1.37 (1.73) .93 .50 .69 (.11) .35 .54
-------------------------------------------------------------------------------------------
Total from investment operations ..... 1.41 .51 2.05 (1.03) 1.60 1.22 1.45 .66 1.11 1.37
-------------------------------------------------------------------------------------------
Less distributions:
From net investment income ........... (.67) (.66) (.72) (.66) (.67) (.72) (.76) (.77) (.76) (.83)
From net realized gains on
investment transactions ............ -- -- -- -- (.21) (.27) (.21) (.05) (.06) --
In excess of net realized gains ...... -- -- -- -- (.07) -- -- -- -- --
-------------------------------------------------------------------------------------------
Total distributions .................. (.67) (.66) (.72) (.66) (.95) (.99) (.97) (.82) (.82) (.83)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net asset value, end of period ....... $12.78 $12.04 $12.19 $10.86 $12.55 $11.90 $11.67 $11.19 $11.35 $11.06
-------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ..................... 12.04 4.43 19.28 (8.38) 13.85 10.88 13.36 6.02 10.32 13.48
Ratios and Supplemental Data
Net assets, end of period
($ millions) ....................... 337 293 304 260 317 204 160 129 114 74
Ratio of operating expenses, net
to average daily net assets (%) .... .90 .91 .80 .80 .92 .98 1.00 1.00 1.00 .67
Ratio of operating expenses before
expense reductions, to average
daily net assets (%) ............... .90 .95 .94 .97 .98 .99 1.04 1.09 1.15 1.25
Ratio of net investment income
to average net assets (%) .......... 5.43 5.59 5.77 6.01 5.38 6.10 6.65 6.88 6.72 7.65
Portfolio turnover rate (%) .......... 33.2 21.9 27.3 34.3 56.4 56.6 45.5 33.4 75.8 36.7
</TABLE>

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- --
8
<PAGE>

- ---------------------------------------
Financial highlights
- ---------------------------------------

Scudder Limited Term Tax Free Fund
- --------------------------------------------------------------------------------

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

If you would like more detailed information concerning the Fund's performance, a
complete portfolio listing and audited financial statements are available in the
Fund's Annual Report dated October 31, 1997, which may be obtained without
charge by writing or calling Scudder Investor Services, Inc.

<TABLE>
<CAPTION>
For the Period
February 15, 1994
(commencement
Years Ended October 31, of operations) to
October 31,
1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
--------------------------------------------------
Net asset value, beginning of period ................... $11.98 $12.01 $11.67 $12.00
--------------------------------------------------
Income from investment operations:
Net investment income .................................. .52 .53 .56 .38
Net realized and unrealized gain
(loss) on investments ................................ .16 (.02) .34 (.33)
--------------------------------------------------
Total from investment operations ....................... .68 .51 .90 .05
--------------------------------------------------
Less distributions from:
Net investment income .................................. (.52) (.53) (.56) (.38)
Net realized gain on investment
transactions ......................................... (.02) (.01) -- --
--------------------------------------------------
Total distributions .................................... (.54) (.54) (.56) (.38)
--------------------------------------------------
--------------------------------------------------
Net asset value, end of period ......................... $12.12 $11.98 $12.01 $11.67
--------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Total Return (%) (a) ................................... 5.89 4.33 7.94 .44**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................. 117 124 122 68
Ratio of operating expenses, net to
average daily net assets (%) ......................... .75 .63 .23 --
Ratio of operating expenses before expense
reductions, to average daily net assets (%) (a) ...... .83 .82 .85 1.29*
Ratio of net investment income to average daily
net assets (%) ....................................... 4.32 4.46 4.78 4.84*
Portfolio turnover rate (%) ............................ 17.8 37.7 37.5 36.3*
</TABLE>

(a) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized

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

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9
<PAGE>

- ---------------------------------------
A message from the President
- ---------------------------------------

[PHOTO]
Edmond D. Villani, President
and CEO, Scudder Kemper
Investments, Inc.

Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $200 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts. It is one of the ten
largest mutual fund companies in the U.S.

We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 45 no-load mutual fund portfolios. We also 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 numerous
other open and closed-end funds that invest in this country and other 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 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 Investor Centers.

The Scudder Family of Funds includes those Funds, or classes of Funds, advised
by Scudder Kemper Investments, Inc., that are offered without commissions to
purchase or redeem 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/ Edmond D. Villani

- ---------------------------------------
Scudder tax free funds
- ---------------------------------------

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

o Scudder Tax Free Money Fund

o Scudder Limited Term Tax Free Fund

o Scudder Medium Term Tax Free Fund

o Scudder Managed Municipal Bonds

o Scudder High Yield Tax Free Fund

- ---------------------------------------
Contents
- ---------------------------------------

Investment characteristics ................................................. 17
Scudder Tax Free Money Fund ................................................ 18
Scudder Limited Term Tax Free Fund ......................................... 20
Scudder Medium Term Tax Free Fund .......................................... 21
Scudder Managed Municipal Bonds ............................................ 22
Scudder High Yield Tax Free Fund ........................................... 24
Selecting among the Funds .................................................. 25
Additional information about policies
and investments .......................................................... 27
Distribution and performance information ................................... 31
Fund organization .......................................................... 32
Summary of important features .............................................. 34
Transaction information .................................................... 35
Shareholder benefits ....................................................... 39
Purchases .................................................................. 41
Exchanges and redemptions .................................................. 42
Appendix ................................................................... 44
Trustees and Officers ...................................................... 46
Investment products and services
How to contact Scudder ..................................................... 52

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10
<PAGE>

- ---------------------------------------
Investment characteristics
- ---------------------------------------

Scudder Tax Free Money Fund, Scudder Limited Term Tax Free Fund, Scudder Medium
Term Tax Free Fund, Scudder Managed Municipal Bonds and Scudder High Yield Tax
Free Fund (collectively the "Funds" and individually, the "Fund") are tax-free
income funds advised by Scudder Kemper Investments, 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, 1997.

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 (i.e.,
dollar-weighted average effective portfolio maturity of between five and 10
years). 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., having more than 10 year
maturities). 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

<TABLE>
<CAPTION>
Tax-Free Yield Taxable
for the 30-day period Equivalent Yield**
ended
28% Tax 31% Tax 36% Tax 39.6% Tax
December 31, 1997 Bracket Bracket Bracket Bracket
----------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Scudder Tax Free Money Fund* 3.45% 4.79% 5.00% 5.39% 5.71%

Scudder Limited Term Tax Free Fund 3.70% 5.14% 5.36% 5.78% 6.13%

Scudder Medium Term Tax Free Fund 3.89% 5.40% 5.64% 6.08% 6.44%

Scudder Managed Municipal Bonds 4.28% 5.94% 6.20% 6.69% 7.09%

Scudder High Yield Tax Free Fund 4.57% 6.35% 6.62% 7.14% 7.57%
</TABLE>

* The tax-free yield for Scudder Tax Free Money Fund is for the seven-day
period ended December 31, 1997.

** Based on federal income tax rates in effect for the 1997 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.
- --------------------------------------------------------------------------------

--
11
<PAGE>

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 price
stability but lower yield potential than Scudder Managed Municipal Bonds and
Scudder High Yield Tax Free Fund. This price stability reduces the impact of
interest rate changes on the Fund's share price, 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. 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 a Fund's objectives will be
met.

- ---------------------------------------
Scudder Tax Free Money Fund
- ---------------------------------------

Investment objectives and policies

Scudder Tax Free Money Fund, a diversified open-end management investment
company, seeks to provide income exempt from regular federal income tax and
stability of principal through investments in municipal securities. All of the
Fund's investments are high quality, have a remaining maturity of 397 calendar
days or less and have minimal credit risk as determined by the 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 rating
categories of two or more of the following rating agencies: Moody's Investors
Service, Inc. ("Moody's") (Aaa and Aa, MIG 1 and MIG 2, and P1 and P-2),
Standard & Poor's Corporation ("S&P") (AAA and AA, SP1+ and SP1, A1+ and A1 and
A-2) 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

- --
12
<PAGE>

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.

Amendments have been adopted to the federal rules regulating quality, maturity
and diversification requirements of money market funds like the Fund. Money
market funds must comply with the revised rules by July 1, 1998. The Fund
intends to be in compliance with the amended requirements by that date.

The Fund may also invest in when-issued securities, whose market value may
involve an unrealized gain or loss prior to settlement. In addition the Fund may
invest, to a limited extent, in illiquid or restricted securities.

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. 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.

The Fund may invest more than 25% of its assets in industrial development or
other private activity bonds, subject to the Fund's fundamental investment
policies, and also subject to the Fund's 20% limitation on investing in
securities whose investment income is subject to the alternative minimum tax
("AMT" bonds) and the Fund's current intention not to invest in municipal
securities whose investment income is subject to regular federal income tax. For
purposes of the Fund's investment limitation regarding concentration of
investments in any one industry, industrial development or other private
activity bonds ultimately payable by companies within the same industry will be
considered as if they were issued by issuers in the same industry. The Fund's
distributions from interest on AMT bonds may be taxable depending upon an
investor's particular situation. (For more information please see the Statement
of Additional Information.)

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 or may otherwise vary from its investment policies during
periods when the Adviser determines that it is advisable to do so because of
conditions in the securities markets or other economic or political conditions.
It is impossible to accurately predict how long such alternative strategies may
be utilized. In 1997, all the Fund's dividends were 100% federally tax-exempt.
The Fund may also invest in stand-by commitments and other puts, repurchase
agreements, participation interests

--
13
<PAGE>

and when-issued or forward delivery securities. See "Additional information
about policies and investments" for more information about these investment
techniques.

- ---------------------------------------
Scudder Limited Term Tax Free Fund
- ---------------------------------------

Investment objectives and policies

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

The Fund's price and yield can fluctuate daily in response to changing bond
market conditions.

Investments

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

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

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

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

Normally, the Fund invests at least 65% of its net assets in municipal
securities which are rated within the three highest quality rating categories 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 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, however, invest in a debt security so rated by one rating
agency even though the security may be rated lower by one or more of the other
agencies.

Securities must also meet credit standards applied by the Adviser. Should the
rating of a

- --
14
<PAGE>

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 securities in municipal securities.
However, for temporary defensive purposes or if 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. It is impossible to predict how long such
alternative strategies may be utilized.

The Fund may also invest in third party puts, municipal lease obligations,
variable rate demand instruments and when-issued or forward delivery securities,
may purchase warrants to purchase debt securities, may enter into repurchase
agreements and may also engage in strategic transactions. See "Additional
information about policies and investments" for more information about these
investment techniques.

- ---------------------------------------
Scudder Medium Term Tax Free Fund
- ---------------------------------------

Investment objectives and policies

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

The Fund will invest primarily in high-grade, intermediate-term municipal bonds.
The dollar-weighted average effective maturity of the Fund's portfolio will
range between five and 10 years. Within this limitation, the Fund may not
purchase individual securities with effective maturities greater than 15 years.
To the extent the Fund invests in high-grade securities, it will be unable to
avail itself of opportunities for higher income which may be available with
lower-grade investments.

Investments

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

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

The Fund may invest more than 25% of its assets in industrial development or
other private activity bonds, subject to the Fund's fundamental investment
policies, and also subject to the

--
15
<PAGE>

Fund's current intention not to invest in municipal securities whose investment
income is taxable or AMT bonds. For purposes of the Fund's investment limitation
regarding concentration of investments in any one industry, industrial
development or other private activity, bonds ultimately payable by companies
within the same industry will be considered as if they were issued by issuers in
the same industry.

Normally, the Fund invests at least 65% of its net assets in municipal bonds
which are rated within the three highest quality rating categories 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 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, however, invest in a debt security so rated by one rating
agency even though the security may be rated lower by one or more of the other
agencies.

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.

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, for temporary
defensive purposes or if 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. It is impossible to predict how long such alternative strategies may be
utilized.

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

- ---------------------------------------
Scudder Managed Municipal Bonds
- ---------------------------------------

Investment objectives and policies

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

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

All income distributed by the Fund is expected to be exempt from federal income
taxes, but income may be subject to state and local income taxes. Ordinarily,
the Fund expects that 100% of its portfolio securities will be in federally
tax-exempt securities although a small portion of its income may be subject to
regular federal or alternative minimum tax.

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

- --
16
<PAGE>

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.

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.

The Fund may invest more than 25% of its assets in industrial development or
other private activity bonds, subject to the Fund's fundamental investment
policies, and also subject to the Fund's 20% limitation on investing in
municipal securities whose investment income is taxable or AMT bonds and the
Fund's current intention not to invest in municipal securities whose investment
income is subject to regular federal income tax. For purposes of the Fund's
investment limitation regarding concentration of investments in any one
industry, industrial development or other private activity bonds ultimately
payable by companies within the same industry will be considered as if they were
issued by issuers in the same industry.

Normally, the Fund invests at least 65% of its net assets in securities rated,
or issued by an issuer rated, within the three highest quality rating categories
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 up to 10% of its assets in debt securities rated
lower than Baa by Moody's, BBB by S&P or Fitch or of equivalent quality as
determined by the Adviser, but will not purchase bonds rated below B by Moody's,
S&P or Fitch, or their equivalent. Unrated obligations will be purchased only if
they are considered to be of a quality comparable to obligations rated as
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 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. For
temporary defensive purposes or if 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. It is impossible to predict how long such alternative
strategies may be utilized.

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

--
17
<PAGE>

- ---------------------------------------
Scudder High Yield Tax Free Fund
- ---------------------------------------

Investment objectives and policies

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

The Fund will invest at least 50% of its assets in municipal bonds rated, at the
time of purchase, within the four highest quality rating categories of 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 50% 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 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.

During the fiscal year ended December 31, 1997, the average monthly
dollar-weighted market value of the bonds in the Fund's portfolio was rated as
follows: 18% AAA, 8% AA, 12% A, 36% BBB and 26% not rated or below BBB. The
bonds are rated by Moody's, S&P, or of equivalent quality as determined by the
Adviser. A large portion of the Fund's bond holdings may trade at substantial
discounts from face value.

High quality bonds, those within the two highest 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. For temporary
defensive purposes, the Fund may vary from its investment policies during
periods when the Adviser determines that it is advisable to do so because of
conditions in the securities markets or other economic or political conditions.
During such periods 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. It is impossible to accurately predict how long such
alternative strategies may be utilized.

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 securities. 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

- --
18
<PAGE>

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 may
invest more than 25% of its assets in industrial development or other private
activity bonds, subject to the Fund's fundamental investment policies, and also
subject to the Fund's 20% limitation on investing in AMT bonds and the Fund's
current intention not to invest in municipal securities whose investment income
is subject to regular federal income tax. For purposes of the Fund's investment
limitation regarding concentration of investments in any one industry,
industrial development or other private activity bonds ultimately payable by
companies within the same industry will be considered as if they were issued by
issuers 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 other puts, repurchase
agreements, municipal lease obligations, variable rate demand instruments and
when-issued or forward delivery securities and may also engage in 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.

--
19
<PAGE>

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 credit risk. 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 a vehicle for investing in primarily
high-grade long term municipal bonds that are exempt from regular federal income
tax. Investors also benefit from ongoing analysis and professional management by
Scudder Kemper Investments, 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 1997, you
would need to earn a taxable yield of 7.57% to receive after-tax income equal to
the 4.57% tax-free yield provided by Scudder High Yield Tax Free Fund for the
30-day period ended December 31, 1997.

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 and has a long
tradition of independent municipal bond credit analysis. As of December 31,
1997, the Adviser was responsible for managing more than $200 billion in assets
globally.

- --
20
<PAGE>

- ---------------------------------------
Additional information about policies
and investments
- ---------------------------------------

Investment restrictions

The Funds have certain investment restrictions which are designed to reduce the
Funds' investment risk. Fundamental investment restrictions may not be changed
without a vote of shareholders; non-fundamental investment restrictions may be
changed by a vote of the Trust's Board of Trustees. A complete listing of
investment restrictions is contained under "Investment Restrictions" in the
Funds' Statement of Additional Information.

As a matter of fundamental policy, the Funds may not borrow money, except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Funds may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes, although the Funds may engage up to 5% of
total assets in reverse repurchase agreements or dollar rolls.

As a matter of fundamental policy, the Funds may not make loans except through
the lending of portfolio securities, the purchase of debt securities, interests
in indebtedness or through repurchase agreements. The Funds have adopted a
non-fundamental policy restricting the lending of portfolio securities to no
more than 5% of total assets.

A complete listing of investment restrictions is contained under "Investment
Restrictions" in the Funds' Statement 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 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."

Illiquid securities

The Funds may invest in securities for which there is not an active trading
market, or which have resale restrictions. These types of securities generally
offer a higher return than more readily marketable securities, but carry the
risk that the Funds may not be able to dispose of them at an advantageous time
or price. For Scudder Tax Free Money Fund, some restricted securities, however,
may be considered liquid despite resale restrictions, since they can be sold to
other qualified institutional buyers under provisions of the Securities and
Exchange Commission (Rule 144A securities and 4(2) paper). The Trust's Board of
Trustees has delegated to the Adviser the authority to determine those Rule 144A
securities and 4(2) paper that will be considered liquid.

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

--
21
<PAGE>

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.

Tax-exempt custodial receipts

Scudder Managed Municipal Bonds may purchase tax-exempt custodial receipts (the
"Receipts") which evidence ownership in an underlying bond that is deposited
with a custodian for safekeeping. Holders of the Receipts receive all payments
of principal and interest when paid on the bonds. Receipts can be purchased in
an offering or from a financial counterparty (typically an investment banker).
To the extent that any Receipt is illiquid, it is subject to the Fund's limit on
illiquid securities.

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 of
the above are called "Strategic Transactions").

Strategic Transactions may be used without limit (except to the extent that 80%
of a Fund's net assets are required to be invested in tax-exempt municipal
securities, and as limited by its 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

- --
22
<PAGE>

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 to create leveraged exposure in the Fund. 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.

Debt securities rated below Baa by Moody's or BBB by S&P or Fitch are considered
to be below investment grade. These types of high yield/high risk debt
obligations (commonly referred to as "junk bonds") are predominantly speculative
with respect to the capacity to pay interest and repay principal in accordance
with their terms and generally involve a greater risk of default and more
volatility in price than securities in higher rating categories. These debt
instruments generally offer a higher current yield than that available from
higher grade issues, but typically involve greater risk. Lower rated and unrated
securities are especially subject to adverse changes in general economic
conditions, to changes in the financial condition of their issuers, and to price
fluctuation in response to changes in interest rates. During periods of economic
downturn or rising interest rates, issuers of these instruments may experience
financial stress that could adversely affect their ability to make payments of
principal and interest and increase the possibility of default. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of these securities,
especially in a market characterized by only a small amount of trading.
Perceived credit quality in this market can change suddenly and unexpectedly,
and may not fully reflect the actual risk posed by a particular lower rated or
unrated security.

Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted, or
the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency proceedings
with

--
23
<PAGE>

respect to the seller of the securities before repurchase of the securities
under a repurchase agreement, the Fund may encounter delay and incur costs,
including a decline in the value of the securities, before being able to sell
the securities.

Illiquid securities. The absence of a trading market can make it difficult to
ascertain a market value for these investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and it
may be difficult or impossible for the Funds to sell them promptly at an
acceptable price.

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 Funds' Statement 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

- --
24
<PAGE>

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 the Funds' 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 prevent application of a federal excise tax. An additional distribution may
be made if required. Any dividends or capital gains distributions declared in
October, November or December with a record date in such 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 a 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 to individual
shareholders at a maximum 20% or 28% capital gains rate (depending on the Fund's
holding period for the assets giving rise to the gain), 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 a Fund's 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. For Scudder Tax Free Money Fund, the
"yield" of a Fund refers to income generated by an investment in the Fund over a
specified seven-day period. The "SEC 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 is an annualized expression of the net income
generated by a Fund over a specified 30-day (one month) period, as a percentage
of a Fund's share price on the last day of that period. This yield is calculated
according to methods required by the Securities and Exchange Commission (the
"SEC"), and therefore may not equate to the level of income paid to
shareholders. The "effective yield" of a Fund is expressed similarly but, when
annualized, the income earned by an investment in a Fund is assumed to be
reinvested and will reflect the effects of compounding. A 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 a
Fund's yield, assuming certain tax brackets for a Fund shareholder. "Total
return" is the change in value of an investment in a Fund for a specified
period. The "average annual total return" of a Fund is

--
25
<PAGE>

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 or life of a
Fund as of a stated ending date. "Cumulative total return" represents the
cumulative change in value of an investment in a Fund for various periods. All
types of total return calculations assume that all dividends and capital gains
distributions during the period were reinvested in shares of a Fund. Performance
will vary based upon, among other things, changes in market conditions and the
level of a Fund's expenses.

- ---------------------------------------
Fund organization
- ---------------------------------------

Scudder Tax Free Money Fund, Scudder Tax Free Trust and Scudder Municipal Trust
(the "Trusts") are 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 diversified series of Scudder Tax Free Trust. Scudder High Yield
Tax Free Fund and Scudder Managed Municipal Bonds are diversified series of
Scudder Municipal Trust.

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

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

Investment adviser

The Funds retain the investment management firm of Scudder Kemper Investments,
Inc., a Delaware corporation formerly known as Scudder, Stevens & Clark, Inc.,
to manage each Fund's daily investment and business affairs subject to the
policies established by the relevant Trust's Board of Trustees. The Trustees
have overall responsibility for the management of their respective Funds under
Massachusetts law.

Scudder, Stevens & Clark, Inc. ("Scudder"), and Zurich Insurance Company
("Zurich"), an international insurance and financial services organization, have
formed a new global investment organization by combining Scudder's business with
that of Zurich's subsidiary, Zurich Kemper Investments, Inc. and Scudder has
changed its name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owns approximately 70% of the Adviser, with the balance
owned by the Adviser's officers and employees.

The management fee for Scudder Limited Term Tax Free Fund is 0.60% of the Fund's
average daily net assets of the Fund.

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

- --
26
<PAGE>

to exceed 75% of the amount of the fee then accrued on the books of the Fund and
unpaid.

Until February 28, 1999, 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 Limited Term Tax Free
Fund at 0.75% of the Fund's average daily net assets.

Until April 30, 1998, the Adviser has agreed not to impose a portion of its
investment management fee and to take other action, to the extent necessary, to
maintain the annualized expenses of Scudder Tax Free Money Fund at 0.65% of the
Fund's average daily net assets.

For the fiscal year ended December 31, 1997, the Adviser received investment
management fees of 0.39%, 0.51%, 0.58% and 0.67% of each Fund's average daily
net assets on an annualized basis for Scudder Tax Free Money Fund, Scudder
Managed Municipal Bonds, Scudder Medium Term Tax Free Fund and Scudder High
Yield Tax Free Fund, respectively.

For the fiscal year ended October 31, 1997, the Adviser received an investment
management fee of 0.52% of the average daily net assets on an annualized basis
from Scudder Limited Term Tax Free Fund.

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

Scudder Kemper Investments, Inc. is located at
Two International Place, Boston, Massachusetts.

Transfer agent

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

Underwriter

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

Fund accounting agent

Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of each Fund.

Custodian

State Street Bank and Trust Company is the custodian for each Fund.

--
27
<PAGE>

- ---------------------------------------
Summary of important features
- ---------------------------------------

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------

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

<S> <C> <C> <C> <C> <C>
Investment o money market o higher and more o higher o income exempt o high tax-free
characteristics fund income stable level of tax-free from regular income
exempt from federally income than federal income
regular federal tax-free income generally tax
income tax than normally available from
provided by tax-free money
tax-free money market funds
market
investments

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

Investments o short-term o shorter-term o intermediate- o primarily o primarily
municipal municipal term municipal long-term long-term
securities securities securities municipal municipal
securities securities

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

Quality o 100% of o normally at o normally at o at least 65% of o at least 50% of
investments least 65% of least 65% of investments investments
rated within investments investments rated within rated within top
top two quality rated within rated within top three four quality
rating top three top three quality rating rating
categories, or quality rating quality rating categories, or categories, or
judged to be of categories, or categories, or equivalent equivalent
comparable equivalent equivalent
quality
</TABLE>

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

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

- --
28
<PAGE>

- ---------------------------------------
Transaction information
- ---------------------------------------

Purchasing shares

Purchases are executed at the next calculated net asset value per share after
each Fund's transfer agent 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. If
you purchase shares by federal funds wire, you may avoid this delay.

Redemption 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. 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 "QuickBuy." If you elected "QuickBuy" for your account, you can call
toll-free to purchase shares. The money will be automatically transferred from
your predesignated bank checking account. Your bank must be a member of the
Automated Clearing House for you to use this service. If you did not elect
"QuickBuy," call 1-800-225-5163 for more information.

To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "QuickBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.

If you purchase shares by "QuickBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "QuickBuy" transactions are not
available for most retirement plan accounts. However, "QuickBuy" transactions
are available for Scudder IRA accounts.

By exchange. Each Fund may be exchanged for shares of other funds in the Scudder
Family of Funds unless otherwise determined by each Fund's Board of Trustees.
Your new account will have the same registration and address as your existing
account.

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29
<PAGE>

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.

By telephone order. To a limited extent, certain financial institutions may
place orders to purchase shares unaccompanied by payment prior to the close of
regular trading on the New York Stock Exchange (the "Exchange"), normally 4:00
p.m. eastern time, and receive that day's price. Please call 1-800-854-8525 for
more information, including the dividend treatment and method and manner of
payment for Fund shares.

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 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.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.

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.

By "QuickSell." If you elected "QuickSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "QuickSell,"
call 1-800-225-5163 for more information.

To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "QuickSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.

"QuickSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.

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.

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30
<PAGE>

Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 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.

Telephone transactions

Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $100,000 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 determines net asset
value per share as of the close of regular trading on the Exchange 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. 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 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

--
31
<PAGE>

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

Purchase restrictions

For Scudder Medium Term Tax Free Fund, Scudder Managed Municipal Bonds and
Scudder High Yield Tax Free Fund purchases and sales should be made for
long-term investment purposes only. All Funds and Scudder Investor Services,
Inc. reserve the right to reject purchases of Fund shares (including exchanges)
for any reason including when a pattern of frequent purchases and sales made in
response to short-term fluctuations in each 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 correct 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 correct 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 correct 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 $2,500, which amount
may be changed by the Board of Trustees of each Trust. Scudder retirement plans
and certain other accounts have similar or lower minimum share balance
requirements. A shareholder may open an account with at least $1,000, if an
automatic investment plan of $100/month is established.

Shareholders who maintain a non-fiduciary account balance of less than $2,500 in
a Fund, without establishing an automatic investment plan, will be assessed an
annual $10.00 per fund charge with the fee to be paid to the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. Each Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. Each Fund
will mail the proceeds of the redeemed account to the shareholder.

- --
32
<PAGE>

Reductions in value that result solely from market activity will not trigger an
involuntary redemption. Retirement accounts and certain other accounts will not
be assessed the $10.00 charge or be subject to automatic liquidation. Please
refer to "Exchanges and Redemptions--Other information" in the Funds' Statement
of Additional Information for more information.

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 Kemper Investments, 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 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 the Adviser's large staff of economists, research
analysts, traders and other investment specialists who work in the Adviser's
offices across the United States and abroad. The Adviser believes its team
approach benefits Fund investors by bringing together many disciplines and
leveraging its extensive resources.

M. Ashton Patton has been Lead Portfolio Manager for Scudder Limited Term Tax
Free Fund since 1994, for Scudder Medium Term Tax Free Fund since 1998, and for
Scudder Managed Municipal Bonds since 1998. Ms. Patton joined the Adviser in
1990 and has been a portfolio manager since 1990.

Philip Condon, Lead Portfolio Manager for Scudder High Yield Tax Free Fund since
its inception in 1987 and for Scudder Managed Municipal Bonds since 1998, has
been a portfolio manager since 1987. Mr. Condon joined the Adviser in 1983 and
also serves as Portfolio Manager for Scudder Medium Term Tax Free Fund.

Frank J. Rachwalski, Lead Portfolio Manager for Scudder Tax Free Money Fund,
joined the Adviser in 1973 and has over 20 years experience in short-term fixed
income investing and research. Mr. Rachwalski assumed responsibility for the
Fund's investment strategy and operations in 1998.

Jerri Cohen, Portfolio Manager for Scudder Tax Free Money Fund since 1998,
joined the Adviser in 1981 and has over 15 years' experience in tax-exempt money
market fund investing.

K. Sue Cote, Portfolio Manager for Scudder Limited Term Tax Free Fund since
1998, joined the Adviser in 1983 as a research assistant and has been a
portfolio manager since 1986.

Rebecca L. Wilson joined the Adviser in 1986 and the team of Scudder High Yield
Tax Free Fund as a Portfolio Manager in 1998. Ms. Wilson contributes over 11
years of experience in municipal investing and research.

SAIL(TM)--Scudder Automated Information Line

For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. 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

--
33
<PAGE>

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. (The exchange
privilege may not be available for certain Scudder funds or classes thereof. For
more information, please call 1-800-225-5163.) 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.

Personal Counsel(SM) -- A Managed Fund Portfolio Program

If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder Kemper Investments, Inc., combines the benefits of a
customized portfolio of pure no-load Scudder Funds with ongoing portfolio
monitoring and individualized service, for an annual fee of generally 1% or less
of assets (with a $1,000 minimum). In addition, it draws upon the Adviser's more
than 75-year heritage of providing investment counsel to large corporate and
private clients. If you have $100,000 or more to invest initially and would like
more information about Personal Counsel, please call 1-800-700-0183.

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 will receive a detailed statement summarizing account activity, including
dividend and capital gain reinvestment, purchases and redemptions. 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 Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.

Scudder Investor Centers

As a convenience to shareholders who like to conduct business in person,
Scudder Investor Services, Inc. maintains Investor Centers in Boca Raton,
Boston, Chicago, New York and San Francisco.

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.

- --
34
<PAGE>

- ---------------------------------------
Purchases
- ---------------------------------------

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Opening Minimum initial investment: $2,500; IRAs $1,000
an account Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.

<S> <C> <C>
Make checks o By Mail Send your completed and signed application and check
payable to "The
Scudder Funds." by regular mail to: or by express, registered,
or certified mail to:

The Scudder Funds The Scudder Funds
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291

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

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

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

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

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

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

o By Telephone Please see Transaction information--Purchasing shares--
By QuickBuy or By telephone order for more details.

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

--
35
<PAGE>

- ---------------------------------------
Exchanges and redemptions
- ---------------------------------------

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts

<S> <C> <C>
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).

o By Mail Print or type your instructions and include:
or Fax - the name of the Fund and the account number you are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into;
- your signature(s) as it appears on your account; and
- a daytime telephone number.

Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:

The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
- ------------------------------------------------------------------------------------------------------------------------
Redeeming shares o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may
have redemption proceeds sent to your predesignated bank account, or
redemption proceeds of up to $100,000 sent to your address of record.

o By "Write- You may redeem shares of Scudder Tax Free Money Fund, Scudder Limited Term Tax Free
A-Check" Fund and Scudder Medium Term Tax Free Fund by writing checks against your account
balance as often as you like for at least $100, but not more than $5,000,000.

o By Mail Send your instructions for redemption to the appropriate address or fax number
or Fax above and include:
- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem;
- your signature(s) as it appears on your account; and
- a daytime telephone number.

A signature guarantee is required for redemptions over $100,000.
See Transaction information--Redeeming shares.

o By Automatic You may arrange to receive automatic cash payments periodically.
Withdrawal Call 1-800-225-5163 for more information and an enrollment form.
Plan
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

- --
36

- ---------------------------------------
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.

o Scudder No-Fee IRA
o Scudder Roth No-Fee IRA
o Keogh Plans
o 401(k) Plans
o Profit Sharing and Money Purchase Pension Plans
o 403(b) Plans
o SEP-IRA
o 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 and most Profit
Sharing or Pension Plan accounts, call 1-800-225-5163.

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

Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.

--
37
<PAGE>

- ---------------------------------------
Appendix
- ---------------------------------------

The six highest ratings of Moody's for municipal bonds are Aaa, Aa, A, Baa, Ba
and B. 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.
Moody's judges municipal bonds rated Ba to have speculative elements, with very
moderate protection of interest and principal payments and thereby not well
safeguarded under any future conditions. Municipal bonds rated B by Moody's
generally lack characteristics of desirable investments. Long-term assurance of
the contract terms of B-rated municipal bonds, such as interest and principal
payments, may be small. Securities rated Ba or below 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 six highest ratings of S&P for municipal bonds are AAA (Prime), AA (High
grade), A (Good grade), BBB (Investment grade), BB (Below investment grade) and
B. 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. Debt rated BB by
S&P faces major ongoing uncertainties or exposure to adverse conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. Municipal bonds rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Securities rated BB or below are commonly referred to as "junk" bonds and as
such they carry a high margin of risk.

- --
38
<PAGE>

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 six highest ratings of Fitch for municipal bonds are AAA, AA, A, BBB, BB and
B. 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 ratings. 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. Fitch
considers bonds rated BB to be speculative because the issuer's ability to pay
interest and repay principal may be affected over time by adverse economic
changes, although financial alternatives can be identified to assist the issuer
in meeting its obligations. While bonds rated B are currently meeting debt
service requirements, they are considered highly speculative in light of the
issuer's limited margin of safety. Securities rated BB or below are commonly
referred to as "junk" bonds and as such they carry a high margin of risk.

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39
<PAGE>

- --------------------------------------------------------------------------------
Trustees and Officers
- --------------------------------------------------------------------------------

Daniel Pierce*
President and Trustee

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

Dawn-Marie Driscoll
Trustee; Executive Fellow, Center for Business Ethics; President, Driscoll
Associates

Peter B. Freeman
Trustee; Corporate Director and Trustee

George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates

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

Kathryn L. Quirk*
Vice President; Trustee and Assistant Secretary

Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners

Donald C. Carleton*
Vice President

Philip G. Condon*
Vice President (1)

K. Sue Cote*
Vice President (2)

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

M. Ashton Patton*
Vice President (3)

Thomas F. McDonough*
Vice President, Secretary and Treasurer

John R. Hebble*
Assistant Treasurer

Caroline Pearson*
Assistant Secretary

(1) Scudder Municipal Trust
(2) Scudder Tax Free Money Fund
(3) Scudder Tax Free Trust
All funds unless otherwise indicated.

* Scudder Kemper Investments, Inc.

- --
40
<PAGE>

- --------------------------------------------------------------------------------
Investment products and services
- --------------------------------------------------------------------------------

The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
Premium Shares*
Managed Shares*
Scudder Government Money Market Series--Managed Shares*

Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**

Tax Free+
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited
Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**

U.S. Income
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund

Global Income
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund

Asset Allocation
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio

U.S. Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund

U.S. Growth

Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund

Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund

Global Growth

Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund

Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.

Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------

Retirement Programs
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan **+++ +++
(a variable annuity)

Education Accounts
Education IRA
UGMA/UTMA

Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.

For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. +++ +++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 Kemper Investments, Inc., are traded on the New York Stock Exchange and,
in some cases, on various foreign stock exchanges.

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41
<PAGE>

- --------------------------------------------------------------------------------
How to contact Scudder
- --------------------------------------------------------------------------------

Account Service and Information:

For existing account service and transactions

Scudder Investor Relations -- 1-800-225-5163

For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you

Scudder Electronic Account Services -- http://funds.scudder.com

For personalized information about your Scudder accounts, exchanges and
redemptions

Scudder Automated Information Line (SAIL) -- 1-800-343-2890

Investment Information:

For information about the Scudder funds, including additional applications
and prospectuses, or for answers to investment questions

Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com

For establishing 401(k) and 403(b) plans

Scudder Defined Contribution Services -- 1-800-323-6105

Scudder Brokerage Services:

To receive information about this discount brokerage service and to obtain
an application

Scudder Brokerage Services* -- 1-800-700-0820

Personal Counsel(SM) -- A Managed Fund Portfolio Program:

To receive information about this mutual fund portfolio guidance and
management program

Personal Counsel from Scudder -- 1-800-700-0183

Please address all correspondence to:

The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291

Or Stop by a Scudder Investor Center:

Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Investor Center near you--they can be found
in the following cities:

Boca Raton Chicago San Francisco
Boston New York

Scudder Investor Relations and Scudder Investor Centers are services provided
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* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061 --
Member NASD/SIPC.

<PAGE>

Scudder
Limited Term Tax
Free Fund

Annual Report
October 31, 1997

Pure No-Load(TM) Funds

A fund designed to seek a high level of income, exempt from regular federal
income taxes and consistent with a high degree of principal stability.

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

SCUDDER (logo)

<PAGE>

In Brief

o For the twelve months ended October 31, 1997, Scudder Limited Term Tax Free
Fund posted a total return of 5.89%. This return outpaced the average
performance of the Fund's peers according to Lipper. The Fund's total return
performance also placed it in the top 20% of similar funds over one- and
three-year periods.

o As of October 31, 1997, Scudder Limited Term Tax Free Fund's 30-day net
annualized SEC yield was 3.79%, equivalent to a 6.27% taxable yield for
investors subject to the 39.6% maximum federal income tax rate.

o Scudder Limited Term Tax Free Fund received a four-star rating from
Morningstar, reflecting an "above-average" rating for risk-adjusted performance
through October 31, 1997.*

* For your information, these ratings are subject to change every month and are
calculated from the Fund's five-year average annual return in excess of 90-day
Treasury bill returns with appropriate fee adjustments, and a risk factor that
reflects fund performance below T-bill returns. The Fund received four stars
for three-year performance, and was rated among 1,448 municipal funds for the
period. Of the funds rated, 10% received five stars, and 22.5% received four
stars. Past performance is no guarantee of future returns.

Table of Contents

3 Letter from the Fund's President 19 Notes to Financial Statements
4 Performance Update 21 Report of Independent Accountants
5 Portfolio Summary 22 Tax Information
6 Portfolio Management Discussion 23 Shareholder Meeting Results
9 Glossary of Investment Terms 28 Officers and Trustees
10 Investment Portfolio 29 Investment Products and Services
15 Financial Statements 30 Scudder Solutions
18 Financial Highlights

2 - Scudder Limited Term Tax Free Fund
<PAGE>

Letter from the Fund's President

Dear Shareholders,

We are pleased to report to you on Scudder Limited Term Tax Free Fund's
performance over its most recent fiscal year. As of October 31, 1997, the Fund
posted a 6.27% 30-day SEC tax-equivalent yield for investors in the highest
federal tax bracket, significantly higher than current two-year CD rates. The
Fund earned a 5.89% total return over the 12-month period. In addition, the Fund
earned a four-star Morningstar rating (see "In Brief" on page 2 for more
information). Please read the discussion beginning on page 6 for more
information.

The past year saw volatile interest rates. Over the period, bond prices
inched upward. Leading to the volatility was the fact that as one statistic
which might imply a resurgence of inflation was announced, it was soon followed
by two others that more than allayed such fears. We would not be surprised if
the coming year saw a similar pattern.

For those interested in other offerings from Scudder, we would like to take
this opportunity to tell you about a recent addition to Scudder's family of
funds -- Scudder International Growth and Income Fund. The Fund employs a
yield-oriented approach to international investing and seeks to provide
long-term growth of capital plus current income. Investors who desire
international exposure but who wish to take a more conservative approach to
international investing may appreciate the Fund's emphasis on the dividend
paying stocks of established companies listed on foreign exchanges.

Please see pages 29 through 31 for more information on Scudder products and
services. As always, please call a Scudder Investor Information representative
at 1-800-225-2470 if you have questions about your account or any Scudder fund.

Sincerely,

/s/David S. Lee

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

3 - Scudder Limited Term Tax Free Fund

<PAGE>

PERFORMANCE UPDATE as of October 31, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------

Total Return
Period Growth --------------
Ended of Average
10/31/97 $10,000 Cumulative Annual
- --------------------------------------------
SCUDDER LIMITED TERM TAX FREE FUND
TICKER SYMBOL: SCLTX
- --------------------------------------------
1 Year $ 10,589 5.89% 5.89%
Life of Fund* $ 11,978 19.78% 4.99%
- --------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX
(3 YEAR)
- --------------------------------------------
1 Year $ 10,551 5.51% 5.51%
Life of Fund* $ 11,978 19.78% 5.04%
- --------------------------------------------
*The Fund commenced operations on February 15, 1994.
Index comparisons begin on February 28, 1994.

- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------

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* $10,000
4/94 $ 9,965
10/94 $10,099
4/95 $10,465
10/95 $10,901
4/96 $11,072
10/96 $11,373
4/97 $11,551
10/97 $12,044

LEHMAN BROTHERS MUNICIPAL BOND INDEX (3 YEAR)
Year Amount
- ----------------------
2/94* $10,000
4/94 $ 9,938
10/94 $10,058
4/95 $10,401
10/95 $10,862
4/96 $11,051
10/96 $11,352
4/97 $11,561
10/97 $11,978

The 3-year Lehman Brothers Municipal Bond Index is an unmanaged,
market-value-weighted measure of the short-term municipal bond market and
includes bonds with maturities of two to three years. Index returns assume
reinvested dividends and, unlike Fund returns, do not reflect 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 OCTOBER 31

1994* 1995 1996 1997
-------------------------------------
NET ASSET VALUE... $ 11.67 $ 12.01 $ 11.98 $ 12.12
INCOME DIVIDENDS.. $ .38 $ .56 $ .53 $ .52
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ -- $ .01 $ .02
FUND TOTAL
RETURN (%)........ .44 7.94 4.33 5.89
RETURN (%)........ .56 8.01 4.51 5.51

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 returns for the one year and life of Fund periods
would have been lower.

4 - Scudder Limited Term Tax Free Fund

<PAGE>
PORTFOLIO SUMMARY as of October 31, 1997
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Hospital/Health 20%
Core Cities/Lease 17%
State General Obligation 15%
Electric Utility Revenue 12%
School District/Lease 7%
Pollution Control/
Industrial Development 7%
Port/Airport Revenue 6%
Housing Finance Authority 4%
Student Loans 4%
Miscellaneous Municipal 8%
- --------------------------------------
100%
- --------------------------------------
The Fund is broadly diversified,
with holdings in several categories
of revenue and general obligation
bonds.

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

- --------------------------------------------------------------------------
QUALITY
- --------------------------------------------------------------------------
AAA 58%
AA 13%
A 20%
BBB 9%
- --------------------------------------
100%
- --------------------------------------
Weighted average quality: AA

Overall quality remains high,
with 70% of the bonds in the
Fund's portfolio rated AAA or
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 19%
1 - 5 years 48%
5 - 10 years 33%
- --------------------------------------
100%
- --------------------------------------
Weighted average effective maturity: 3.89 years

We continued to maintain a
longer-than-neutral average
maturity to capitalize on the
favorable outlook for five- to
10-year municipal bonds.

For more complete details about the Fund's investment portfolio, see page 10.

5 - Scudder Limited Term Tax Free Fund

<PAGE>
Portfolio Management Discussion

Dear Shareholders,

For its most recent fiscal year ended October 31, 1997, Scudder Limited Term Tax
Free Fund earned a solid 5.89% total return. This consisted of a $0.14 increase
in net asset value to $12.12 and income distributions of $0.52 per share. This
return outpaced the Lipper average of similar funds over one- and three-year
periods, and the Fund placed in the top 20% of similar funds over these two time
periods.

On October 31, 1997, the Fund's 30-day net annualized SEC yield was 3.79%,
equivalent to a taxable yield of 6.27% for shareholders subject to the 39.6%
maximum federal income tax rate. As shown in the accompanying graph, the Fund's
tax-equivalent yield has consistently exceeded the average yield of two-year CDs
tracked nationally.

Scudder Limited Term Tax Free Fund:
Outpacing the Averages
(Average annual returns for periods ended
October 31, 1997)

Scudder
Limited
Term Tax Number
Free of
Fund Lipper Funds Percentile
Period return return Rank tracked Rank
------ ------ ------ ---- ------- ----------

1 year 5.89% 5.11% 6 of 33 Top 18%

3 years 6.03% 5.31% 3 of 22 Top 14%

Past performance does not guarantee future results.

THE PRINTED DOCUMENT HAS A LINE CHART HERE

CHART TITLE:

Scudder Limited Term Tax Free Fund's
Tax-Equivalent Yield vs. National Two-Year CD Rates,
November 1996 through October 1997
(tracked each month, for one year)

CHART DATA:
SLTTFF National
tax-equivalent average of two-year
yield CD yields
----- ---------

11/96 6.44% 5.20%

6.51 5.15

1/97 6.56 5.17

6.27 5.18

3/97 6.62 5.21

6.99 5.37

5/97 6.88 5.38

6.59 5.39

7/97 6.25 5.36

6.35 5.32

6.31 5.32

10/97 6.26 5.29

Source of CD data: BanxQuote.
Tax equivalent yield is for the 39.6% maximum federal tax rate.

Portfolio Strategy

Scudder Limited Term Tax Free Fund is designed to deliver tax-free income
through investments primarily in a portfolio of municipal bonds with effective
maturities between one and 10 years. The Fund's management team pursues higher
income than is typically available from tax-free money market investments and
less share price fluctuation than is found in intermediate- and long-term tax
free bonds. The Fund's professional management, economies of scale, liquidity,
dividend reinvestment option, and ability to diversify its assets continue to
offer advantages compared with holding individual municipal bonds.

Over the most recent fiscal year, the Fund maintained an average maturity that

6 - Scudder Limited Term Tax Free Fund
<PAGE>

was slightly longer than neutral (3.9 years at the close of the period) to
capitalize on the favorable outlook for the five- to 10-year segment of the
municipal bond market. Yields of 10-year municipal bonds, for example, declined
on average one-third of a percentage point (and prices rose 2.3%) during the
previous 12 months while two-year municipal bond yields and prices were
essentially unchanged. By the close of the period we shifted our focus to five-
to seven-year municipal bonds, the range that we feel offers the greatest
potential for capital appreciation over the coming months, given the Fund's
investment parameters. The Fund also continued to emphasize premium noncallable
bonds, which generally exhibit less price sensitivity than bonds priced at par.
In addition, the Fund posted significant gains from its holdings in New York
municipal bonds, especially New York City securities, which benefited from the
State's improving credit environment. Lastly, the Fund's overall credit quality
remains high, with over 70% of the bonds in the Fund's portfolio rated AAA or
AA.

Outlook

As a rising but volatile stock market continued to break records, the past year
also witnessed increased activity in the bond market, as large and small
investors seeking additional diversification rebalanced their portfolios by
adding bonds. Amid Federal Reserve Chairman Greenspan's warnings about wage
pressures, the shrinking supply of labor, and the possible runout of the "peace
dividend," it's difficult to predict whether the Fed will continue to refrain
from raising interest rates in the near future and whether the currently

7 - Scudder Limited Term Tax Free Fund
<PAGE>

favorable economic and market conditions will prevail over the coming months. We
do know, however, that yields and prices of municipal bonds are currently
attractive compared with Treasuries, and that the continued low level of U.S.
inflation -- aided by business' strong investment in technological advances as
well as subdued economic activity in much of the rest of the world -- is a boon
to investors.

We will continue to pursue a conservative investment strategy, including holding
premium coupon bonds, diversifying broadly, and keeping the Fund's credit
quality high. In addition, the Fund will maintain its focus on select five- to
seven-year municipal bonds, which are currently priced at attractive levels. We
will also search for value by weighing the maturity characteristics, call
features, credit quality, and income potential of each bond we consider adding
to the Fund's portfolio.

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 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.

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 with Scudder since 1983. Don also manages the Scudder
Medium Term Tax Free Fund.

8 - Scudder Limited Term Tax Free Fund
<PAGE>

Glossary of Investment Terms

GENERAL OBLIGATION BOND A municipal bond backed by the "full faith and
credit" (including the taxing and further
borrowing power) of the city, state, or agency
that issues the bond. A general obligation bond is
repaid with the issuer's general revenue.

INFLATION An overall increase in the prices of goods and
services, as happens when business and consumer
spending increases relative to the supply of goods
available in the marketplace -- in other words,
when too much money is chasing too few goods. High
inflation has a negative impact on the prices of
fixed-income securities.

MUNICIPAL BOND An interest-bearing debt security issued by a
state or local government entity. Most municipal
bonds are exempt from federal income taxes, and
many are exempt from state and local income taxes
as well.

NET ASSET VALUE (NAV) The price per share of a mutual fund based on the
sum of the market value of all the securities
owned by the fund divided by the number of
outstanding shares.

REVENUE BOND A municipal bond that uses either the revenues
generated by the enterprise being financed or a
dedicated revenue stream to pay principal and
interest to the bondholder. Municipal projects
that issue revenue bonds include airports,
hospitals, and water and sewer facilities.

TAXABLE EQUIVALENT YIELD The level of yield a fully taxable instrument
would have to provide to equal that of a tax-free
municipal bond on an after-tax basis.

30-DAY SEC YIELD The standard yield reference for bond funds, based
on a formula prescribed by the SEC. This
annualized yield calculation reflects the 30-day
average of the income earnings of every holding in
a given fund's portfolio, net of expenses,
assuming each is held to maturity.

TOTAL RETURN The most common yardstick to measure the
performance of a fund. Total return -- annualized
or cumulative -- is based on a combination of
share price changes plus income and capital gain
distributions, if any, expressed as a percentage
gain or loss in value.

(Sources: Scudder; Barron's Dictionary of Finance and Investment Terms)

9 - Scudder Limited Term Tax Free Fund
<PAGE>

Investment Portfolio as of October 31, 1997

<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Municipal Investments 9.1%
- ------------------------------------------------------------------------------------------------------------------------------
California
Los Angeles County, CA, Local Educational Agency Pooled Tax and Revenue
Anticipation Notes, Series 1997B, 4.5%, 9/30/98 .............................. 3,000,000 SP1+ 3,017,010
Ontario, CA, General Obligation, Tax and Revenue Anticipation Notes,
Series 1997, 4.5%, 6/30/98 ................................................... 1,000,000 SP1+ 1,004,520
Missouri
Missouri Environment Improvement and Energy Agency Resource Authority,
Union Electric Project, Periodic Auction Reset, 3.85%, 12/1/20* .............. 3,000,000 A+ 3,000,000
Missouri Health & Educational Facilities Authority Revenue, Washington
University, Series 1996 C, Variable Rate Demand Note, 4.1%, 9/1/30* .......... 200,000 MIG1 200,000
Tennessee
Metropolitan Nashville Airport Authority, TN, Special Facilities Revenue,
American Airlines, Variable Rate Demand Note, 4.05%, 10/1/12* ................ 1,100,000 A1+ 1,100,000
Texas
Grapevine, TX, Industrial Development Authority Corp.:
Daily Demand Note, 4.05%, 12/1/24* ........................................... 300,000 P1 300,000
American Airlines, Daily Demand Note, 4.05%, 12/1/24* ........................ 100,000 P1 100,000
Harris County, TX, Health Facilities Authority, Saint Luke's,
Variable Rate Demand Note, 4.05%, 2/15/27* ................................... 1,000,000 A1+ 1,000,000
Utah
Salt Lake City, UT, Pollution Control Revenue, British Petroleum Station
Project, Series 1994 B, Daily Demand Note, 4%, 8/1/07* ....................... 800,000 P1 800,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Municipal Investments (Cost $10,515,584) 10,521,530
- ------------------------------------------------------------------------------------------------------------------------------

Intermediate-Term Municipal Investments 90.9%
- ------------------------------------------------------------------------------------------------------------------------------
Arizona
Central Arizona Water Conservation District, Central Arizona Project,
Prerefunded 11/1/00, 7.5%, 11/1/05*** ........................................ 1,000,000 AAA 1,112,770
Arkansas
Rogers, AR, Sales and Use Tax Revenue, 5%, 11/1/15 ............................. 1,000,000 AA 1,010,540
California
Foothill/Eastern Transportation Corridor Agency, CA, Toll Road Revenue,
Senior Lien, Series A, Zero Coupon, 1/1/05 ................................... 1,000,000 BBB 700,950
Orange County, CA, Recovery Notes, Series A, 6.5%, 6/1/05 (c) .................. 1,665,000 AAA 1,875,739
Sacramento, CA, Cogeneration Project Revenue, Proctor & Gamble Project,
Series 1995, 7%, 7/1/04 ...................................................... 1,000,000 BBB 1,126,590
</TABLE>

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

10 - Scudder Limited Term Tax Free Fund
<PAGE>

<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Colorado
Castle Rock Ranch, CO, Public Improvements Authority, Public Facilities
Revenue, Series 1996, 5.9%, 12/1/03 .......................................... 1,475,000 AA 1,572,453
Delaware
Delaware, General Obligation, 6.6%, 4/1/10 ..................................... 1,700,000 AAA 1,861,449
Delaware State Health Facilities Authorities Revenue Bonds, Medical Center
of Delaware, Series 1989, 7%, 10/1/03 (c) .................................... 1,500,000 AAA 1,600,755
District Of Columbia
District of Columbia, General Obligation:
Series A, 5.625%, 6/1/02 (c) ................................................. 1,500,000 AAA 1,575,465
Series D, 5.25%, 12/1/03 (c) ................................................. 1,000,000 AAA 1,039,490
Florida
Dade County, FL, Port Authority Revenue, Series 1968 C, 5.5%, 10/1/07 .......... 4,790,000 AAA 5,042,146
Georgia
Municipal Electric Authority of Georgia, Power Revenue, 6.6%, 1/1/01 (c) ....... 1,000,000 AAA 1,071,930
Illinois
Berwin, IL, MacNeal Memorial Hospital, 5.5%, 6/1/01 (c) ........................ 2,795,000 AAA 2,903,306
Chicago, IL, General Obligation, Tender Note, Series C, 6.25%, 10/31/02 (c) .... 3,450,000 AAA 3,738,489
Evergreen Park, Illinois Hospital Facilities, Little County Mary's Hospital,
7.75%, 2/15/09 (c) ........................................................... 1,200,000 AAA 1,235,880
Illinois Health Facilities Authority, Revenue Refunding, Sherman
Hospital Project, 6.5%, 8/1/01 (c) ........................................... 1,025,000 AAA 1,106,662
Indiana
Indiana Health Facility Finance Authority, Hospital Revenue,
Ancilla Systems Inc., Series A, 5.875%, 7/1/02 (c) ........................... 1,000,000 AAA 1,063,280
Indiana Housing Finance Authority, Single Family Mortgage Revenue,
Series 1995 C-1, 5.25%, 7/1/12 ............................................... 2,990,000 AAA 3,046,182
Madison County, IN, Hospital Authority, Holy Cross Health System,
6.3%, 12/1/98 (c) ............................................................ 1,000,000 AAA 1,024,830
Iowa
Cedar Rapids, IA, Hospital Revenue, St. Luke's Methodist Hospital, 5.65%,
8/15/02 (c) .................................................................. 1,250,000 AAA 1,316,713
Des Moines, IA, Hospital Revenue, St. Luke's Methodist Hospital,
Series 1996A, 6%, 11/15/02 ................................................... 1,750,000 AA 1,865,518
Kentucky
Jefferson County, KY, Trust Certificate, Enhanced 911 Emergency
Telephone Project, Series 1996, 5.25%, 9/1/98 ................................ 1,115,000 A 1,127,700
</TABLE>

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

11 - Scudder Limited Term Tax Free Fund
<PAGE>

<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Louisiana
Jefferson Parish, LA, School Board Sales & Use Tax Revenue, ETM,
Series 1986 A, 7.25%, 2/1/01** ............................................... 6,135,000 A 6,629,604
Louisiana State, General Obligation, Series 1996 A, 6%, 8/1/02 (c) ............. 1,000,000 AAA 1,071,820
Maine
Maine, General Obligation, 6%, 7/1/98 .......................................... 1,000,000 AA 1,015,040
Massachusetts
New England Education Loan Marketing Corporation, Massachusetts
Student Loan Revenue Refunding:
Series A, 6%, 9/1/98 ........................................................ 2,000,000 AAA 2,034,380
Series D, 6.2%, 9/1/00 ...................................................... 2,000,000 AAA 2,098,740
Michigan
Michigan State Hospital Finance Authority Revenue, Genesys Health System,
Series A, 6.6%, 10/1/98 ...................................................... 1,000,000 BBB 1,020,350
New Hampshire
New Hampshire Higher Education & Health Facilities Authority, St. Josephs
Hospital, 5.65%, 1/1/04 ...................................................... 1,095,000 AAA 1,148,261
New York
New York City, NY, General Obligation:
Series 1991 A, 3%, 8/15/02 (c) ............................................... 1,000,000 AAA 938,860
Series 1995 B, 6.75%, 8/15/03 ................................................ 6,000,000 A 6,619,740
Series 1995 D, 6.5%, 2/15/05 ................................................. 1,315,000 A 1,443,383
Series 1996 A, 6.75%, 8/1/04 ................................................. 1,500,000 BBB 1,667,715
Series 1996 I, 6.5%, 3/15/05 ................................................. 1,575,000 A 1,730,264
Series 1997 I, 6.25%, 4/15/06 ................................................ 1,000,000 A 1,086,030
New York State Dormitory Authority, State University Educational Facility,
Series A, 6.5%, 5/15/04 ...................................................... 1,000,000 A 1,105,630
New York State Medical Care Facilities, Finance Agency, Mount Sinai Hospital,
Series 1983, 5.95%, 8/15/09 .................................................. 940,000 AAA 984,791
New York State Urban Development Corporation Project,
Onondaga County Convention Center:
6%, 1/1/04 .................................................................. 1,445,000 BBB 1,542,855
6%, 1/1/05 .................................................................. 1,535,000 BBB 1,643,555
Syracuse, NY, Industrial Development Agency, Pilot Revenue Bonds, Series 1995,
5.125%, 10/15/02 ............................................................. 1,500,000 AA 1,529,850
</TABLE>

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

12 - Scudder Limited Term Tax Free Fund
<PAGE>

<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
North Carolina
North Carolina Municipal Power Agency #1, Catawaba Electric Revenue,
5.75%, 1/1/02 (c) ............................................................ 1,150,000 AAA 1,215,159
Pennsylvania
Allegheny County, PA, Hospital Development Authority, 6.4%, 7/1/99 (c) ......... 1,010,000 AAA 1,047,975
Delaware County, PA, Industrial Development Authority, Series 1997 A,
6.1%, 1/1/05 ................................................................. 2,000,000 A 2,138,440
Philadelphia, PA, Hospitals & Higher Educational Facilities, Graduate Health
Systems, Series 1991, 6.9%, 7/1/00 ........................................... 1,000,000 BBB 1,058,770
Rhode Island
Rhode Island, Consolidated Capital Development Loan, General Obligation,
Series 1996, 6%, 8/1/03 (c) .................................................. 1,690,000 AAA 1,826,806
Texas
Austin, TX:
Independent School District, Guaranteed General Obligation, 8.125%, 8/1/01 ... 1,000,000 AAA 1,135,370
Utility System Revenue:
Series A, 6.3%, 11/15/01 (c) ................................................ 365,000 AAA 393,477
Series A, 6.3%, 11/15/01 (c) ................................................ 635,000 AAA 683,806
Ector County, TX, Hospital District Revenue, 5.5%, 4/15/03 (c) ................. 1,000,000 AAA 1,048,860
Richardson, TX, Hospital Authority Refunding and Improvement, Richardson
Medical Center, Series 1993, 6.5%, 12/1/12 ................................... 960,000 BBB 1,010,400
Texas Department of Housing & Community Affairs, Single-Family Mortgage
Revenue, Series B, 5.5%, 3/1/11 (c) .......................................... 2,000,000 AAA 2,055,240
Texas Turnpike Authority, North Dallas Thruway Revenue, 6.7%, 1/1/98 (c) ....... 1,310,000 AAA 1,316,262
Utah
Utah State, General Obligation, Series 1997, 5.5%, 7/1/07 ...................... 2,000,000 AAA 2,152,000
Virgin Islands
Virgin Islands, General Obligation, 6.9%, 10/1/01 .............................. 1,000,000 BBB 1,080,340
Washington
Lewis County, WA, Public Utility District 1, Cowlitz Falls Hydroelectric
Project, Series 1991, Prerefunded 10/1/01, 7%, 10/1/22*** .................... 1,430,000 AAA 1,598,554
Washington Public Power Supply System:
Nuclear Project #1, Refunding Revenue, Series C, 7.3%, 7/1/98 ................ 3,000,000 AA 3,067,860
Nuclear Project #2, Refunding Revenue, Series 1992A, 5.7%, 7/1/02 ............ 1,550,000 AA 1,631,406
Nuclear Project #2, Refunding Revenue, Series A, 6.3%, 7/1/01 ................ 1,000,000 AA 1,065,360
Nuclear Project #2, Refunding Revenue, Series C, 7.3%, 7/1/00 ................ 1,300,000 AA 1,399,034
</TABLE>

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

13 - Scudder Limited Term Tax Free Fund
<PAGE>

(a) The cost for federal income tax purposes was $111,820,205. At October 31,
1997, net unrealized appreciation for all securities based on tax cost was
$3,613,803. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $3,615,800 and aggregate gross unrealized depreciation for all
securities in which there was an excess tax cost over market value of
$1,997.

(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.

* 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.

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

14 - Scudder Limited Term Tax Free Fund
<PAGE>

Financial Statements

Statement of Assets and Liabilities
as of October 31, 1997

<TABLE>
<S> <C>
Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $111,820,205) ..................... $ 115,434,008
Cash ...................................................................... 2,351
Interest receivable ....................................................... 1,685,084
Receivable for Fund shares sold ........................................... 123,971
Deferred organization expenses ............................................ 10,143
Other assets .............................................................. 1,804
----------------
Total assets .............................................................. 117,257,361
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends payable ......................................................... 249,876
Payable for Fund shares redeemed .......................................... 11,581
Accrued management fee .................................................... 58,676
Other payables and accrued expenses ....................................... 60,857
----------------
Total liabilities ......................................................... 380,990
----------------------------------------------------------------------------------------------------
Net assets, at market value ............................................... $ 116,876,371
----------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation on investments .................................... 3,613,803
Accumulated net realized gain ............................................. 41,727
Paid-in capital ........................................................... 113,220,841
----------------------------------------------------------------------------------------------------
Net assets, at market value ............................................... $ 116,876,371
----------------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($116,876,371 / 9,639,451 outstanding shares of beneficial
interest, $.01 par value, unlimited number of ----------------
shares authorized) ..................................................... $12.12
----------------
</TABLE>

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

15 - Scudder Limited Term Tax Free Fund
<PAGE>

Statement of Operations
year ended October 31, 1997

<TABLE>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Interest ............................................................ $ 6,103,700
-----------------

Expenses:
Management fee ...................................................... 722,447
Custodian and accounting fees ....................................... 65,084
Services to shareholders ............................................ 70,938
Trustees' fees and expenses ......................................... 34,618
Registration fees ................................................... 19,999
Auditing ............................................................ 34,253
Legal ............................................................... 4,979
Reports to shareholders ............................................. 24,014
Amortization of organization expense ................................ 8,388
Other ............................................................... 10,880
-----------------
Total expenses before expense reductions ............................ 995,600
Expense reductions .................................................. (93,434)
-----------------
Expenses, net ....................................................... 902,166
---------------------------------------------------------------------------------------------
Net investment income 5,201,534
---------------------------------------------------------------------------------------------

Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investments .................................. 75,394
Net unrealized appreciation on investments during the period ........ 1,386,314
---------------------------------------------------------------------------------------------
Net gain on investments 1,461,708
---------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 6,663,242
---------------------------------------------------------------------------------------------
</TABLE>

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

16 - Scudder Limited Term Tax Free Fund
<PAGE>

Statements of Changes in Net Assets

<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ....................................... $ 5,201,534 $ 5,437,602
Net realized gain on investments ............................ 75,394 210,333
Net unrealized appreciation (depreciation) on investments
during the period ........................................ 1,386,314 (358,014)

-------------- --------------
Net increase in net assets resulting from operations ........ 6,663,242 5,289,921
-------------- --------------
Distributions to shareholders from:
Net investment income ....................................... (5,201,534) (5,437,602)
-------------- --------------
Net realized gains .......................................... (205,773) (50,891)
-------------- --------------
Fund share transactions:
Proceeds from shares sold ................................... 46,364,831 57,374,072
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................. 2,206,361 2,249,313
Cost of shares redeemed ..................................... (56,611,187) (57,528,518)
-------------- --------------
Net increase (decrease) in net assets from Fund share
transactions .............................................. (8,039,995) 2,094,867
-------------- --------------
Increase (decrease) in net assets ........................... (6,784,060) 1,896,295
Net assets at beginning of period ........................... 123,660,431 121,764,136
-------------- --------------
Net assets at end of period ................................. $116,876,371 $123,660,431
-------------- --------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................... 10,318,550 10,139,449
-------------- --------------
Shares sold ................................................. 3,856,337 4,790,986
Shares issued to shareholders in reinvestment of
distributions ............................................. 183,612 187,834
Shares redeemed ............................................. (4,719,048) (4,799,719)
-------------- --------------
Net increase (decrease) in Fund shares ...................... (679,099) 179,101
-------------- --------------
Shares outstanding at end of period ......................... 9,639,451 10,318,550
-------------- --------------
</TABLE>

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

17 - Scudder Limited Term Tax Free Fund

<PAGE>

Financial Highlights

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

<TABLE>
<CAPTION>
For the Period
February 15, 1994
(commencement of
operations) to
Years Ended October 31, October 31,
1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------------------------------
Net asset value, beginning of period ............... $11.98 $12.01 $11.67 $12.00
----------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .52 .53 .56 .38
Net realized and unrealized gain (loss) on
investments ..................................... .16 (.02) .34 (.33)
----------------------------------------------------------------
Total from investment operations ................... .68 .51 .90 .05
----------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.52) (.53) (.56) (.38)
Net realized gain on investment transactions ....... (.02) (.01) -- --
----------------------------------------------------------------
Total distributions ................................ (.54) (.54) (.56) (.38)
----------------------------------------------------------------

----------------------------------------------------------------
Net asset value, end of period ..................... $12.12 $11.98 $12.01 $11.67
- ----------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) ............................... 5.89 4.33 7.94 .44**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............. 117 124 122 68
Ratio of operating expenses, net to average daily
net assets (%) .................................. .75 .63 .23 --
Ratio of operating expenses before expense
reductions, to average daily net
assets (%) (a) .................................. .83 .82 .85 1.29*
Ratio of net investment income to average daily
net assets (%) .................................. 4.32 4.46 4.78 4.84*
Portfolio turnover rate (%) ........................ 17.8 37.7 37.5 36.3*
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized

18 - Scudder Limited Term Tax Free Fund
<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 Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.

Security Valuation. Portfolio debt securities other than money market securities
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. All other debt securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Trustees.
Money market instruments purchased with an original maturity of sixty days or
less are valued at amortized cost.

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, as amended, 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 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 Costs. 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 recorded on the
ex-dividend date. Interest income is accrued pro rata to the earlier of the call
or maturity date.

19 - Scudder Limited Term Tax Free Fund
<PAGE>

B. Purchases and Sales of Securities

For the year ended October 31, 1997, purchases and sales of investments
(excluding short-term) aggregated $19,496,786 and $19,516,667, respectively.

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 Adviser agreed to maintain the annualized expenses at 0.75% of average daily
net assets until December 31, 1998. For the year ended October 31, 1997, the
Adviser imposed fees amounting to $629,013 and the portion not imposed amounted
to $93,434 at October 31, 1997.

On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close by the end of the fourth quarter of 1997.

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 October 31, 1997, the amount charged to the Fund by SSC aggregated
$46,003 of which $3,813 was unpaid at October 31, 1997.

Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1997, the amount charged to the Fund by SFAC aggregated $38,322 of
which $6,212 was unpaid at October 31, 1997.

The Trust pays each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the year
ended October 31, 1997, Trustees' fees and expenses charged to the Fund
aggregated $34,618.

20 - Scudder Limited Term Tax Free Fund
<PAGE>

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, 1997, and the related statement of operations for the year then ended, the
statements of changes in net assets for the two years in the period then ended,
and the financial highlights for the three years in the period then ended and
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 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
October 31, 1997, 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 Limited Term Tax Free Fund as of October 31, 1997, the results of its
operations for the year then ended, the statements of changes in its net assets
for the two years in the period then ended, and the financial highlights for the
three years in the period then ended October 31, 1997, and 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 17, 1997

21 - Scudder Limited Term Tax Free Fund
<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, 1997, 100% constituted
exempt interest dividends for regular federal income tax purposes.

Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$75,394 as capital gain dividends for its taxable year ended October 31, 1997.

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 Investor
Relations Representative at 1-800-225-5163.

22 - Scudder Limited Term Tax Free Fund

<PAGE>

Shareholder Meeting Results

A Special Meeting of Shareholders (the "Meeting") of Scudder Limited Term Tax
Free Fund (the "Fund") was held on October 24, 1997, at the offices of Scudder,
Stevens & Clark, Inc., Two International Place, Boston, Massachusetts 02110. At
the Meeting, as adjourned and reconvened, the following matters were voted upon
by the shareholders (the resulting votes for each matter are presented below.)
With regard to certain proposals, it was recommended that the Meeting be
reconvened in order to provide shareholders with an additional opportunity to
return their proxies. The date of the reconvened meeting at which the matters
were decided is noted after the proposed matter.

1. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.

Number of Votes:
----------------

For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------

6,342,496 87,514 67,871 0

2. To elect Trustees.

Number of Votes:
----------------

Trustee For Withheld
------- --- --------

Henry P. Becton, Jr. 6,426,922 70,959

Dawn-Marie Driscoll 6,425,875 72,006

Peter B. Freeman 6,406,656 91,225

George M. Lovejoy, Jr. 6,423,717 74,164

Dr. Wesley W. Marple, Jr. 6,425,031 72,850

Daniel Pierce 6,425,631 72,249

Kathryn L. Quirk 6,424,584 73,296

Jean C. Tempel 6,425,973 71,908

3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise.

Number of Votes:
----------------

For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------

5,827,370 154,136 299,253 217,122

23 - Scudder Limited Term Tax Free Fund
<PAGE>

4. To approve certain amendments to the Declaration of Trust. Sufficient
proxies had not been received by December 2, 1997, to approve the
amendments to the Declaration of Trust. Management has determined not to
continue to seek shareholder approval for this item.

Number of Votes:
----------------

For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------

6,030,530 131,033 140,949 201,386

5. To approve the revision of certain fundamental investment policies.

<TABLE>
<CAPTION>
Number of Votes:
----------------

Fundamental Policies For Against Abstain Broker Non-Votes*
-------------------- --- ------- ------- -----------------

<S> <C> <C> <C> <C>
5.1 Diversification 5,680,643 345,627 254,491 217,122

5.2 Borrowing 5,668,132 358,138 254,491 217,122

5.3 Senior securities 5,670,234 356,036 254,491 217,122

5.4 Concentration 5,679,647 346,950 254,162 217,122

5.5 Loans 5,680,905 345,365 254,491 217,122

5.6 Underwriting of securities 5,681,005 345,265 254,491 217,122

5.7 Investment in real estate 5,682,025 344,573 254,162 217,122

5.8 Purchase of physical 5,681,333 345,265 254,162 217,122
commodities

5.9 Investment in California N/A N/A N/A N/A
municipal securities

5.10 Investment in municipal 5,682,025 344,573 254,162 217,122
securities

5.11 Investment in N/A N/A N/A N/A
Massachusetts municipal
securities

5.12 Investment in New York N/A N/A N/A N/A
municipal securities

5.13 Investment in Ohio N/A N/A N/A N/A
municipal securities

24 - Scudder Limited Term Tax Free Fund
<PAGE>

5.14 Investment in Pennsylvania N/A N/A N/A N/A
municipal securities

5.15 Investment in short-term N/A N/A N/A N/A
municipal securities

5.16 Elimination of tax N/A N/A N/A N/A
diversification

5.17 Purchases of voting 5,689,168 344,935 246,658 217,122
securities

5.18 Affiliated transactions 5,688,694 346,101 245,966 217,122

5.19 Disclosed practices N/A N/A N/A N/A
</TABLE>

6. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.

Number of Votes:
----------------

For Against Abstain
--- ------- -------

6,230,611 61,681 205,588

* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.

25 - Scudder Limited Term Tax Free Fund
<PAGE>

This Page
intentionally
left blank.

26 - Scudder Limited Term Tax Free Fund

<PAGE>

This Page
intentionally
left blank.

27 - Scudder Limited Term Tax Free Fund

<PAGE>

Officers and Trustees

Daniel Pierce*
President and Trustee

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

Dawn-Marie Driscoll
Trustee; Executive Fellow, Center
for Business Ethics; President,
Driscoll Associates

Peter B. Freeman
Trustee; Corporate Director and
Trustee

George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates Real Estate
Corporation

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

Kathryn L. Quirk*
Vice President and Trustee

Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners

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

*Scudder, Stevens & Clark, Inc.

28 - Scudder Limited Term Tax Free Fund

<PAGE>
Investment Products and Services

The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*

Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**

Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**

U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund

Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund

Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio

U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund

U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund

Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund

Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund

Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.

Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)

Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil 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 Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.

For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +++Funds within categories are listed
in order from expected least risk to most risk. Certain Scudder funds may not be
available for purchase or exchange. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **Not available in all states. +++ +++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.

29 - Scudder Limited Term Tax Free Fund

<PAGE>

Scudder Solutions
<TABLE>
<CAPTION>

Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy

A convenient investment program in which you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from that account.
fewer when it's higher, which can reduce your average
purchase price over time.

Automatic Dividend Transfer Payroll Deduction and Direct Deposit

The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).

Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.

Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.

Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell

You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.

DistributionsDirect

Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.

30 - Scudder Limited Term Tax Free Fund
<PAGE>

Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder

Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.

Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.

Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.

For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center

For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:

Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York

- ------------------------------------------------------------------------------------------------------------------------------
New From Scudder: Scudder International Growth and Income Fund

Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
- ------------------------------------------------------------------------------------------------------------------------------
The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. Contact Scudder Investor Services, Inc., Distributor,
for a prospectus which contains more complete information, including management fees and other expenses. Please read it
carefully before you invest or send money.

</TABLE>

31 - Scudder Limited Term Tax Free Fund
<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 over 40 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.

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

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

SCUDDER

[LOGO]

Scudder
Medium Term
Tax Free Fund

Annual Report
December 31, 1996

Pure No-Load(TM) Funds

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

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

<PAGE>

Table of Contents

2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 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

o Scudder Medium Term Tax Free Fund's 30-day net annualized SEC yield was
4.35% as of December 31, 1996. For investors in the top federal tax
brackets of 36% and 39.6%, the Fund's yield was equivalent to a fully
taxable 6.80% and 7.20%, respectively.

o The Fund received five stars from Morningstar, reflecting their highest
rating for risk-adjusted performance through December 31, 1996.*

o For one-, three-, and five-year periods, the Fund's total returns surpassed
the average of similar municipal bond funds as tracked by Lipper Analytical
Services. Please see page 6 for additional Lipper performance information.

* For your information, these ratings are subject to change every month and
are calculated from the Fund's three-, five-, and ten-year average annual
returns in excess of 90-day Treasury bill returns with appropriate fee
adjustments, and a risk factor that reflects fund performance below T-bill
returns. In all, 1,129 municipal funds were rated. 10% received five stars,
22.5% received four stars, 35% three stars, 22.5% two stars, and the bottom
10% one star. The Fund also received five stars for three-year performance
and five stars for five-year performance. Past performance is no guarantee
of future returns.

2 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

Letter From the Fund's President
Dear Shareholders,

We hope you enjoy our newly redesigned shareholder report. The new format,
which is being gradually introduced for all Scudder funds, is designed to
enhance the attractiveness and readability of the reports. Let us know what you
think.

This annual report for Scudder Medium Term Tax Free Fund covers a year
which witnessed large swings of opinion concerning the direction of the U.S.
economy and interest rates. Despite the resulting market uncertainty, the Fund
posted a 4.02% total return for the 12-month period as well as a 4.35% 30-day
net annualized SEC yield and a 6.80% tax equivalent yield at the close of the
year based on the 36% federal tax rate. Please read the portfolio management
discussion beginning on page 6 for more information.

As part of Scudder's ongoing efforts to meet the needs of investors, we
recently launched an innovative new product called Scudder Pathway Series. A
"fund of funds," Pathway Series is a collection of four distinct portfolios --
Conservative, Growth, Balanced, and International -- that offers flexibility,
diversification, and simplicity. Each portfolio invests in a diverse mix of
Scudder funds, and each is geared towards people with different investment goals
and risk tolerances -- a team of Scudder's investment professionals makes
allocation decisions accordingly.

We'd like to remind you that new legislation passed last summer
significantly raised IRA contribution limits for many married couples. Beginning
with the 1997 tax year, married couples with one income may contribute up to
$4,000 jointly per year -- an increase of $1,750 from the previous limit. This
change may enhance your ability to use an IRA to defer taxes and let your
retirement assets grow over time. For more information on Scudder products and
services, please turn to page 30. If you have questions about Scudder Medium
Term Tax Free Fund, please contact a Scudder Investor Information representative
at 1-800-225-2470, or visit Scudder's Web site at funds.scudder.com.

Sincerely,

/s/David S. Lee

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

3 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

PERFORMANCE UPDATE as of December 31, 1996
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------

Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- --------------------------------------
SCUDDER MEDIUM TERM TAX FREE FUND
- --------------------------------------
1 Year $10,402 4.02% 4.02%
5 Year $13,868 38.68% 6.76%
10 Year* $18,975 89.75% 6.62%

- --------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX
- --------------------------------------
1 Year $10,443 4.43% 4.43%
5 Year $14,212 42.12% 7.27%
10 Year $21,184 111.84% 7.79%

- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------

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
- ----------------------
'86 $10,000
'87 $10,323
'88 $10,831
'89 $11,480
'90 $12,203
'91 $13,683
'92 $14,904
'93 $16,536
'94 $15,957
'95 $18,243
'96 $18,975

LEHMAN BROTHERS MUNICIPAL BOND INDEX
Year Amount
- ----------------------
'86 $10,000
'87 $10,151
'88 $11,183
'89 $12,389
'90 $13,292
'91 $14,906
'92 $16,220
'93 $18,212
'94 $17,271
'95 $20,285
'96 $21,184

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. Index returns assume
dividends are invested 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>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------
NET ASSET VALUE... $10.07 $10.02 $10.04 $10.11 $10.62 $10.86 $11.36 $10.39 $11.26 $11.15
INCOME DIVIDENDS.. $ .54 $ .54 $ .56 $ .54 $ .67 $ .65 $ .60 $ .53 $ .54 $ .53
CAPITAL GAINS
DIVIDENDS......... $ .05 $ -- $ -- $ -- $ .01 $ .03 $ .06 $ .05 $ .05 $ .02
FUND TOTAL
RETURN (%)........ 3.23 4.92 6.00 6.29 12.13 8.93 10.94 -3.50 14.32 4.02
INDEX TOTAL
RETURN (%)........ 1.51 10.16 10.79 7.29 12.14 8.82 12.28 05.17 17,46 4.43
</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 58.35% AND 7.74%, 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 November 1, 1990 through October 31, 1995, the average
annual total return of the Fund for the five year and ten year periods would
have been lower.

4 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

PORTFOLIO SUMMARY as of December 31, 1996
- --------------------------------------------------------------------------
DIVERSIFICATION
- --------------------------------------------------------------------------
Electric Utility Revenue 19%
Core Cities/Lease 17%
Hospital/Health 12%
State General Obligation 11%
Toll Revenue 6%
Other General Obligation/Lease 6%
School District/Lease 6%
Sales and Special Tax 4%
Resource Recovery 4%
Miscellaneous Municipal 15%
- ---------------------------------------------
100%
- ---------------------------------------------

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

Diversification remains an important
strategy for the Fund, allowing us to
spread risk over a large number of
sectors, maturities, and geographic
areas.

- ---------------------------------------------------------------------------
QUALITY
- ---------------------------------------------------------------------------

Cash Equivalents 1%
AAA 57%
AA 13%
A 18%
BBB 9%
Below BBB 1%
NR 1%
- --------------------------------------
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.

The Fund has maintained high quality,
with 71% of Fund assets rated AAA, AA,
or the equivalent as of December 31, 1996.

- --------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------
Less than 1 year 6%
1 - 5 21%
5 - 10 56%
10 - 15 17%
- --------------------------------------
100%
- --------------------------------------
Weighted average effective maturity: 6.7 years

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

To strike a balance between benefiting
from slightly higher rates and providing
a measure of protection from potential
future interest rate increases, we
maintained an average effective maturity
comparable to the Fund's competitive
universe during the most recent fiscal
year.
- -----------------------------------------------------------------------------

5 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

Portfolio Management Discussion
Dear Shareholders,

In the face of shifting bond market sentiment during 1996, we held to our
long-term strategy as Scudder Medium Term Tax Free Fund posted a 4.02% total
return for the 12 months ended December 31, 1996. A slight decline in the Fund's
net asset value -- from $11.26 on December 31, 1995, to $11.15 as of December
31,1996 -- was offset by income distributions of $0.53 per share and a
short-term capital gain distribution of $0.02 per share over the 12-month
period. The Fund's return outpaced the 3.70% average total return of 136 similar
funds over the same period as measured by Lipper Analytical Services, Inc. As
shown in the chart below, the Fund's average annual total returns have exceeded
the average performance of its peer group for one-, three-, and five-year
periods. The Fund also posted top-quartile total return performance for three-
and

- ------------------------------------------------------------
Strong Relative Performance
(Average annual returns for periods ended December 31, 1996)
- ------------------------------------------------------------

Scudder
Medium Lipper
Term Tax average Number
Free Fund annual of Funds Percentile
Period return return tracked Rank
- -------------------------------------------------------------
1 year 4.02% 3.70% 136 33%
3 years 4.69% 4.29% 90 22%
5 years 6.76% 6.11% 34 15%
10 years 6.62% 6.63% 17 47%
- -------------------------------------------------------------

Past performance does not guarantee future results.

Scudder Medium Term Tax Free Fund adopted its current name and objective on
November 1, 1990.

five-year periods. Please turn to the Performance Update on page 4 for more
information on the Fund's long-term progress, including comparisons with the
unmanaged Lehman Brothers Municipal Bond Index.

Scudder Medium Term Tax Free Fund provided a 30-day net annualized SEC yield of
4.35% as of December 31, 1996, equivalent to a 6.80% taxable yield for investors
in the 36% federal income tax bracket.

An Uncertain Bond Market

During the Fund's most recent fiscal year, bond prices moved alternately higher
and lower as opinions concerning the direction of the economy swung from one
extreme to the other. At the start of 1996, weakening economic indicators made
many market participants feel that the U.S. economy might be falling into a
recession. But the economy soon gained some strength, and the consensus of
economists' opinions shifted to expectations of a soft economic landing and
moderate inflation. At mid-year, the bond market struggled as the numbers seemed
to forecast very strong economic growth and an outbreak of inflation: Statistics
showed that shoppers were returning to retail stores, and hiring was increasing
significantly. But by late summer moderating economic indicators had soothed the
market. Bond yields declined and the economy retreated as consumers seemed to
feel the weight of their personal debt -- credit card debt service payments as a
percentage of disposable income rose to an all-time high in 1996.

Following a period of underperformance caused in part by the temporary
refloating of the "flat tax"

6 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

idea during the presidential primaries, municipal bond returns exceeded those of
Treasuries during 1996. Yields of 10-year municipal bonds rose one quarter of a
percentage point, and their prices declined 1.77%, while 10-year Treasury yields
rose eight tenths of a percentage point and their prices declined 5.34%. Changes
in supply and demand were not decisive factors in tax-free bond performance, as
a modest increase in the supply of municipals was met by a corresponding
increase in demand, particularly from retail purchasers and insurance companies.

Noncallable Bonds
Central to Strategy

To strike a balance between benefiting from slightly higher rates and providing
a measure of protection from future interest rate increases, we maintained an
average effective maturity comparable to the Fund's competitive universe during
the most recent fiscal year. Scudder Medium Term Tax Free Fund's average
effective maturity was 6.7 years as of December 31, 1996. In conjunction with
our primary goals of maximizing the Fund's yield while maintaining as much price
stability as possible, we continued to purchase high-grade,
intermediate-maturity municipal bonds. On December 31, bonds with effective
maturities between 5 and 15 years represented 73% of the Fund's portfolio.

We have also been buying bonds priced at a slight premium to par value because
these issues tend to perform better in rising interest rate environments. In
addition, purchasing bonds with call protection remains a fundamental part of
our investment strategy, ensuring that a significant portion of the Fund's bonds
are not retired before maturity. (Generally, a bond is called in by its issuer
so that it can be refinanced at a lower prevailing rate.) Our emphasis on call
protection provides a more reliable income stream than would exist if the Fund's
portfolio held a significant proportion of bonds that could be called in before
their stated maturities. While many municipal market participants have recently
increased their focus on this segment of the market, Scudder shareholders have
benefited from our pursuit of attractive noncallable bonds for more than five
years.

Diversification remains an important strategy for the Fund, allowing us to
spread risk over a large number of sectors, maturities, and geographic areas. As
of December 31,1996, the Fund held securities issued in 38 states plus the
District of Columbia and the Virgin Islands. Lastly, the Fund's credit quality
remains high, with 71% of Fund assets rated AAA or AA, or of equivalent quality.
Securities are rated by Standard & Poor's, Moody's Investor Service, Fitch
Investors Service, or, if unrated, are assigned a rating by Scudder. The
Portfolio Summary on page 5 provides more information about the Fund's holdings,
including quality, maturity, and sector representation.

A New Era of Growth?

We expect the latter part of the 1990s to be a time of exciting change and
enormous economic possibilities. We believe that rapid technological advances,
falling trade barriers, and worldwide deregulation are forging a new U.S.
economy characterized by significant growth and declining inflation. Before this
new economy can take root, however, we

7 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

expect a transitional period of weaker economic activity -- consumers are
currently weighed down by debt, and more banks are tightening lending to
consumers than at any time since the 1989-90 recession. Following this
transition, growth accompanied by even lower inflation can assert itself. This
scenario would be favorable for bonds, which have been outshone by stocks during
1995 and 1996 but remain an important ingredient of a balanced investment
portfolio: Bonds can provide investors with diversification, current income, and
increased principal stability. For investors in higher tax brackets, municipal
bonds continue to offer significant after-tax rewards.

Over the coming year, we expect to maintain an average effective maturity that
is in line with our competitive universe. We will seek to add value, as we have
in the past, by emphasizing call protection and security selection rather than
by making significant portfolio changes based on interest rate forecasts.

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,
Scudder Ohio Tax Free Fund, and Scudder Pennsylvania Tax Free 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.

Your Portfolio Management Team: Donald C. Carleton and M. Ashton Patton

8 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>
<TABLE>
<CAPTION>

INVESTMENT PORTFOLIO as of December 31, 1996
Credit
Principal Rating (e) Market
Amount ($) (Unaudited) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL INVESTMENTS 2.1%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALABAMA
Phenix City, AL, Industrial Development Bond, Mead Coated Board Project, Daily
Demand Note, 5.1%, 10/1/25*............................................................ 650,000 A1 650,000
ARIZONA
Maricopa County, AZ, Pollution Control Revenue, Arizona Public Service Corporation,
Series F, Daily Demand Note, 5%, 5/1/29*............................................... 1,300,000 P1 1,300,000
FLORIDA
St. Johns County, FL, IDA, Hospital Revenue, Flagler Hospital, Series 1996A, Municipal
Auction Security, 3.7%, 12/15/26 (c)*.................................................. 1,000,000 AAA 1,000,000
KANSAS
Burlington, KS, Environmental Improvement Revenue, Kansas City Power & Light,
Municipal Auction Security:
Series A, 3.9%, 12/1/23*............................................................. 1,000,000 A 1,000,000
Series B, 3.8%, 12/1/23*............................................................. 3,000,000 A 3,000,000
MISSOURI
Missouri Environment Improvement Energy Resource Authority, Union Electric Project,
Auction Reset Security, 3.59%, 12/1/22*................................................ 2,000,000 A 2,000,000
MONTANA
Montana State Health Facility Authority, Deaconess Medical Center Project,
Series 1991A, 35day auction, 3.53%, 3/8/16 (c)*........................................ 200,000 AAA 200,000
OHIO
Cuyahoga County, OH, Health & Education, University Hospital of Cleveland, Daily
Demand Note, 5%, 1/1/16*............................................................... 1,100,000 MIG1 1,100,000
Hamilton County, OH, Franciscan Sisters of the Poor Health System, Series A, Daily
Demand Note, 5%, 3/1/17*............................................................... 800,000 MIG1 800,000
PENNSYLVANIA
Chester County, PA, Health and Education, Main Line Health System, Series 1994B,
Municipal Auction Security, 3.7%, 5/15/20 (c)*......................................... 1,000,000 AAA 1,000,000
RHODE ISLAND
Rhode Island Convention Center Authority Revenue, Series 1991A, 8.9%, 5/15/97 (c)........ 200,000 AAA 203,938
SOUTH CAROLINA
South Carolina Jobs-Economic Development Authority, Franciscan Sisters of the Poor,
St. Francis Hospital, Daily Demand Note, 4.95%, 7/1/22*................................ 700,000 MIG1 700,000
TEXAS
Grapevine, TX, Industrial Development Corporation, American Airlines, Series B4,
Daily Demand Note, 4.95%, 12/1/24*..................................................... 500,000 P1 500,000

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

</TABLE>
9 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

<TABLE>
<CAPTION>
Credit
Principal Rating (e) Market
Amount ($) (Unaudited) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
North Central, TX, Health Facilities Development Corp., Presbyterian Medical Center,
Daily Demand Note, Series 1985 C, 4.95%, 12/1/15* (c).................................. 200,000 MIG1 200,000
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS (Cost $13,653,825) 13,653,938
- -------------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS 97.9%
ALASKA
North Slope Borough, AK, General Obligation:
Capital Appreciation, Series B, Zero Coupon, 6/30/04 (c) (g)........................... 19,500,000 AAA 13,346,385
Capital Appreciation, Series A, Zero Coupon, 6/30/06 (c)............................... 11,150,000 AAA 6,764,705
Series A, Zero Coupon, 6/30/02 (c)..................................................... 3,275,000 AAA 2,506,751
Series A, Zero Coupon, 6/30/03 (c) (g)................................................. 7,000,000 AAA 5,071,500
Refunding, Series G, 7.5%, 6/30/97 (c)................................................. 2,350,000 AAA 2,396,530
ARIZONA
Arizona Health Facilities Authority, Phoenix Baptist Hospital and Medical Center,
6.1%, 9/1/03 (c)....................................................................... 2,000,000 AAA 2,174,120
Maricopa County, AZ, School District #28, Kyrene Elementary:
Series B, Zero Coupon, 1/1/03 (c)...................................................... 4,150,000 AAA 3,114,824
Series B, Zero Coupon, 7/1/03 (c)...................................................... 2,000,000 AAA 1,465,640
Maricopa County, AZ, Unified School District #41:
Capital Appreciation, Zero Coupon, 7/1/03 (c).......................................... 4,500,000 AAA 3,297,690
Capital Appreciation, Zero Coupon, 1/1/04 (c).......................................... 6,000,000 AAA 4,263,780
Gilbert, Zero Coupon, 1/1/06 (c)....................................................... 2,925,000 AAA 1,850,881
Zero Coupon, 7/1/04 (c)................................................................ 7,000,000 AAA 4,854,500
Zero Coupon, 7/1/06 (c)................................................................ 7,605,000 AAA 4,691,448
Maricopa County, AZ, Unified School District #97, Deer Valley, Zero Coupon,
7/1/05 (c)............................................................................. 4,060,000 AAA 2,659,381
ARKANSAS
Rogers, AR Sales & Use Tax Revenue, Series 1996, 5.35%, 11/1/11.......................... 2,500,000 AA 2,526,025
CALIFORNIA
California, General Obligation, Series 1991, 6.5%, 2/1/08................................ 7,000,000 A 7,897,540
California Housing Finance Agency, Multi-Unit Rental Housing Revenue, Series A,
7.25%, 8/1/98.......................................................................... 2,270,000 A 2,378,075
California State Department of Water Resources, Central Valley Project, Revenue Water
System, Series 1995O, 7%, 12/1/06...................................................... 6,095,000 AA 7,136,757
Foothill Eastern Transportation Corridor Agency, CA, Toll Road Revenue, Senior Lien,
Series A, Step-up coupon, 0% to 1/1/05, 7.05% to 1/1/09................................ 7,275,000 BBB 4,649,671
Long Beach, CA, Aquarium of the Pacific Project, Series 1995A, 5.75%, 7/1/05............. 1,300,000 BBB 1,300,871

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

</TABLE>
10 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

<TABLE>
<CAPTION>
Credit
Principal Rating (e) Market
Amount ($) (Unaudited) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Orange County, CA, Local Transportation Authority, Sales Tax Revenue, Measure M,
Step-down coupon, 5.1% to 2/15/98, 4.3% to 2/15/01 (c)................................. 5,100,000 AAA 4,999,173
Orange County, CA, Special Financing Authority, Teeter Plan Revenue, Series C,
Mandatory Put 11/1/99 at 100, 6.15%, 11/1/14........................................... 2,600,000 A 2,674,074
Southern California Public Power Authority, Power Project Revenue, Palo Verde Project,
Series 1996A, 6%, 7/1/07 (c)........................................................... 3,000,000 AAA 3,263,220
COLORADO
Castle Rock Ranch, CO, Public Improvements Authority, Public Facilities Revenue:
Series 1996, 6.1%, 12/1/05............................................................. 2,780,000 AA 2,949,636
Series 1996, 6.5%, 12/1/09............................................................. 3,525,000 AA 3,813,733
Colorado Health Facilities Authority, Hospital Revenue, Rocky Mountain Adventist
Healthcare Project, 6%, 2/1/98......................................................... 3,500,000 BBB 3,529,505
CONNECTICUT
Bristol, CT, Resource Recovery, Ogden Martin System, 6.125%, 7/1/03...................... 10,635,000 A 11,231,730
Connecticut Development Authority, Airport Facilities, Windsor Locks Hotel, Series A,
Mandatory put 10/1/97 at $100, 5.8%, 10/1/25........................................... 5,610,000 A 5,670,195
Connecticut State Health & Educational Facilities Authority, Windham Community
Memorial Hospital, Series 1996C, 5.75%, 7/1/11......................................... 3,700,000 BBB 3,566,874
DISTRICT OF COLUMBIA
District of Columbia, Certificate of Participation:
Series 1993, 6%, 1/1/97................................................................ 1,828,000 BB 1,828,000
Series 1993, 6.875%, 1/1/03............................................................ 2,500,000 BB 2,560,900
District of Columbia, General Obligation:
Series1993 A-1, 4.95%, 6/1/05 (c)...................................................... 3,940,000 AAA 3,895,557
Series D, 4.7%, 12/1/99 (c)............................................................ 5,435,000 AAA 5,484,893
Series A, 5.625%, 6/1/02 (c)........................................................... 8,360,000 AAA 8,681,526
Series A, 5.8%, 6/1/04 (c)............................................................. 6,950,000 AAA 7,290,689
Refunding, Series 1993 A, 4.85%, 6/1/04 (c)............................................ 2,000,000 AAA 1,979,320
Refunding, Series 1993 A, 5.875%, 6/1/05 (c)........................................... 3,650,000 AAA 3,841,442
Refunding, Series B, 5.3%, 6/1/05 (c).................................................. 8,000,000 AAA 8,108,000
Refunding, Series B, Zero Coupon, 6/1/01 (c)........................................... 7,100,000 AAA 5,753,059
District of Columbia, Redevelopment Land Agency, DC Sports Arena, Special Tax,
Series 1996, 5.625%, 11/1/10........................................................... 2,000,000 BBB 1,939,120
FLORIDA
Dade County, FL, Guaranteed Entitlement Revenue, Prerefunded 2/1/06:
Zero Coupon, 8/1/14 (c)................................................................ 4,000,000 AAA 1,405,280
Zero Coupon, 8/1/18 (c)................................................................ 6,000,000 AAA 1,545,480

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

</TABLE>
11 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

<TABLE>
<CAPTION>
Credit
Principal Rating (e) Market
Amount ($) (Unaudited) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Orange County, FL, Health Facilities Authority Revenue HSP - Orlando Regional
Healthcare, Series 1996A, 6%, 10/1/03 (c).............................................. 3,000,000 AAA 3,231,000
GEORGIA
Georgia State, Series 1994D, 6.7%, 8/1/08................................................ 3,400,000 AAA 3,913,094
Georgia, General Obligation, Series B:
6.3%, 3/1/08........................................................................... 5,000,000 AAA 5,564,250
6.75%, 9/1/10.......................................................................... 5,370,000 AAA 6,193,704
HAWAII
Hawaii State General Obligation, Unlimited Tax, Series 1993 CI, 4.75%, 11/1/08........... 7,050,000 AA 6,771,737
ILLINOIS
Alton, IL, Health Facilities Revenue, 6.7%, 2/15/00 (c).................................. 2,000,000 AAA 2,073,740
Berwyn, IL, Hospital Revenue, MacNeal Memorial Hospital, Series 1995, 5.25%,
6/1/04 (c)............................................................................. 3,935,000 AAA 4,004,925
Chicago, IL, Public Building Commission, Series A, 5.25%, 12/1/06 (c).................... 2,500,000 AAA 2,554,175
Illinois, General Obligation:
6.7%, 6/1/03........................................................................... 3,640,000 AA 3,954,569
4.6%, 12/1/05.......................................................................... 5,000,000 AA 4,853,150
Illinois Development Finance Authority Refunding Revenue, Commonwealth Edison,
Series 1994, 5.3%, 1/15/04 (c)......................................................... 7,500,000 AAA 7,685,625
Illinois Educational Facilities Authority Revenue, Loyola University, Revenue Refunding,
Series 1991 A, Zero Coupon, 7/1/02 (c)................................................. 2,130,000 AAA 1,637,374
Illinois Health Facilities Authority:
Evangelical Hospitals, Series B, 6.1%, 4/15/01 (c)..................................... 1,240,000 AAA 1,312,044
Memorial Hospital, Sisters Services, Series A, 6%, 6/1/99 (c).......................... 2,500,000 AAA 2,601,125
Sisters Services, Series C:
5.875%, 6/1/98 (c)................................................................... 2,400,000 AAA 2,464,296
6.1%, 6/1/00 (c)..................................................................... 1,500,000 AAA 1,578,060
6.2%, 6/1/01 (c)..................................................................... 1,900,000 AAA 2,023,291
Kendall, Kane and Will Counties, IL, School District, Zero Coupon, 3/1/03 (c)............ 1,345,000 AAA 995,475
Macon and Decatur County, IL, Public Building Commission, Certificate of
Participation, General Obligation, 6.3%, 1/1/00 (c).................................... 1,320,000 AAA 1,392,428
Metropolitan Pier and Exposition Authority of Illinois, McCormick Place Expansion
Project, Coupon Receipts, Zero Coupon, 6/15/04 (c)..................................... 14,400,000 AAA 9,935,568
Rosemont, IL, Tax Increment-2, Secondary, Series B, Zero Coupon, 12/1/02 (c)............. 2,785,000 AAA 2,098,637
Rosemont, IL, Tax Increment-3, Secondary, Series C, Zero Coupon, 12/1/02 (c)............. 3,345,000 AAA 2,520,625

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

</TABLE>
12 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

<TABLE>
<CAPTION>
Credit
Principal Rating (e) Market
Amount ($) (Unaudited) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INDIANA
Indiana Housing Finance Authority, Single Family Mortgage Revenue, Series 1995C-1,
5.25%, 7/1/12.......................................................................... 2,555,000 AAA 2,582,671
Indianapolis, IN, Resource Recovery Revenue, Ogden Martin Systems Inc. Project,
6.75%, 12/1/07 (c)..................................................................... 6,000,000 AAA 6,831,420
Madison County, IN, Hospital Authority, Holy Cross Health System, 6.7%,
12/1/02 (c)............................................................................ 1,385,000 AAA 1,531,450
IOWA
Iowa Certificate of Participation, Series 1992 A, 6.25%, 7/1/02 (c)...................... 5,000,000 AAA 5,369,050
KANSAS
Kansas City, KS, Utility System Revenue:
Zero Coupon, 3/1/03 (c)................................................................ 3,850,000 AAA 2,871,869
Zero Coupon, 3/1/03 (c)................................................................ 2,750,000 AAA 2,047,650
LOUISIANA
Jefferson Parish, LA, School Board Sales & Use Tax Revenue, ETM, Series 1986A,
7.35%, 2/1/03**........................................................................ 5,055,000 A 5,638,145
Louisiana Housing Finance Agency, Mortgage Revenue Refunding, Single Family,
Series 1995C-1, 5.125%, 12/1/10 (c).................................................... 2,670,000 AAA 2,684,338
Orleans, LA, Levee District, Levee Improvement Bonds, Series 1986, 5.95%,
11/1/14 (c)............................................................................ 1,930,000 AAA 2,013,665
MARYLAND
Northeast Maryland Waste Disposal Authority, Southwest Resource Recovery System
Revenue, Series 1993, 6.75%, 1/1/98 (c)................................................ 4,715,000 AAA 4,856,261
MASSACHUSETTS
Massachusetts General Obligation:
Refunding, Series B, 6.375%, 8/1/02.................................................... 2,150,000 A 2,337,910
Series A, 6.4%, 8/1/03................................................................. 1,000,000 A 1,098,100
Massachusetts Health & Educational Facilities Authority, St. Joseph's Hospital, Series C,
9.5%, 10/1/20 Prerefunded 10/1/99 (d).................................................. 2,780,000 AAA 3,156,356
Massachusetts Housing Finance Agency, Series 1992 C, FNMA Collateralized:
6.25%, 5/15/02......................................................................... 2,000,000 AAA 2,116,360
6.25%, 11/15/02........................................................................ 3,420,000 AAA 3,634,981
Massachusetts Industrial Finance Agency, Resource Recovery, North Andover Solid
Waste, Series A, 6.15%, 7/1/02......................................................... 3,250,000 BBB 3,353,773
Massachusetts Industrial Finance Agency, Study Memorial Hospital, 7.9%, 6/1/09........... 1,820,000 BBB 1,950,239
Massachusetts Municipal Wholesale Electric Co., Power Supply System Revenue,
Series A, 6.625%, 7/1/03............................................................... 3,165,000 A 3,449,280

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

</TABLE>
13 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

<TABLE>
<CAPTION>
Credit
Principal Rating (e) Market
Amount ($) (Unaudited) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts Water Resource Authority, Series A, 7.25%, 4/1/01.......................... 1,000,000 A 1,095,350
New England Education Loan Marketing Corp., Massachusetts Student Loan Revenue
Refunding, Issue E, 5%, 7/1/99......................................................... 8,000,000 A 8,104,880
MICHIGAN
Michigan Municipal Bond Authority, Local Government Loan Program, School
Improvement, Zero Coupon, 6/15/06 (c).................................................. 4,750,000 AAA 2,936,878
Michigan State Hospital Finance Authority, Hospital Revenue, Sinai Hospital,
Series 1995, 6%, 1/1/08................................................................ 2,000,000 BBB 1,975,800
Romulus Township, MI, School District, Series II, Zero Coupon, 5/1/22 Prerefunded
5/1/07 (c) (d)......................................................................... 12,400,000 AAA 2,663,644
MISSISSIPPI
Mississippi Higher Education Assistance Corp., Student Loan Revenue, Series 1992 A,
6.2%, 1/1/02........................................................................... 1,200,000 A 1,256,004
NEVADA
Nevada State Housing Division, Single Family Mortgage Revenue, Series R, 5.95%,
10/1/2011.............................................................................. 2,940,000 AA 3,014,764
NEW HAMPSHIRE
New Hampshire Higher Education & Health Facilities Authority, Hospital Revenue,
Frisbie Memorial Hospital, Series 1993, 5.25%, 10/1/99................................. 2,025,000 BBB 2,036,036
NEW JERSEY
New Jersey Economic Development, Series A, 7%, 7/1/04 (c)................................ 2,500,000 AAA 2,829,550
NEW YORK
Metropolitan Transportation Authority of New York:
Commuter Facilities Revenue:
6.75%, 7/1/00........................................................................ 1,200,000 BBB 1,272,192
6.9%, 7/1/01......................................................................... 1,280,000 BBB 1,378,522
Transit Facilities Revenue:
Series K, 6.25%, 7/1/05 (c)............................................................ 4,250,000 AAA 4,675,978
Series M, 5.3%, 7/1/06 (c)............................................................. 4,750,000 AAA 4,911,167
Series M, 5.5%, 7/1/08 (c)............................................................. 3,500,000 AAA 3,654,770
Series O, 5.75%, 7/1/07 (c)............................................................ 1,975,000 BBB 2,034,645
Service Contract, 6.75%, 7/1/00........................................................ 2,270,000 BBB 2,406,563
Service Contract Lease Revenues, 6.9%, 7/1/01.......................................... 2,415,000 BBB 2,600,883
New York City, General Obligation:
Series 1992B, 6.4%, 10/1/02............................................................ 4,905,000 A 5,192,580
Series 1995E, 6.6%, 8/1/04............................................................. 2,500,000 A 2,687,400
Series 1996G, 6.75%, 2/1/09............................................................ 8,000,000 A 8,667,600

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

</TABLE>
14 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

<TABLE>
<CAPTION>
Credit
Principal Rating (e) Market
Amount ($) (Unaudited) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series 1992H, 6.9%, 2/1/01............................................................. 6,000,000 A 6,395,520
Series A, 7%, 8/1/04................................................................... 7,650,000 A 8,402,913
Series A, 6%, 8/1/05 (c)............................................................... 2,560,000 AAA 2,744,141
Series B, 6.75%, 8/15/03............................................................... 7,000,000 A 7,558,880
Series B, 6.6%, 10/1/03................................................................ 10,200,000 A 10,889,520
Series C, 6.3%, 8/1/03 (c)............................................................. 50,000 AAA 54,329
Series D, 7.875%, 8/1/97............................................................... 1,330,000 A 1,361,082
Series D, ETM, 7.875%, 8/1/97**........................................................ 1,225,000 A 1,255,086
New York State Development Corporation, Correctional Facilities Lease Revenue,
Refunding, Series 1993A, 5.3%, 1/1/05 (c).............................................. 1,105,000 AAA 1,141,343
New York State Dormitory Authority:
City University System, Consolidated Revenue Lease:
Series A, 5.5%, 7/1/03............................................................... 8,000,000 BBB 8,170,720
Series A, 5.5%, 7/1/03 (c)........................................................... 1,250,000 AAA 1,316,175
College and University Pooled Capital Program, 7.8%, 12/1/05 (c)....................... 1,170,000 AAA 1,260,675
Cons City University System, 5.75%, 7/1/06 (c)......................................... 1,750,000 AAA 1,868,755
State University, 6.8%, 5/15/00 (c).................................................... 1,915,000 AAA 2,065,787
New York State Energy Research and Development Authority, Pollution Control
Revenue, Electric and Gas, 5.9%, 12/1/06 (c)........................................... 2,200,000 AAA 2,372,854
New York State Medical Care Facilities, Finance Agency Revenue, Mount Sinai
Hospital, Series 1983, 5.95%, 8/15/09.................................................. 7,620,000 AAA 7,861,706
New York State Thruway Authority, Special Obligation, Zero Coupon, 1/1/02................ 3,155,000 BBB 2,411,240
New York State, Urban Development Corporation Revenue Correctional Facilities:
Series A, 5.3%, 1/1/05 (c)............................................................. 7,000,000 AAA 7,230,230
Series A, 5.4%, 1/1/06 (c)............................................................. 3,500,000 AAA 3,628,730
NORTH CAROLINA
North Carolina, Municipal Power Agency #1Catawba Electric Revenue:
Series 1992, 5.9%, 1/1/03 (c).......................................................... 2,550,000 AAA 2,720,595
Series 1993, 4.1%, 1/1/05 (c).......................................................... 3,000,000 AAA 2,802,690
NORTH DAKOTA
Bismarck, ND, Hospital Revenue, St. Alexius Medical Center, Series 1991,
Zero Coupon, 5/1/00 (c)................................................................ 2,850,000 AAA 2,457,897
Grand Forks, ND, Health Facilities, United Hospital Obligation Group, Series A,
6%, 12/1/02 (c)........................................................................ 1,160,000 AAA 1,242,058
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 4,662,843

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

</TABLE>
15 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

<TABLE>
<CAPTION>
Credit
Principal Rating (e) Market
Amount ($) (Unaudited) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PENNSYLVANIA
Allegheny County, PA, Hospital Development Authority, 6.5%, 7/1/00 (c)................... 1,000,000 AAA 1,067,100
Armstrong County, PA, Hospital Authority, St. Frances Medical Center, Series A, 6.2%,
6/1/03 (c)............................................................................. 3,090,000 AAA 3,347,799
Montgomery County, PA, Redevelopment Authority, Multi Family Housing Revenue
Refunding, KBF Associates, LP Project, 6%, 7/1/04...................................... 2,685,000 BBB 2,696,250
Philadelphia, PA, General Obligation, Refunding Revenue, Series A, 11.5%, 8/1/99 (c)..... 1,000,000 AAA 1,175,000
Schuykill County, PA, Redevelopment Authority, Lease Rental, Series A, 6.55%,
6/1/00 (c)............................................................................. 1,105,000 AAA 1,180,494
Somerset County, PA, General Authority, Commonwealth Lease Revenue, ETM, 6.45%,
10/15/00 (c)**......................................................................... 2,000,000 AAA 2,148,700
SOUTH CAROLINA
South Carolina Jobs-Economic Development Authority, Franciscan Sisters of the Poor
Health System Inc., St. Francis Hospital, 6.375%, 7/1/04............................... 3,420,000 BBB 3,569,249
Sumter County, SC, Hospital Facility Revenue Refunding, Tuomey Medical Center,
6.375%, 11/15/99 (c)................................................................... 1,000,000 AAA 1,057,380
SOUTH DAKOTA
South Dakota Student Loan Assistance Corp. Revenue, Series A, 7%, 8/1/98................. 715,000 A 736,164
TENNESSEE
Shelby County, TN, General Obligation, Series A, Zero Coupon, 5/1/11,
Prerefunded 5/1/05 (d)................................................................. 3,700,000 AAA 1,705,478
TEXAS
Austin, TX, Combined Utility System Revenue, Zero Coupon, 11/15/09 (c)................... 6,775,000 AAA 3,369,682
Austin, TX, Utility District, Water, Sewer & Electric Revenue, 11%, 11/15/02,
Prerefunded 5/15/97 (d)................................................................ 2,430,000 AAA 2,495,780
Brownsville, TX, Utility System Revenue Refunding:
Series 1995, 6%, 9/1/08 (c)............................................................ 1,000,000 AAA 1,079,240
Series 1995, 6%, 9/1/09 (c)............................................................ 2,700,000 AAA 2,900,961
Dallas, TX, Civic Center, Senior Lien, 8.6%, 1/1/06...................................... 1,115,000 A 1,138,081
Harris County, TX, Toll Road Authority, Toll Road Revenue, Subordinate Lien,
Series A, Zero Coupon:
8/15/06 (c)............................................................................ 3,915,000 AAA 2,388,933
8/15/07 (c)............................................................................ 1,050,000 AAA 602,385
Richardson, TX, Hospital Authority Revenue, Richardson Medical Center, 6.5%,
12/1/2012.............................................................................. 1,915,000 BBB 1,950,753

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

</TABLE>
16 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

<TABLE>
<CAPTION>
Credit
Principal Rating (e) Market
Amount ($) (Unaudited) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
San Antonio, TX, General Obligation General Improvement, Series 1996, 6%:
8/1/07 (e)............................................................................. 1,000,000 AA 1,025,950
8/1/08 (e)............................................................................. 2,150,000 AA 2,194,849
Texas Municipal Power Agency, Zero Coupon, 9/1/07 (c).................................... 8,385,000 AAA 4,799,322
Texas Public Finance Authority, Building Revenue Refunding, Zero Coupon,
2/1/09 (c)............................................................................. 5,860,000 AAA 3,042,102
UTAH
Intermountain Power Agency, UT, Power Supply Revenue:
Series B, 6.25%, 7/1/06 (c)............................................................ 8,000,000 AAA 8,767,920
Series B, Zero Coupon, 7/1/01 (c)...................................................... 10,495,000 AAA 8,537,683
Series B, Zero Coupon, 7/1/02 (c)...................................................... 2,500,000 AAA 1,926,975
Salt Lake County, UT, Water Conservation District, Series A, Zero Coupon,
10/1/03 (c)............................................................................ 3,200,000 AAA 2,309,536
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 3,310,843
6.8%, 10/1/00........................................................................ 1,035,000 NR 1,091,376
WASHINGTON
Clark County, WA, Public Utility District #1, Generating System Revenue Bonds, 6%,
1/1/07 (c)............................................................................. 12,150,000 AAA 13,037,679
Snohomish County, WA, Public Utility District #1, Series 1991 B, 6.4%, 1/1/00............ 2,000,000 A 2,112,420
Washington Public Power Supply System, Nuclear Project #1, Refunding Revenue:
Series B, 5.15%, 7/1/02................................................................ 5,275,000 AA 5,345,527
Series B, 5.25%, 7/1/03................................................................ 5,555,000 AA 5,646,658
Washington Public Power Supply System, Nuclear Project #2, Refunding Revenue:
Series 1990c, 7.5%, 7/1/03 (b)......................................................... 5,800,000 AA 6,464,274
Series A, 6.3%, 7/1/01................................................................. 6,000,000 AA 6,365,340
Series A, 4.9%, 7/1/05................................................................. 4,330,000 AA 4,244,006
Series A, 5.8%, 7/1/07................................................................. 2,120,000 AA 2,195,896
Series A, 5.25%, 7/1/08................................................................ 3,000,000 AA 2,946,720
Series B, 5.15%, 7/1/02................................................................ 6,085,000 AA 6,166,356
Washington Public Power Supply System, Nuclear Project #3 Refunding Revenue:
Series B, 7.15%, 7/1/01................................................................ 1,310,000 AA 1,415,573
Series B, Zero Coupon, 7/1/04 (c)...................................................... 8,000,000 AAA 5,471,440
Series B, 5.15%, 7/1/02................................................................ 3,165,000 AA 3,207,316

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

</TABLE>
17 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

<TABLE>
<CAPTION>
Credit
Principal Rating (e) Market
Amount ($) (Unaudited) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series B, 5.25%, 7/1/03................................................................ 6,100,000 AA 6,200,650
Washington State Housing Finance, Series A, 7.1%, 12/1/17................................ 1,990,000 AAA 2,045,143
WEST VIRGINIA
South Charleston, WV, Pollution Control Revenue, Union Carbide, 7.625%, 8/1/05........... 2,000,000 BBB 2,302,620
WISCONSIN
Wisconsin Health & Education Facilities Authority:
Columbia Hospital Inc., 6.125%, 11/15/01 (c)........................................... 1,000,000 AAA 1,065,820
Mercy Health System Corporation:
6%, 8/15/05 (c)...................................................................... 1,400,000 AAA 1,504,104
6.125%, 8/15/06 (c).................................................................. 1,480,000 AAA 1,603,491
6.25%, 8/15/07 (c)................................................................... 1,000,000 AAA 1,093,350
Wheaton Franciscan Hospital, 6%, 8/15/02 (c)............................................. 1,000,000 AAA 1,065,390
Wheaton Franciscan Services:
5.8%, 8/15/04 (c)...................................................................... 1,675,000 AAA 1,774,194
6%, 8/15/07 (c)........................................................................ 2,000,000 AAA 2,152,880
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS (Cost $606,505,132) 631,554,697
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0% (Cost $620,158,957) (a) 645,208,635
- -------------------------------------------------------------------------------------------------------------------------------

(a) The cost for federal income tax purposes was $620,158,957. At December 31, 1996, net
unrealized appreciation based on tax cost for all securities was $25,049,678. This
consisted of aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $25,197,683 and aggregate gross unrealized
depreciation for all investment securities in which there was an excess of tax cost over
market value of $(148,005).

(b) At December 31, 1996 this security, in part, has been pledged to cover initial margin
requirements for open futures contracts.

At December 31, 1996, open futures contracts purchased were as follows (Note A):

Aggregate
Futures Expiration Contracts Face Value ($) Market Value ($)
- ------------- ---------- --------- --------------- -----------------
<S> <C> <C> <C> <C>
5 Year U.S.
Treasury Note Mar. 1997 105 11,341,050 11,192,344
--------------
Total net unrealized depreciation on open futures contracts purchased........ (148,706)
==============

(d) 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.

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

18 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

(e) All of the securities held have been determined by the Adviser 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) have been determined by the Adviser to be of comparable quality to rated
eligible securities.

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

(g) At December 31, 1996, these securities, in part or in whole, have 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.

</TABLE>

19 - SCUDDER MEDIUM TERM TAX FREE FUND

<PAGE>

Financial Statements

Statement of Assets and Liabilities
as of December 31, 1996

<S> <C>
Assets
- -----------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $620,158,957) (Note A)........... $645,208,635
Cash..................................................................... 4,321
Interest receivable...................................................... 9,942,988
Receivable for investments sold.......................................... 920,000
Receivable for Fund shares sold.......................................... 165,243
Other assets............................................................. 4,747
-------------
Total assets............................................................. 656,245,934

Liabilities
- -----------------------------------------------------------------------------------------------------------
Payable for when issued and forward delivery securities (Note A)......... 3,276,166
Dividends payable........................................................ 1,033,830
Payable for Fund shares redeemed......................................... 921,662
Daily variation margin on open futures contracts (Note A)................ 49,219
Accrued management fee (Note C).......................................... 313,339
Accrued expenses (Note C)................................................ 147,637
-------------
Total liabilities........................................................ 5,741,853
- -----------------------------------------------------------------------------------------------------------
Net assets, at market value.............................................. $650,504,081
- -----------------------------------------------------------------------------------------------------------

Net Assets
- -----------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on:
Investments............................................................ 25,049,678
Futures................................................................ (148,706)
Accumulated net realized gain............................................ 1,138,994
Paid-in capital.......................................................... 624,464,115
- -----------------------------------------------------------------------------------------------------------
Net assets, at market value.............................................. $650,504,081
- -----------------------------------------------------------------------------------------------------------

Net Asset Value
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($650,504,081/
58,325,377 outstanding shares of beneficial interest, $.01 par
value, unlimited number of shares authorized).......................... $11.15
-------------

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

</TABLE>
20 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

Statement of Operations
year ended December 31, 1996

Investment Income
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Interest................................................................ $36,973,462
-------------
Expenses:
Management fee (Note C)................................................. 3,879,293
Services to shareholders (Note C)....................................... 554,556
Custodian and accounting fees (Note C).................................. 216,364
Trustees' fees and expenses (Note C).................................... 38,215
Reports to shareholders................................................. 78,505
Auditing................................................................ 54,839
Registration fees....................................................... 29,092
Legal................................................................... 8,703
Other................................................................... 24,847
-------------
4,884,414
- -----------------------------------------------------------------------------------------------------------
Net investment income................................................... 32,089,048
- -----------------------------------------------------------------------------------------------------------

Realized and unrealized gain (loss) on investment transactions
- -----------------------------------------------------------------------------------------------------------
Net realized gain on:
Investments............................................................. 1,445,538
Futures................................................................. 202,234
-------------
1,647,772
-------------
Net unrealized depreciation during the period on:
Investments............................................................. (7,307,350)
Futures................................................................. (148,706)
-------------
(7,456,056)
- -----------------------------------------------------------------------------------------------------------
Net loss on investment transactions..................................... (5,808,284)
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations.................... $26,280,764
- -----------------------------------------------------------------------------------------------------------

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

</TABLE>
21 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

Statements of Changes in Net Assets

Years Ended December 31,
Increase (Decrease) in Net Assets 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income................................................... $32,089,048 $35,231,509
Net realized gain from investments...................................... 1,647,772 4,031,600
Net unrealized appreciation (depreciation) on investments during the
period................................................................ (7,456,056) 56,190,627
------------- -------------
Net increase in net assets resulting from operations.................... 26,280,764 95,453,736
Distributions to shareholders: ------------- -------------
From net investment income.............................................. (32,089,048) (35,231,509)
From net realized gains from investment transactions.................... (1,232,175) (3,199,100)
Fund share transactions: ------------- -------------
Proceeds from shares sold............................................... 100,528,576 105,990,498
Net asset value of shares issued to shareholders in reinvestment of
distributions.......................................................... 20,151,729 23,977,046
Cost of shares redeemed................................................. (174,745,339) (176,818,110)
------------- -------------
Net decrease in net assets from Fund share transactions................. (54,065,034) (46,850,566)
------------- -------------
Increase (decrease) in net assets....................................... (61,105,493) 10,172,561
Net assets at beginning of period....................................... 711,609,574 701,437,013
------------- -------------
Net assets at end of period............................................. 650,504,081 711,609,574
------------- -------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period............................... 63,217,191 67,486,134
------------- -------------
Shares sold............................................................. 9,072,101 9,691,714
Shares issued to shareholders in reinvestment of distributions.......... 1,819,637 2,182,653
Shares redeemed......................................................... (15,783,552) (16,143,310)
------------- -------------
Net decrease in Fund shares............................................. (4,891,814) (4,268,943)
------------- -------------
Shares outstanding at end of period..................................... 58,325,377 63,217,191
------------- -------------
The accompanying notes are an integral part of the financial statements.

</TABLE>
22 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

Financial Highlights

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

Years Ended December 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning ------------------------------------------------------------------------------------
of period.................................. $11.26 $10.39 $11.36 $10.86 $10.62 $10.11 $10.04 $10.02 $10.07 $10.34
Income from investment operations: ------------------------------------------------------------------------------------
Net investment income........................ .53 .54 .53 .60 .65 .67 .54 .56 .54 .54
Net realized and unrealized gain (loss)
on investments............................. (.09) .92 (.92) .56 .27 .52 .07 .02 (.05) (.22)
------------------------------------------------------------------------------------
Total from investment operations............. .44 1.46 (.39) 1.16 .92 1.19 .61 .58 .49 .32
Less distributions: ------------------------------------------------------------------------------------
From net investment income................... (.53) (.54) (.53) (.60) (.65) (.67) (.54) (.56) (.54) (.54)
From net realized gains on investments....... (.02) (.05) (.05) (.06) (.03) (.01) -- -- -- (.05)
------------------------------------------------------------------------------------
Total distributions.......................... (.55) (.59) (.58) (.66) (.68) (.68) (.54) (.56) (.54) (.59)
Net asset value, end of ------------------------------------------------------------------------------------
period..................................... $11.15 $11.26 $10.39 $11.36 $10.86 $10.62 $10.11 $10.04 $10.02 $10.07
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a)......................... 4.02 14.32 (3.50) 10.94 8.93 12.13 6.29 6.00 4.92 3.23
Ratios and Supplemental Data
Net assets, end of period ($ millions)....... 651 712 701 1,017 661 268 27 54 99 125
Ratio of operating expenses net, to average
daily net assets (%)....................... .72 .70 .63 .14 -- -- .97 .91 .79 .80
Ratio of operating expenses before expense
reductions, to average daily net assets.... .72 .72 .71 .75 .80 .88 1.00 .91 .79 .80
Ratio of net investment income to average
daily net assets (%)....................... 4.75 4.92 4.94 5.35 6.07 6.44 5.37 5.62 5.05 5.37
Portfolio turnover rate (%).................. 14.1 36.1 33.8 37.3 22.4 14.0 116.9 15.7 31.2 32.6

(a) Total returns may have been lower had certain expenses not been reduced.
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 four years in the period ended December 31, 1990 should not be considered representative
of the present Fund.

</TABLE>
23 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

Notes to Financial Statements

A. Significant Accounting Policies

Scudder Medium Term Tax Free Fund (the "Fund") is a diversified series
of Scudder Tax Free Trust, a Massachusetts business trust (the "Trust"),
which is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.

The Fund's financial statements are prepared in accordance with
generally accepted accounting principles which require the use of
management estimates. The policies described below are followed
consistently by the Fund in the preparation of its financial statements.

Security Valuation. Portfolio debt securities 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. 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 Board of
Trustees.

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. A futures contract is an agreement between a buyer or
seller and an established futures exchange or its clearinghouse in which
the buyer or seller agrees to take or make a delivery of a specific
amount of an item at a specified price on a specific date (settlement
date). During the period the Fund purchased interest rate futures as a
hedge against municipal securities cheapening relative to U.S. Treasury
securities.

Upon entering into a futures contract, the Fund is required to deposit
with a financial intermediary an amount ("initial margin") equal to a
certain percentage of the face value indicated in the futures contract.
Subsequent payments ("variation margin") are made or received by the
Fund 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 a gain or loss equal to the
difference between the value of the futures contract to sell and the
futures contract to buy. Futures contracts are valued at the most recent
settlement price.

Certain risks may arise upon entering into futures contracts including
the risk that an illiquid secondary market will limit the Fund's ability
to close out a futures contract prior to the settlement date and that a
change in the value of a futures contract may not correlate exactly with
changes in the value of the securities hedged. When utilizing futures
contracts to hedge the Fund gives up the opportunity to profit from
favorable price movements in the hedged positions during the term of the
contract.

Amortization and Accretion. All premiums and original issue discounts
are amortized/accreted for both tax and financial reporting purposes.

24 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

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.
Distributions of net realized capital gains to shareholders are recorded
on ex-dividend date.

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 the call or
maturity date.

B. Purchases and Sales of Securities

During the year ended December 31, 1996, purchases and sales of
municipal securities (excluding short-term investments) aggregated
$93,180,705 and $166,710,740, respectively.

The aggregate face value of futures contracts opened and closed during
the year ended December 31, 1996 was $34,434,996 and $23,093,946,
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 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 Agreement.

The management fee payable under the 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 Agreement provides that if the
Fund's expenses, exclusive of taxes, interest, and extraordinary
expenses, exceed specified limits, such excess, up to the amount of the
management fee, will be paid by the Adviser. For the year ended December
31,

25 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

1996, the management fee aggregated $3,879,293 which was equivalent to
an annual effective rate of .57% of the Fund's average daily net assets.

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, 1996 the amount charged to the Fund by
SSC amounted to $406,238 of which $33,406 is unpaid at December 31,
1996.

Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the
Adviser, is responsible for determining the daily net asset value per
share and maintaining the portfolio and general accounting records of
the Fund. For the year ended December 31, 1996, the amount charged to
the Fund by SFAC aggregated $96,034, of which $7,900 is unpaid at
December 31, 1996.

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, 1996, Trustees' fees and
expenses aggregated $38,215.

26 - SCUDDER MEDIUM TERM TAX FREE FUND
<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, 1996, 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, 1996, 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, 1996, 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 5, 1997

27 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

Tax Information

Of the dividends paid from net investment income for the fiscal year
ended December 31, 1996, 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 $719,195 as capital gain dividends for the year ended
December 31, 1996.

28 - SCUDDER MEDIUM TERM TAX FREE FUND
<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

Kathryn L. Quirk*
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

*Scudder, Stevens & Clark, Inc.

29 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

Investment Products and Services

The Scudder Family of Funds+++
- --------------------------------------------------------------------------------

Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust

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 Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*

U. S. Income
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund

Global Income
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund

U.S. Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund

U.S. Growth
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund

Growth
Scudder Classic Growth Fund
Scudder Quality Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund

Global Growth
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund

Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund

Asset Allocation
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio

Retirement Programs
IRA
SEP IRA
SIMPLE IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan *+++ +++
(a variable annuity)

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.

For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed from expected
least to most risk. +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.

30 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

How to Contact Scudder

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

For existing account services and transactions

Scudder Investor Relations -- 1-800-225-5163

For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you

Scudder Electronic Account Services -- http://funds.scudder.com

For information about your Scudder accounts, exchanges and redemptions

Scudder Automated Information Line (SAIL) -- 1-800-343-2890

Investment Information
- --------------------------------------------------------------------------------
For information about the Scudder funds, including additional applications
and prospectuses, or for answers to investment questions

Scudder Investor Relations -- 1-800-225-2470
[email protected]

Scudder's World Wide Web Site -- http://funds.scudder.com

For establishing 401(k) and 403(b) plans

Scudder Defined Contribution Services -- 1-800-323-6105

Scudder Brokerage Services
- --------------------------------------------------------------------------------

To receive information about this discount brokerage service and to obtain
an application

Scudder Brokerage Services* -- 1-800-700-0820

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 Chicago San Francisco
Boston New York

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.

* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061 --
Member NASD/SIPC.

** 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.

31 - SCUDDER MEDIUM TERM TAX FREE FUND
<PAGE>

Celebrating Over 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
<PAGE>
SCUDDER TAX FREE MONEY FUND

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

and

SCUDDER LIMITED TERM TAX FREE FUND

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

and

SCUDDER MEDIUM TERM TAX FREE FUND

(A Series of 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, 1998

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

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 Limited Term Tax Free Fund, Scudder Medium Term Tax
Free Fund, Scudder Managed Municipal Bonds and Scudder High Yield Tax Free Fund,
dated March 1, 1998, as amended from time to time, copies of which may be
obtained without charge by writing to Scudder Investor Services, Inc., Two
International Place, Boston, Massachusetts 02110-4103.

<PAGE>

THE FUNDS AND THEIR OBJECTIVES........................................................................................1
General Investment Objectives and Policies of Scudder Tax Free Money Fund....................................1
General Investment Objectives and Policies of Scudder Limited Term Tax Free Fund......................... 2
General Investment Objectives and Policies of Scudder Medium Term Tax Free Fund............................ 3
General Investment Objectives and Policies of Scudder Managed Municipal Bonds............................ 4
General Investment Objectives and Policies of Scudder High Yield Tax Free Fund........................... 5
Risk Factors............................................................................................... 7
Master/Feeder Structure.................................................................................. 7
Investments and Investment Techniques Common to the Funds.................................................. 8
Trustees' Power to Change Objectives and Policies......................................................... 19
Investment Restrictions................................................................................... 19

PURCHASES.......................................................................................................... 21
Additional Information About Opening an Account........................................................... 21
Checks.................................................................................................... 21
Wire Transfer of Federal Funds............................................................................ 22
Additional Information About Making Subsequent Investments by QuickBuy.................................... 22
Share Price............................................................................................... 22
Share Certificates........................................................................................ 23
Other Information......................................................................................... 23

EXCHANGES AND REDEMPTIONS.......................................................................................... 23
Exchanges................................................................................................. 23
Redemption by Telephone................................................................................... 24
Redemption By QuickSell................................................................................... 25
Redemption by Mail or Fax................................................................................. 25
Redemption by Write-A-Check............................................................................... 26
Other Information......................................................................................... 26

FEATURES AND SERVICES OFFERED BY THE FUNDS......................................................................... 27
The Pure No-Load(TM) Concept................................................................................. 27
Internet Access........................................................................................... 28
Dividend and Capital Gain Distribution Options............................................................ 28
Scudder Investor Centers.................................................................................. 29
Reports to Shareholders................................................................................... 29
Diversification........................................................................................... 29
Transaction Summaries..................................................................................... 29

THE SCUDDER FAMILY OF FUNDS........................................................................................ 29

SPECIAL PLAN ACCOUNTS.............................................................................................. 34
Automatic Withdrawal Plan................................................................................. 34
Cash Management System--Group Sub-Accounting Plan for Trust Accounts, Nominees and Corporations......... 34
Automatic Investment Plan................................................................................. 35
Uniform Transfers/Gifts to Minors Act..................................................................... 35

DIVIDENDS.......................................................................................................... 35
Scudder Tax Free Money Fund............................................................................... 35
Scudder Limited Term Tax Free Fund, Scudder Medium Term Tax Free Fund, Scudder Managed
Municipal Bonds and Scudder High Yield Tax Free Fund................................................. 36

PERFORMANCE INFORMATION............................................................................................ 37
Scudder Tax Free Money Fund............................................................................... 37
Scudder Limited Term Tax Free Fund, Scudder Medium Term Tax Free Fund, Scudder Managed
Municipal Bonds and Scudder High Yield Tax Free Fund................................................. 38
Tax-Exempt Income vs. Taxable Income...................................................................... 41
Comparison of Fund Performance............................................................................ 42

ORGANIZATION OF THE FUNDS.......................................................................................... 45

INVESTMENT ADVISER................................................................................................. 46
Personal Investments by Employees of the Adviser.......................................................... 50

TRUSTEES AND OFFICERS.............................................................................................. 51

REMUNERATION....................................................................................................... 54
Responsibilities of the Board--Board and Committee Meetings................................................ 54
Compensation of Officers and Trustees..................................................................... 54

DISTRIBUTOR........................................................................................................ 55

TAXES.............................................................................................................. 56

PORTFOLIO TRANSACTIONS............................................................................................. 59
Brokerage Commissions.....................................................................................59
Portfolio Turnover........................................................................................ 60

NET ASSET VALUE.................................................................................................... 60
Scudder Tax Free Money Fund............................................................................... 60
Scudder Limited Term Tax Free Fund, Scudder Medium Term Tax Free Fund, Scudder Managed
Municipal Bonds and Scudder High Yield Tax Free Fund................................................. 61

ADDITIONAL INFORMATION............................................................................................. 61
Experts................................................................................................... 61
Shareholder Indemnification............................................................................... 62
Ratings of Municipal Obligations.......................................................................... 62
Commercial Paper Ratings.................................................................................. 63
Glossary.................................................................................................. 64

FINANCIAL STATEMENTS............................................................................................... 66
Scudder Tax Free Money Fund................................................................................66
Scudder Medium Term Tax Free Fund......................................................................... 66
Scudder Managed Municipal Bonds........................................................................... 67

Scudder High Yield Tax Free Fund................................................................................. 67

</TABLE>

<PAGE>

THE FUNDS AND THEIR OBJECTIVES

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

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

General Investment Objectives and Policies of Scudder Tax Free Money Fund

Scudder Tax Free Money Fund, a diversified open-end management
investment company, seeks to provide income exempt from regular federal income
tax and stability of principal through investments in municipal securities. All
of the Fund's investments are high quality, have a remaining maturity of 397
calendar days or less and have minimal credit risk as determined by the 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.

STFMF 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 rating categories of two or more of the following rating agencies:
Moody's Investors Service, Inc. ("Moody's") (Aaa and Aa, MIG 1 and MIG 2, and P1
and P-2), Standard & Poor's Corporation ("S&P") (AAA and AA, SP1+ and SP1, A1+
and A1 and A-2) 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.

Amendments have been adopted to the federal rules regulating quality,
maturity and diversification requirements of money market funds like the Fund.
Money market funds must comply with the revised rules by July 1, 1998. The Fund
intends to be in compliance with the amended requirements by that date.

The Fund may also invest in when-issued securities, whose market value
may involve an unrealized gain or loss prior to settlement. In addition the Fund
may invest, to a limited extent, in illiquid or restricted securities.

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. 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.

The Fund may invest more than 25% of its assets in industrial
development or other private activity bonds, subject to the Fund's fundamental
investment policies, and also subject to the Fund's 20% limitation on investing
in securities whose investment income is subject to the alternative minimum tax
("AMT" bonds) and the Fund's current intention not to invest in municipal
securities whose investment income is subject to regular federal income tax. For
purposes of the Fund's investment limitation regarding concentration of
investments in any one industry, industrial development or other private
activity bonds ultimately payable by companies within the same industry will be
considered as if they were issued by issuers in the same industry. The Fund's
distributions from interest on AMT bonds may be taxable depending upon an
investor's particular situation. (For more information please see the Statement
of Additional Information.)

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 or may otherwise vary from its investment policies
during periods when the Adviser determines that it is advisable to do so because
of conditions in the securities markets or other economic or political
conditions. It is impossible to accurately predict how long such alternative
strategies may be utilized. In 1997, all the Fund's dividends were 100%
federally tax-exempt. The Fund may also invest in stand-by commitments and other
puts, 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.

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

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

The Fund's price and yield can fluctuate daily in response to changing
bond market conditions.

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

The Fund purchases securities that it believes are attractive and
competitive values in terms of quality, yield and the relationship of current
price to maturity value. However, recognizing the dynamics of municipal
obligation prices in response to changes in general economic conditions, fiscal
and monetary policies, interest rate levels and market forces such as supply and
demand for various issues, the Adviser, subject to the Trustees' supervision,
performs credit analysis and manages the Fund's portfolio continuously,
attempting to take advantage of opportunities to improve total return, which is
a combination of income and principal performance over the long term. For
federal income tax purposes, the income earned from municipal securities may be
entirely tax-free, taxable or subject to only the alternative minimum tax.
However, the Fund has no current intention of investing in municipal securities
whose interest income is taxable or AMT bonds.

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.

The Fund may also invest in third party puts, municipal lease
obligations, variable rate demand instruments and when-issued or forward
delivery securities, may purchase warrants to purchase debt securities, may
enter into repurchase agreements and may also engage in strategic transactions.
See "Additional information about policies and investments" for more information
about these investment techniques.

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

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

The Fund will invest primarily in high-grade, intermediate-term
municipal bonds. The dollar-weighted average effective maturity of the Fund's
portfolio will range between five and 10 years. Within this limitation, the Fund
may not purchase individual securities with effective maturities greater than 15
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.

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

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

The Fund may invest more than 25% of its assets in industrial
development or other private activity bonds, subject to the Fund's fundamental
investment policies, and also subject to the Fund's current intention not to
invest in municipal securities whose investment income is taxable or AMT bonds.
For purposes of the Fund's investment limitation regarding concentration of
investments in any one industry, industrial development or other private
activity, bonds ultimately payable by companies within the same industry will be
considered as if they were issued by issuers in the same industry.

Normally, the Fund invests at least 65% of its net assets in municipal
bonds which are rated within the three highest quality rating categories 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 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, however, invest in a debt security so rated by one rating
agency even though the security may be rated lower by one or more of the other
agencies.

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.

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, for temporary
defensive purposes or if 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. It is impossible to predict how long such alternative strategies may be
utilized.

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

General Investment Objectives and Policies of Scudder Managed Municipal Bonds

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

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

All income distributed by the Fund is expected to be exempt from
federal income taxes, but income may be subject to state and local income taxes.
Ordinarily, the Fund expects that 100% of its portfolio securities will be in
federally tax-exempt securities although a small portion of its income may be
subject to regular federal or alternative minimum tax.

SMMB 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.

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.

The Fund may invest more than 25% of its assets in industrial
development or other private activity bonds, subject to the Fund's fundamental
investment policies, and also subject to the Fund's 20% limitation on investing
in municipal securities whose investment income is taxable or AMT bonds and the
Fund's current intention not to invest in municipal securities whose investment
income is subject to regular federal income tax. For purposes of the Fund's
investment limitation regarding concentration of investments in any one
industry, industrial development or other private activity bonds ultimately
payable by companies within the same industry will be considered as if they were
issued by issuers in the same industry.

Normally, the Fund invests at least 65% of its net assets in securities
rated, or issued by an issuer rated, within the three highest quality rating
categories 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 up to 10% of its assets in debt
securities rated lower than Baa by Moody's, BBB by S&P or Fitch or of equivalent
quality as determined by the Adviser, but will not purchase bonds rated below B
by Moody's, S&P or Fitch, or their equivalent. Unrated obligations will be
purchased only if they are considered to be of a quality comparable to
obligations rated as 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 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. For temporary defensive purposes or if 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. It is impossible to predict
how long such alternative strategies may be utilized.

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

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

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

The Fund will invest at least 50% of its assets in municipal bonds
rated, at the time of purchase, within the four highest quality rating
categories of 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 50% 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 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.

During the fiscal year ended December 31, 1997, the average monthly
dollar-weighted market value of the bonds in the Fund's portfolio was rated as
follows: 16.5% AAA, 7.5% AA, 11.2% A, 39.7% BBB, 2.7% BB, 0.1%B and 22.2% not
rated. The bonds are rated by Moody's, S&P, or of equivalent quality as
determined by the Adviser. A large portion of the Fund's bond holdings may trade
at substantial discounts from face value.

The Fund expects to invest primarily in medium-grade bonds. For
temporary defensive purposes, the Fund may vary from its investment policies
during periods when the Adviser determines that it is advisable to do so because
of conditions in the securities markets or other economic or political
conditions. During such periods 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. It is impossible to accurately predict how
long such alternative strategies may be utilized.

SHYTFF 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 securities. 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 may invest more
than 25% of its assets in industrial development or other private activity
bonds, subject to the Fund's fundamental investment policies, and also subject
to the Fund's 20% limitation on investing in AMT bonds and the Fund's current
intention not to invest in municipal securities whose investment income is
subject to regular federal income tax. For purposes of the Fund's investment
limitation regarding concentration of investments in any one industry,
industrial development or other private activity bonds ultimately payable by
companies within the same industry will be considered as if they were issued by
issuers 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 other puts,
repurchase agreements, municipal lease obligations, variable rate demand
instruments and when-issued or forward delivery securities and may also engage
in 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.

Risk Factors

High Yield, High Risk Securities. Below investment-grade securities (rated Ba
and lower by Moody's and BB and lower by S&P) or unrated securities of
equivalent quality, in which the Fund may invest carry a high degree of risk
(including the possibility of default or bankruptcy of the issuers of such
securities), generally involve greater volatility of price and risk of principal
and income, and may be less liquid, than securities in the higher rating
categories and are considered speculative. The lower the ratings of such debt
securities, the greater their risks. See the Appendix to this Statement of
Additional Information for a more complete description of the ratings assigned
by ratings organizations and their respective characteristics.

Economic downturns may disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issues may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect a Fund's net asset value. In addition, investments in high
yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations
in value due to changes in interest rates.

The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of a
Fund to accurately value high yield securities in the Fund's portfolio and to
dispose of those securities. Adverse publicity and investor perceptions may
decrease the values and liquidity of high yield securities. These securities may
also involve special registration responsibilities, liabilities and costs, and
liquidity and valuation difficulties.

Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high-yield security. For these reasons,
it is the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of a Fund's
investment objective by investment in such securities may be more dependent on
the Adviser's credit analysis than is the case for higher quality bonds. 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 such
security.

Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, Congress has from time to time considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments in
these securities and regulate corporate restructurings. Such legislation may
significantly depress the prices of outstanding securities of this type. For
more information regarding tax issues related to high yield securities, see
"TAXES."

Master/Feeder Structure

The Board of Trustees has the discretion to retain the current
distribution arrangement for the Fund while investing in a master fund in a
master/feeder structure as described below.

A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.

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. Each Fund, with the exception of SLTTFF, may invest more than 25%
of its assets in industrial development or other private activity bonds, subject
to each Fund's fundamental investment policies, and also subject to each Fund's
current intention not to invest in municipal securities whose investment income
is taxable or AMT bonds, or in the case of SHYTFF, subject to the Fund's 20%
limitation on investing in AMT bonds. For the purposes of each Fund's investment
limitation regarding concentration of investments in any one industry,
industrial development or other private activity bonds ultimately payable by
companies within the same industry will be considered as if they were issued by
issuers in the same industry.

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, as amended (the "1933 Act") 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 or liquid assets, equal in value to commitments
for when-issued or forward delivery securities. Such segregated securities may
mature or be sold, if necessary, on or before the settlement date. The Funds
will not enter into such transactions for leverage purposes.

Stand-by Commitments. Each Fund, with the exception of SLTTFF, may engage in
Stand-by Commitments. STFMF has received an order from the SEC which will enable
it to improve its portfolio liquidity by making available same-day settlements
on portfolio sales (and thus facilitate the same-day payments of redemption
proceeds in federal funds) through the acquisition of "Stand-by Commitments."
SMTTFF, SMMB and SHYTFF may engage in such transactions subject to the
limitations in the rules under the Investment Company Act of 1940, as amended
(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, with the exception of SLTTFF, may enter into
repurchase agreements with any member bank of the Federal Reserve System or any
domestic broker/dealer which is recognized as a reporting government securities
dealer if the creditworthiness of the bank or broker/dealer has been determined
by the Adviser to be at least as high as that of other issuers of obligations
the Fund may purchase or to be at least equal to that of issuers of commercial
paper rated within the two highest grades assigned by Moody's, S&P or Fitch.

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.

Borrowing. As a matter of fundamental policy, the Fund will not borrow money,
except as permitted under the 1940 Act, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time. While the Trustees
do not currently intend to borrow for investment leverage purposes, if such a
strategy were implemented in the future it would increase the Fund's volatility
and the risk of loss in a declining market. Borrowing by the Fund will involve
special risk considerations. Although the principal of the Fund's borrowings
will be fixed, the Fund's assets may change in value during the time a borrowing
is outstanding, thus increasing exposure to capital risk.

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

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

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

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

A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, a Fund's purchase of a put option on a security might be designed
to protect its holdings in the underlying instrument (or, in some cases, a
similar instrument) against a substantial decline in the market value by giving
the Fund the right to sell such instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the seller the obligation to sell, the underlying instrument at the
exercise price. A Fund's purchase of a call option on a security, financial
future, index, currency or other instrument might be intended to protect a Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. A Fund is
authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.

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

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

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

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

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

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

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

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

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

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

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

Options on Securities Indices and Other Financial Indices. A Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

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

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

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

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

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

Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. 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 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 cash or liquid
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 cash or
liquid 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
cash or liquid assets equal to the exercise price.

Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate cash or liquid assets equal to the amount of the Fund's
obligation.

OTC options entered into by the Fund, including those on securities,
currency, 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 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.")

Illiquid Securities. Each Fund may occasionally purchase securities other than
in the open market. While such purchases may often offer attractive
opportunities for investment not otherwise available on the open market, the
securities so purchased are often "restricted or illiquid securities" or "not
readily marketable," i.e., securities which cannot be sold to the public without
registration under the 1933 Act or the availability of an exemption from
registration (such as Rules 144 or 144A) or because they are subject to other
legal or contractual delays in or restrictions on resale.

Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the 1933 Act. A Fund may be deemed to be an "underwriter" for
purposes of the 1933 Act when selling restricted securities to the public, and
in such event the Fund may be liable to purchasers of such securities if such
sale is made in violation of the 1933 Act or if the registration statement
prepared by the issuer, or the prospectus forming a part of it, is materially
inaccurate or misleading.

The Adviser will monitor the liquidity of such restricted securities
subject to the supervision of the Board of Trustees. In reaching liquidity
decisions, the Adviser will consider the following factors: (1) the frequency of
trades and quotes for the security, (2) the number of dealers wishing to
purchase or sell the security and the number of their potential purchasers, (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (i.e. the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).

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, each Fund may not:

(1) borrow money, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;

(2) issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;

(3) concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;

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

(5) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except 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;

(6) purchase physical commodities or contracts relating to physical
commodities;

(7) make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests
in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.

In addition, as a matter of fundamental policy, each of Scudder High
Yield Tax Free Fund, Scudder Managed Municipal Bonds, Scudder Medium Term Tax
Free Fund and Scudder Limited Term Tax Free Fund will:

(8) have at least 80% of its net assets invested in municipal
securities during periods of normal market conditions.

In addition, as a matter of fundamental policy, Scudder Tax Free Money
Fund will:

(9) have at least 80% of its net assets invested in short-term
municipal securities during periods of normal market
conditions.

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

(a) borrow money in an amount greater than 5% of its total assets,
except for temporary or emergency
purposes;

(b) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;

(c) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;

(d) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such 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;

(e) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and

(f) lend portfolio securities in an amount greater than 5% of its total
assets.

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

(g) borrow money in an amount greater than 5% of its total assets,
except for temporary or emergency purposes; and

(h) lend portfolio securities in an amount greater than 5% of its
total assets.

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 ($2,500 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, Massachusetts 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 SLTTFF, SMTTFF, SMMB and SHYTFF, to purchase shares of a
Fund and obtain the same day's 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 the Distributor 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 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.

Additional Information About Making Subsequent Investments by QuickBuy

Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
Exchange, normally 4 p.m. eastern time. Proceeds in the amount of your purchase
will be transferred from your bank checking account two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, shares will be purchased at the net asset value per share
calculated at the close of trading on the day of your call. QuickBuy requests
received after the close of regular trading on the Exchange will begin their
processing and be purchased at the net asset value calculated the following
business day. If you purchase shares by QuickBuy and redeem them within seven
days of the purchase, the Fund may hold the redemption proceeds for a period of
up to seven business days. If you purchase shares and there are insufficient
funds in your bank account the purchase will be canceled and you will be subject
to any losses or fees incurred in the transaction. QuickBuy transactions are not
available for most retirement plan accounts. However, QuickBuy transactions are
available for Scudder IRA accounts.

In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing an QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.

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.

Share Price

Purchases will be filled without sales charge at the net asset value
next computed after receipt of a purchase order in good order. Net asset value
for STFMF normally is computed twice a day, as of twelve o'clock noon and the
close of regular trading on the Exchange on each day the Exchange is open for
trading. Net asset value for SLTTFF, SMTTFF, SMMB and SHYTFF normally is
computed as of the close of regular trading on each day the Exchange is open for
trading. Orders received after such close will be filled at the net asset value
per share on the following business day. If the order has been placed by a
member of the NASD, other than the Distributor, 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

The Funds have authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Funds' shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on each Fund's behalf. Orders for purchase or redemption will be deemed
to have been received by a Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between a Fund and the
broker, ordinarily orders will be priced at that Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of a Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Trustees and the Distributor, also the Funds' principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Trustees and the Distributor may suspend or terminate the
offering of shares of a Fund at any time for any reason.

The "Tax Identification Number" section of the Funds' application must
be completed when opening an account. Applications and purchase orders without a
correct 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 $2,500. When an exchange represents an
additional investment into an existing account, the account receiving the
exchange proceeds must have identical registration, tax identification number,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request must
be in writing and must contain a signature guarantee as described under
"Transaction information--Redeeming shares--Signature Guarantee" in the Fund's
prospectus.

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

Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder Fund to an
existing account in another Scudder fund at current net asset value 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 telephone or in
writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.

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

Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Trusts employ
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Trusts do not follow such
procedures, they may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trusts will not be liable for acting upon
instructions communicated by telephone that they reasonably believe to be
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 the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder funds. For more information, please call
1-800-225-5163.

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 $100,000 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 QuickSell

Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and have elected to participate in
the QuickSell program may sell shares of the Fund by telephone. Redemptions must
be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account in two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, normally 4 p.m. eastern time, shares will be redeemed at the net
asset value per share calculated at the close of trading on the day of your
call. QuickSell requests received after the close of regular trading on the
Exchange will begin their processing and be redeemed at the net asset value
calculated the following business day. QuickSell transactions are not available
for Scudder IRA accounts and most other retirement plan accounts.

In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing an QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.

Redemption by Mail or Fax

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

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

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

Redemption by Write-A-Check

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

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

Other Information

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

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

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

Shareholders should maintain a share balance worth at least $2,500
($1,000 for IRAs, Uniform Gift to Minor Act, and Uniform Trust to Minor Act
accounts), which amount may be changed by the Board of Trustees. Scudder
retirement plans have similar or lower minimum balance requirements. A
shareholder may open an account with at least $1,000 ($500 for an UGMA, UTMA,
IRA and other retirement accounts), if an automatic investment plan (AIP) of
$100/month ($50/month for an UGMA, UTMA, IRA and other retirement accounts) is
established.

Shareholders who maintain a non-fiduciary account balance of less than
$2,500 in a Fund, without establishing an AIP, will be assessed an annual $10.00
per fund charge with the fee to be reinvested in the Fund. The $10.00 charge
will not apply to shareholders with a combined household account balance in any
of the Scudder Funds of $25,000 or more. Each Fund reserves the right, following
60 days' written notice to shareholders, to redeem all shares in accounts below
$250, including accounts of new investors, where a reduction in value has
occurred due to a redemption or exchange out of the account. Each Fund will mail
the proceeds of the redeemed account to the shareholder at the address of
record. Reductions in value that result solely from market activity will not
trigger an involuntary redemption. UGMA, UTMA, IRA and other retirement accounts
will not be assessed the $10.00 charge or be subject to automatic liquidation.

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 funds in the Scudder Family of 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 Scudder Family of Funds consists of those Funds or classes of
Funds advised by Scudder which are offered without commissions to purchase or
redeem shares or to exchange from one Fund to another.

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>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
======================== ---------------------- ---------------------- ---------------------- ======================
YEARS ScudderPure No-Load(TM) 8.50% Load Fund Load Fund with 0.75% No-Load Fund with
Fund 12b-1 Fee 0.25% 12b-1 Fee
======================== ---------------------- ---------------------- ---------------------- ======================

10 $25,937 $23,733 $24,222 $25,354
======================== ---------------------- ---------------------- ---------------------- ======================

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

20 67,275 61,557 58,672 64,282
======================== ====================== ====================== ====================== ======================
</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.

Internet Access

World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.

The site is designed for interactivity, simplicity and maneuverability.
A section entitled "Planning Resources" provides information on asset
allocation, tuition, and retirement planning to users who fill out interactive
"worksheets." Investors can easily establish a "Personal Page," that presents
price information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both Scudder and Lipper Analytical Services, Inc. are
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.

Scudder has communicated with shareholders and other interested parties
on Prodigy since 1988 and has participated since 1994 in GALT's Networth
"financial marketplace" site on the Internet. The firm made Scudder Funds
information available on America Online in early 1996.

Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.

Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.

An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.

A Call MeTM feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call MeTM feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.

Dividend and Capital Gain Distribution Options

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 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. Please include your account number with your written request.
See "How to contact Scudder" in the prospectus for the address.

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

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

Scudder Investor Centers

Investors may visit any of the Investor Centers maintained by the
Distributor. 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 Funds'
prospectuses.)

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.

MONEY MARKET

Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and, consistent therewith, to provide current
income. The Fund seeks to maintain a constant net asset value of $1.00
per share, although in certain circumstances this may not be possible,
and declares dividends daily.

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. SCIT seeks to maintain a
constant net asset value of $1.00 per share, although in certain
circumstances this may not be possible, and declares dividends daily.

Scudder Money Market Series seeks to provide investors with as high a
level of current income as is consistent with its investment polices
and with preservation of capital and liquidity. The Fund seeks to
maintain a constant net asset value of $1.00 per share, but there is no
assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.

Scudder Government Money Market Series seeks to provide investors with
as high a level of current income as is consistent with its investment
polices and with preservation of capital and liquidity. The Fund seeks
to maintain a constant net asset value of $1.00 per share, but there is
no assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.

TAX FREE MONEY MARKET

Scudder Tax Free Money Fund ("STFMF") seeks to provide income exempt
from regular federal income tax and stability of principal through
investments primarily in municipal securities. STFMF seeks to maintain
a constant net asset value of $1.00 per share, although in extreme
circumstances this may not be possible.

Scudder Tax Free Money Market Series seeks to provide investors with as
high a level of current income that cannot be subjected to federal
income tax by reason of federal law as is consistent with its
investment policies and with preservation of capital and liquidity. The
Fund seeks to maintain a constant net asset value of $1.00 per share,
but there is no assurance that it will be able to do so. The
institutional class of shares of this Fund is not within the Scudder
Family of Funds.

Scudder California Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share while
providing California taxpayers income exempt from both California State
personal and regular federal income taxes. The Fund is a professionally
managed portfolio of high quality, short-term California municipal
securities. There can be no assurance that the stable net asset value
will be maintained.

Scudder New York Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share, while
providing New York taxpayers income exempt from New York State and New
York City personal income taxes and regular federal income tax. There
can be no assurance that the stable net asset value will be maintained.

TAX FREE

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 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 will invest primarily in high-grade,
intermediate-term bonds.

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

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

Scudder California Tax Free Fund* seeks to provide California taxpayers
with income exempt from both California State personal income and
regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of California municipal securities.

Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide
Massachusetts taxpayers with as high a level of income exempt from
Massachusetts personal income tax and regular federal income tax, as is
consistent with a high degree of price stability, through a
professionally managed portfolio consisting primarily of
investment-grade municipal securities.

Scudder Massachusetts Tax Free Fund* seeks to provide Massachusetts
taxpayers with income exempt from both Massachusetts personal income
tax and regular federal income tax. The Fund is a professionally
managed portfolio consisting primarily of investment-grade municipal
securities.

Scudder New York Tax Free Fund* seeks to provide New York taxpayers
with income exempt from New York State and New York City personal
income taxes and regular federal income tax. The Fund is a
professionally managed portfolio consisting primarily of New York
municipal securities.

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

Scudder Ohio Tax Free Fund* seeks to provide Ohio taxpayers with income
exempt from both Ohio personal income tax and regular federal income
tax. The Fund is a professionally managed portfolio consisting
primarily of investment-grade municipal securities.

Scudder Pennsylvania Tax Free Fund* seeks to provide Pennsylvania
taxpayers with income exempt from both Pennsylvania personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal
securities.

U.S. INCOME

Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing
primarily in high quality short-term bonds.

Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with investment in U.S.
Government securities and the minimization of reinvestment risk.

Scudder GNMA Fund seeks to provide high current income primarily from
U.S. Government guaranteed mortgage-backed (Ginnie Mae) securities.

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

Scudder High Yield Bond Fund seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities.

GLOBAL INCOME

Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.

Scudder International Bond Fund seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. 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 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 by
governments and corporations in emerging markets.

ASSET ALLOCATION

Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio, under normal market conditions, will invest
substantially in a select mix of Scudder bond mutual funds, but will
have some exposure to Scudder equity mutual funds.

Scudder Pathway Series: Balanced Portfolio seeks to provide investors
with a balance of growth and income by investing in a select mix of
Scudder money market, bond and equity mutual funds.

Scudder Pathway Series: Growth Portfolio seeks to provide investors
with long-term growth of capital. In pursuing this objective, the
Portfolio will, under normal market conditions, invest predominantly in
a select mix of Scudder equity mutual funds designed to provide
long-term growth.

Scudder Pathway Series: International Portfolio seeks maximum total
return for investors. Total return consists of any capital appreciation
plus dividend income and interest. To achieve this objective, the
Portfolio invests in a select mix of established international and
global Scudder funds.

U.S. GROWTH AND INCOME

Scudder Balanced Fund seeks a balance of growth and income from a
diversified portfolio of equity and fixed-income securities. The Fund
also seeks long-term preservation of capital through a quality-oriented
approach that is designed to reduce risk.

Scudder Growth and Income Fund seeks long-term growth of capital,
current income, and growth of income.

Scudder S&P 500 Index Fund seeks to provide investment results that,
before expenses, correspond to the total return of common stocks
publicly traded in the United States, as represented by the Standard &
Poor's 500 Composite Stock Price Index.

Scudder Real Estate Investment Fund seeks long-term capital growth and
current income by investing primarily in equity securities of companies
in the real estate industry.

U.S. GROWTH

Value

Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.

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

Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.

Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization
("micro-cap") common stocks.

Growth

Scudder Classic Growth Fund seeks to provide long-term growth of
capital with reduced share price volatility compared to other growth
mutual funds.

Scudder Large Company 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 Development Fund seeks long-term growth of capital by investing
primarily in securities of small and medium-size growth companies.

Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies
poised to be leaders in the 21st century.

SCUDDER CHOICE SERIES

Scudder Financial Services Fund seeks long-term growth of capital
primarily through investment in equity securities of financial services
companies.

Scudder Health Care Fund seeks long-term growth of capital primarily
through investment in securities of companies that are engaged in the
development, production or distribution of products or services related
to the treatment or prevention of diseases and other medical problems.

Scudder Technology Fund seeks long-term growth of capital primarily
through investment in securities of companies engaged in the
development, production or distribution of technology-related products
or services.

GLOBAL GROWTH

Worldwide

Scudder Global Fund seeks long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt
securities convertible into common stocks.

Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.

Scudder International Fund seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity
securities.

Scudder Global Discovery 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 Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.

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

Regional

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

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

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

The Japan Fund, Inc. seeks long-term capital appreciation by investing
primarily in equity securities (including American Depository
Receipts) of Japanese companies.

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

The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor Relations; and easy telephone
exchanges into other Scudder funds. Certain Scudder funds may not be available
for purchase or exchange. For more information, please call 1-800-225-5163.

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. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. 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 Funds 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. Shareholders may designate
which day they want the automatic withdrawal to be processed. 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 and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the 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 each Fund's prospectus. Any such requests must be received by
each Fund's transfer agent ten days prior to the date of the first automatic
withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the
shareholder, each 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 each 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 $2,500 (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 $2,500 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 $2,500 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 Trusts reserve 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

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

Scudder Tax Free Money Fund

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

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

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

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

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

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

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

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

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

SLTTFF, SMTTFF, SMMB and SHYTFF will follow the practice of
distributing substantially all of their net investment income (defined under
"ADDITIONAL INFORMATION--Glossary") and any excess of net realized short-term
capital gains over net realized long-term capital losses. In the past, SMTTFF,
SMMB and SHYTFF have followed the practice of distributing the entire excess of
net realized long-term capital gains over net realized short-term capital
losses. However, if it appears to be in the best interest of such Funds and the
relevant shareholders, such Fund may retain all or part of such gain for
reinvestment.

Dividends on SLTTFF, SMTTFF, SMMB and SHYTFF will be declared daily and
distributions of net investment income will be made monthly on the fourth Boston
business day of each month for the preceding month's net income. Distributions
of realized capital gains, if any, are paid in November or December, 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.

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, 1997 was 3.45%.

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, 1997 was 3.51%.

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
5.39% and 5.71% respectively, to receive after-tax income equal to the 3.45%
tax-free yield of Scudder Tax Free Money Fund on December 31, 1997. Please refer
to the chart beginning below 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 Limited Term Tax Free Fund, 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):
<TABLE>
<S> <C> <C> <C>
<CAPTION>

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>

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
Average Annual Total Return for periods ended December 31, 1997

OneYear FiveYears TenYears Life ofFund

Scudder Medium Term Tax Free Fund* 7.69% 6.51% 7.69% --

Scudder Managed Municipal Bonds 9.29% 7.25% 8.75% --

Scudder High Yield Tax Free Fund** 12.04% 7.80% -- 9.29(1)

</TABLE>

* The foregoing average annual total return for ten years 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. Since the adoption of its current objectives on
November 1, 1990, the average annual total returns is 7.73
respectively.

** If the Adviser had not maintained Fund expenses and had imposed a full
management fee, total returns for the one- and five-year periods and
life of the fund would have been lower.

(1) The Fund commenced operations on January 22, 1987. Index Comparisons
begin January 31, 1987. 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 five-year and ten-year
periods would have been lower.

Average Annual Total Return for period ended October 31, 1997

OneYear FiveYears TenYears Life ofFund

Scudder Limited Term Tax Free Fund* 5.89% -- -- 4.99%

* If the Adviser had not maintained Fund expenses and had imposed a full
management fee, total return would have been lower.

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

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

C = (ERV/P) - 1
Where:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>

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.

Cumulative Total Return for periods ended December 31, 1997

OneYear FiveYears TenYears Life ofFund

Scudder Medium Term Tax Free Fund* 7.69% 37.10% 97.94% --

Scudder Managed Municipal Bonds 9.29% 41.93% 131.37%

Scudder High Yield Tax Free Fund** 12.04% 45.5% -- 143.10%(2)

</TABLE>

* The foregoing cumulative total return for ten years 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. Since the adoption of its current objectives on November 1, 1990,
the cumulative total return is 70.52%.

** If the Adviser had not maintained Fund expenses and had imposed a full
management fee, cumulative total return would have been lower.

(2) The Fund commenced operations on January 22, 1987. Index comparisons begin
January 31, 1987.

Cumulative Total Return for period ended October 31, 1997

OneYear FiveYears TenYears Life ofFund

Scudder Limited Term Tax Free Fund* 5.89% -- -- 19.78%(1)
</TABLE>

* If the Adviser had not maintained Fund expenses and had imposed a full
management fee, cumulative total return would have been lower.

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

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.

SEC 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, sometimes referred to as a Fund's "SEC
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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>

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.
</TABLE>

Yields for the 30-day period ended December 31, 1997

Scudder Medium Term Tax Free Fund 3.89%

Scudder Managed Municipal Bonds 4.28%

Scudder High Yield Tax Free Fund 4.57%

Scudder Limited Term Tax Free Fund 3.70%

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, 1997

TAXABLE EQUIVALENT*
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>

FUND 28%Tax Bracket 31%Tax Bracket 36%Tax Bracket 39.6%Tax
Bracket

Scudder Medium Term Tax Free Fund 5.40% 5.64% 6.08% 6.44%

Scudder Managed Municipal Bonds 5.94% 6.20% 6.69% 7.09%

Scudder High Yield Tax Free Fund 6.35% 6.62% 7.14% 7.57%

Scudder Limited Term Tax Free Fund 5.14% 5.36% 5.78% 6.13%

</TABLE>

* Based on federal income tax rates in effect for the 1997 taxable year.

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 1997
calendar year.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>

1997 TaxableIncome Brackets FederalTax Rates To Equal Hypothetical Tax-Free Yields of 5%, 7% and 9%, a
Taxable Investment Would Have To Earn**

IndividualReturn 5% 7% 9%
------ -- -- --

$0 - $24,650 15.0% 5.88% 8.24% 10.59%
$24,651- $59,750 28.0% 6.94% 9.72% 12.50%
$59,751 - $124,650 31.0% 7.25% 10.14% 13.04%
$124,651 - $271,050 36.0% 7.81% 10.94% 14.06%
Over $271,050 39.6% 8.28% 11.59% 14.90%

JointReturn

$0 - $41,200 15.0% 5.88% 8.24% 10.59%
$41,201 - $99,600 28.0% 6.94% 9.72% 12.50%
$99,601 - $151,750 31.0% 7.25% 10.14% 13.04%
$151,751 - $271,050 36.0% 7.81% 10.94% 14.06%
Over $271,050 39.6% 8.28% 11.59% 14.90%

</TABLE>

** 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
$114,700 ($57,350 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 $114,700 (for
single individuals) or $172,050 (for married individuals filing jointly).
The effective federal tax rates and equivalent yields for such taxpayers
would be higher than those shown above.

Example: *

Based on 1997 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 a 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, the Wilshire Real Estate Securities
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, each 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 Funds. In addition, the amount of assets that the Adviser has under
management in various geographical areas may be quoted in advertising and
marketing materials.

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

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

Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Funds. The
description may include a "risk/return spectrum" which compares the Funds to
other Scudder Family of 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 or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Funds, including reprints of, or selections from, editorials or
articles about these Funds. Sources for Fund performance information and
articles about the Funds 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 Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC'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 Business 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 news weekly that periodically reports
mutual fund performance data.

Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.

The 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 STFT are of one class and have equal rights as
to voting, dividends and liquidation. The Trustees of STFMF and STFT have the
authority to issue two or more series of shares and to designate the relative
rights and preferences as between the different series. The Trustees of STFMF
have not yet exercised that authority. If more than one series of shares were
issued and a series were unable to meet its obligations, the remaining series
might have to assume the unsatisfied obligations of that series. All shares
issued and outstanding will be fully paid and non-assessable by the Funds and
redeemable as described in this Statement of Additional Information and in the
Funds' prospectus.

The shares of SMT are issued in separate series, each share of which
represents an equal proportionate interest in that series with each other share
of that series. The Trustees of SMT have the authority to designate additional
series and to designate the relative rights and preferences as between the
different series.

The Trustees of STFMF and SMT, in their discretion, may authorize the
division of shares of each of their respective Funds (or shares of a series)
into different classes permitting shares of different classes to be distributed
by different methods. Although shareholders of different classes of a series
would have an interest in the same portfolio of assets, shareholders of
different classes may bear different expenses in connection with different
methods of distribution. The Trustees have no present intention of taking the
action necessary to effect the division of shares into separate classes (which
under present regulations would require the Funds first to obtain an exemptive
order of the SEC), nor of changing the method of distribution of shares of the
Funds.

Currently, the assets of SMT and STFT received for the issue or sale of
the shares of each series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are to be
charged with the liabilities in respect to such series and with a share of the
general liabilities of SMT. If a series were unable to meet its obligations, the
assets of all other series may in some circumstances be available to creditors
for that purpose, in which case the assets of such other series could be used to
meet liabilities which are not otherwise properly chargeable to them. Expenses
with respect to any two or more series are to be allocated in proportion to the
asset value of the respective series except where allocations of direct expenses
can otherwise be fairly made. The officers of SMT and STFT, subject to the
general supervision of the Trustees, have the power to determine which
liabilities are allocable to a given series, or which are general or allocable
to two or more series. In the event of the dissolution or liquidation of SMT and
STFT, the holders of the shares of any series are entitled to receive as a class
the underlying assets of such shares available for distribution to shareholders.

Shares of SMT and STFT entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to the other
series.

Each Fund's Declaration of Trust provides that obligations of the Fund
involved are not binding upon the Trustees individually but only upon the
property of that Fund, that the Trustees and officers will not be liable for
errors of judgment or mistakes of fact or law, and that the Fund involved will
indemnify its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Fund except if it is determined in the manner provided in the
Declaration of Trust that they have not acted in good faith in the reasonable
belief that their actions were in the best interests of the Fund involved.
However, nothing in the Declarations of Trust protect or indemnify a Trustee or
officer against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.

INVESTMENT ADVISER

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

Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Funds. This organization, the
predecessor of which is Scudder, Stevens & Clark, Inc., is one of the most
experienced investment counsel firms in the U.S. 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, Inc., the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries. The
predecessor firm reorganized from a partnership to a corporation on June 28,
1985. On June 26, 1997, the Adviser's predecessor entered into an agreement with
Zurich Insurance Company ("Zurich") pursuant to which the predecessor and Zurich
agreed to form an alliance. On December 31, 1997, Zurich acquired a majority
interest in Scudder, and Zurich made its subsidiary Zurich Kemper Investments,
Inc., a part of the predecessor organization. The predecessor's name has been
changed to Scudder Kemper Investments, Inc.

Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.

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
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 Pathway Series, Scudder Securities Trust,
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,
The Argentina Fund, Inc., The Brazil Fund, Inc., Scudder Spain and Portugal
Fund, Inc., Scudder Global High Income Fund, Inc., The Korea Fund, Inc. and The
Japan 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 $12 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.

Pursuant to an Agreement between Scudder Kemper Investments, Inc. and
AMA Solutions, Inc., a subsidiary of the American Medical Association (the
"AMA"), dated May 9, 1997, the Adviser has agreed, subject to applicable state
regulations, to pay AMA Solutions, Inc. royalties in an amount equal to 5% of
the management fee received by the Adviser with respect to assets invested by
AMA members in Scudder funds in connection with the AMA InvestmentLinkSM
Program. The Adviser will also pay AMA Solutions, Inc. a general monthly fee,
currently in the amount of $833. The AMA and AMA Solutions, Inc. are not engaged
in the business of providing investment advice and neither is registered as an
investment adviser or broker/dealer under federal securities laws. Any person
who participates in the AMA InvestmentLinkSM Program will be a customer of the
Adviser (or of a subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLinkSM is a service mark of AMA Solutions, Inc.

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 STFT) and also for other clients advised by
the Adviser, in particular the other Scudder tax free funds. Investment
decisions for the Funds and other clients are made with a view to achieving
their respective investment objectives and after consideration of such factors
as their current holdings, availability of cash for investment and the size of
their investments generally. Frequently, a particular security may be bought or
sold for only one client or in different amounts and at different times for more
than one but less than all clients. Likewise, a particular security may be
bought for one or more clients when one or more other clients are selling the
security. In addition, purchases or sales of the same security may be made for
two or more clients on the same day. In such event, such transactions will be
allocated among the clients in a manner believed by the Adviser to be equitable
to each. In some cases, this procedure could have an adverse effect on the price
or amount of the securities purchased or sold by a Fund. Purchase and sale
orders for a Fund may be combined with those of other clients of the Adviser in
the interest of achieving the most favorable net results to the Funds.

Under the Agreements, the Adviser regularly provides the Funds with
continuing investment management consistent with each Fund's investment
objectives, policies and restrictions and determines what securities shall be
purchased for each Fund, what securities shall be held or sold by each Fund, and
what portion of each Fund's assets shall be held uninvested, subject always to
the provisions of each Fund's Declaration of Trust and By-Laws, of the 1940 Act
and the Code 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, 1995, 1996 and 1997, STFMF's
investment advisory fees pursuant to its investment advisory agreement with
Scudder Kemper amounted to $1,197,027, $1,030,755 and $881,998, respectively.

For the above services, SLTTFF pays the Adviser an annual rate of 0.60%
of the average daily net assets of the Fund. The Adviser agreed to maintain the
annualized expenses at 0.75% of average daily net assets until December 31,
1998. The Agreement provides that if the Fund's expenses, exclusive of taxes,
interest and extraordinary expenses exceed specific 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 year ended October 31, 1997, the Adviser did not impose a portion of its fee
amounting to $93,434 and the fee imposed aggregated $629,013, of which $58,676
was unpaid at October 31, 1997.

For the period September 1, 1995 to April 30, 1996, the Adviser agreed
to maintain SLTTFF's annualized expenses at 0.50% of average daily net assets.
Effective May 1, 1996, the Adviser agreed to maintain the annualized expenses at
0.75% of average daily net assets until December 31, 1998.

For the above services SMTTFF pays an annual rate of 0.60 of 1% of the
first $500 million of average daily net assets and 0.50 of 1% of such assets in
excess of $500 million on an annual basis.

For the years ended December 31, 1995, 1996 and 1997, SMTTFF's fees
pursuant to such Agreement amounted to $4,083,050, $3,879,293 and $3,710,976,
respectively. For the years ended December 31, 1995, 1996 and 1997, SMTTFF's
aggregate fees pursuant to such Agreement amounted to $4,083,050, $3,879,293 and
$3,710,976, respectively; however, the Adviser did not impose $174,121 of the
fees charged in 1995.

For the above services SMMB pays an annual rate 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, 1995, 1996 and 1997, aggregate fees
incurred by SMMB pursuant to its investment advisory agreement amounted to
$3,837,608, $3,826,131 and $3,705,253, respectively.

For the above services SHYTFF pays an annual rate of 0.65 of 1% on the
first $300 million of average daily net assets and 0.60 of 1% on such net assets
in excess of $300 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, 1996. For the years ended December 31, 1995, 1996 and 1997, fees
incurred by SHYTFF amounted to $1,552,159, $1,885,083 and $2,050,368,
respectively. For the years ended December 31, 1995 and 1996, the Adviser did
not impose a fee which would have amounted to $415,870 and $121,432,
respectively.

Legal 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 expense ratios for STFMF for the years ended December 31, 1995,
1996 and 1997 were 0.75%, 0.70% and 0.65%, respectively. The expense ratio for
SLTTFF for the years ended October 31, 1995, 1996 and 1997 were .23%, .63% and
0.75%, respectively. The expense ratios for SMTTFF for the years ended December
31, 1995, 1996 and 1997 were 0.70%, 0.72% and 0.74%, respectively. If expense
maintenance had not been in effect, total annualized Fund operating expenses for
SMTTFF for the year ended December 31, 1995 would have been 0.72% of average
daily net assets, respectively. The expense ratios of SMMB for the years ended
December 31, 1995, 1996 and 1997 were 0.63%, 0.63% and 0.64%, respectively.
Since the Adviser maintained Fund expenses as described above, the expense
ratios for SHYTFF were 0.80%, 0.91% and 0.90% for the years ended December 31,
1995, 1996 and 1997, respectively. If expense maintenance had not been in
effect, total annualized Fund operating expenses for SHYTFF for the years ended
December 31, 1995 and 1996 would have been 0.94% and 0.95% 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."

Because the transaction between Scudder and Zurich resulted in the
assignment of the Funds' investment management agreements with Scudder, the
agreements were deemed to be automatically terminated at the consummation of the
transaction. In anticipation of the transaction, however, new investment
management agreements between the Funds and the Adviser were approved by the
Funds' Trustees. At the special meeting of the Funds' shareholders held on
October 24, 1997, the shareholders also approved proposed new investment
management agreements. The new investment management agreements (the
"Agreements") will become effective as of December 31, 1997 and will be in
effect for an initial term ending on September 30, 1998. The Agreements are in
all material respects on the same terms as the previous investment management
agreements which they supersede. The Agreements incorporate conforming changes
which promote consistency among all of the funds advised by the Adviser and
which permit ease of administration.

The Agreements identify the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens & Clark, Inc." (together, the "Scudder Marks"). Under
this license, each Trust, with respect to a Fund, has the non-exclusive right to
use and sublicense the Scudder name and marks as part of its name, and to use
the Scudder Marks in the Trust's investment products and services.

In reviewing the terms of the Agreements and in discussions with
Scudder Kemper Investments, 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.

The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.

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.

TRUSTEES AND OFFICERS
<TABLE>
<S> <C> <C> <C>
<CAPTION>

Name,Age and Address Positionwith Trust PrincipalOccupation** Position
withUnderwriter,Scudder
InvestorServices, Inc.

Henry P. Becton, Jr. (54)WGBH Trustee (1,2,3) President and General Manager, --
125 Western Ave. WGBH Educational Foundation
Allston, MA 02134

Dawn-Marie Driscoll (51)Driscoll Trustee (1,2,3) Executive Fellow, Center for --
Associates4909 SW 9th PlaceCape Business Ethics, Bentley
Coral, FL 33914 College; President, Driscoll

Associates (consulting firm)

Peter B. Freeman (65)100 Alumni Trustee (1,2,3) Trustee, Eastern Utilities --
AvenueProvidence, RI 02906 Associates; Director, Swan

Point Cemetery;
Director, AMICA
Mutual Insurance
Co., Trustee,
various non-family
trusts and
charitable
institutions

George M. Lovejoy, Jr. (68) Trustee (1,2,3) President and Director, Fifty --
50 Congress StreetSuite Associates (real estate
543Boston, MA 02109 investment trust)

Wesley W. Marple, Jr. Trustee (1,2,3) Professor of Business --
(66)Northeastern University413 Administration, Northeastern
Hayden Hall 360 Huntington University, College of Business
AvenueBoston, MA 02115 Administration

Kathryn L. Quirk*# (45) Trustee, Vice Managing Director of Scudder Senior Vice President,
President and Kemper Investments, Inc. Director and Clerk
Assistant Secretary

(1,2,3)

Jean C. Tempel (55) Trustee (1,2,3) Managing Partner, --
Technology Equity Partners10 Post Technology Equity Partners

Office SquareSuite 1325Boston, MA
02109-4603

Daniel Pierce*+ (64) Trustee and Vice Managing Director of Scudder Vice President,
President (1) Kemper Investments, Inc. Director and

Assistant Treasurer

Donald C. Carleton+ (63) Vice President Managing Director of Scudder --
(1,2,3) Kemper Investments, Inc.

Philip G. Condon+ (47) Vice President (1) Managing Director of Scudder Senior Vice President
Kemper Investments, Inc. and Director

K. Sue Cote+ (36) Vice President (2) Senior Vice President of --
Scudder Kemper Investments,

Inc.

Jerard K. Hartman# (65) Vice President Managing Director of Scudder --
(1,2,3) Kemper Investments, Inc.

Thomas W. Joseph+ (58) Vice President Senior Vice President of Vice President,
(1,2,3) Scudder Kemper Investments, Director, Treasurer and

Inc. Assistant Clerk

M. Ashton Patton+ (34) Vice President (3) Vice President of Scudder --
Kemper Investments, Inc.

Thomas F. McDonough+ (51) Vice President, Senior of Scudder Kemper Assistant Clerk
Treasurer, and Investments, Inc.

Secretary (1,2,3)

John R. Hebble+ (39) Assistant Treasurer Senior Vice President of
------------
Scudder Kemper Investments,

Inc.

Caroline Pearson+ (35) Assistant Secretary Vice President of Scudder Kemper --
Investments, Inc.

</TABLE>

(1) SMT
(2) STFMF
(3) STFT

* Mr. Pierce and Ms. Quirk are considered by the Funds and their counsel
to be Trustees who are "interested persons" of the Adviser or of the
Funds, within the meaning of the 1940 Act.

** 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

Mr. Pierce and Ms. Quirk are members of the Executive Committee of STFMF,
Ms. Tempel, Ms. Quirk and Mr. Freeman are members of the Executive Committee of
STFT, and Messrs. 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 January 31, 1998, 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 (the "Exchange Act")) 37,439,419 shares in the
aggregate, or 13.05% of the shares of the Fund outstanding on such date.

As of January 31, 1998, 19,323,484 shares in the aggregate, 6.73% of
the outstanding shares of STFMF were held in the name of Scudder Trust Company,
Disbursement Account, 5 Industrial Way, Salem, NH 03079, who may be deemed to be
the beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.

As of January 31, 1998, 37,268,707 shares in the aggregate, 12.99% of
the outstanding shares of STFMF were held in the name of Daniel Pierce, Two
International Place, Boston, MA 02110.

To the knowledge of STFMF, as of January 31, 1998, no person owned
beneficially more than 5% of the Fund's outstanding shares, except as stated
above.

As of January 31, 1998, all Trustees and officers of STFT as a group
owned beneficially (as that term is defined in Section 13(d) under the Exchange
Act) less than 1% of SMTTFF.

Certain accounts for which the Adviser acts as investment adviser owned
10,617,558 shares in the aggregate, or 18.04% of the outstanding shares of
SMTTFF on January 31, 1998. The Adviser may be deemed to be the beneficial owner
of such shares but disclaims any beneficial ownership in such shares.

As of January 31, 1998, 5,001,809 shares in the aggregate, 8.50% of the
outstanding shares of SMTTFF, were held in the name of Charles Schwab & Co., 101
Montgomery Street, San Francisco, CA 94104, who may be deemed to be the
beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.

To the knowledge of STFT, as of January 31, 1998, no person owned
beneficially more than 5% of SMTTFF's outstanding shares, except as stated
above.

As of January 31, 1998, all Trustees and officers of STFT as a group
owned beneficially (as the term is defined in Section 13(d) under the Exchange
Act) less than 1% of SLTTFF.

Certain accounts for which the Adviser acts as investment adviser owned
6,616,757 shares in the aggregate or 5.64% of the outstanding shares of SLTTFF
on January 31, 1998. The Adviser may be deemed to be the beneficial owner of
such shares but disclaims any beneficial ownership in such shares.

As of January 31, 1998, 664,830 shares in the aggregate, or 5.67% of
the outstanding shares of SLTTFF, were held in the name of Q.A. Shaw McDean Jr.,
P.O. Box 313 70 West River Road, Rumson, NJ 07760.

As of January 31, 1998, all Trustees and officers of SMT as a group
owned beneficially (as that term is defined under Section 13(d) of the Exchange
Act) less than 1% of the shares of SMMB.

Certain accounts for which the Adviser acts as investment adviser owned
10,713,992 shares in the aggregate, or 13.46% of the outstanding shares of SMMB
on January 31, 1998. The Adviser may be deemed to be the beneficial owner of
such shares but disclaims any beneficial interest in such shares.

As of January 31, 1998, 4,880,089 shares in the aggregate, 6.10% 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 knowledge of SMT, as of January 31, 1998, no person owned
beneficially more than 5% of SMMB's outstanding shares except as stated above.

As of January 31, 1998, all Trustees and Officers of SMT as a group
owned beneficially (as that term is defined under Section 13(d) of the Exchange
Act) less than 1% of the shares of SHYTFF.

As of January 31, 1998, 1,582,130 shares in the aggregate, 5.85% of the
outstanding Shares of SHYTFF were held in the name of Charles Schwab & Co., 101
Montgomery Street, San Francisco, CA 94104, who may be deemed to be the
beneficial owner of certain of these shares but disclaims any beneficial
ownership therein.

To the knowledge of SMT, as of January 31, 1998, no person owned
beneficially more than 5% of SHYTFF's outstanding shares, except as stated
above.

The Trustees and Officers of STFMF, STFT and SMT also serve in similar
capacities with other Scudder funds.

REMUNERATION

Responsibilities of the Board--Board and Committee Meetings

The Board of Trustees is responsible for the general oversight of the
Funds' business. A majority of the Board's members are not affiliated with the
Adviser. These "Independent Trustees" have primary responsibility for assuring
that the Funds are managed in the best interests of their shareholders.

The Board of Trustees meets at least quarterly to review the investment
performance of the Funds and other operational matters, including policies and
procedures designated to assure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, the
Funds' investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates, and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by the Funds' independent public accountants and by
independent legal counsel selected by the Independent Trustees.

All of the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects the Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Trustees from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues. Compensation of Officers and Trustees

Each of the Independent Trustees receive the following compensation
from the Funds: an annual trustee's fee of $2,400 for a fund in which assets do
not exceed $100 million, $4,800 for assets which exceed $100 million, but not
exceeding $1 billion, and $7,200 if assets exceed $1 billion; a fee of $150 for
attendance at each board meeting, audit committee meeting, or other meeting held
for the purposes of considering arrangements between the Funds and the Adviser
for any affiliate of the Adviser; $75 for any other committee meeting (although
in some cases the Independent Trustees have waived committee meeting fees); and
reimbursement of expenses incurred for travel to and from Board Meetings. No
additional compensation is paid to any Independent Trustee for travel time to
meetings, attendance at directors' educational seminars or conferences, service
on industry or association committees, participation as speakers at directors'
conferences, service on special trustee task forces or subcommittees or service
as lead or liaison trustee. Independent Trustees do not receive any employee
benefits such as pension, retirement or health insurance.

The Independent Trustees also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type an complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1997 from the Trusts and from all of Scudder funds as a group.

ScudderMunicipal Scudder Tax Scudder Tax Free
Name Trust* Free Trust** Money Fund All Scudder Funds

Henry P. Becton, Jr., $16,900 $2,100 $1,050 $113,974 (23 funds)
Trustee
Dawn-Marie Driscoll, $17,300 $17,300 $8,650 $107,142 (23 funds)
Trustee
Peter B. Freeman, $16,900 $16,900 $8,450 $137,011 (42 funds)
Trustee
George M. Lovejoy, Jr., $18,900 $2,100 $8,450 $138,533 (21 funds)
Trustee
Wesley W. Marple, Jr., $16,900 $16,900 $1,050 $120,549 (22 funds)
Trustee
Jean C. Tempel, $2,100 $17,300 $8,650 $121,924 (22 funds)
Trustee

</TABLE>

* Scudder Municipal Trust consists of two Funds: Scudder Managed Municipal
Bonds and Scudder High Yield Tax Free Fund

** Scudder Tax Free Trust consists of two Funds: Scudder Medium Term Tax Free
Fund and Scudder Limited Term Tax Free Fund

Members of the Board of Trustees who are employees of the Adviser or
its affiliates receive no direct compensation from the Trusts, although they are
compensated as employees of the Adviser, or its affiliates as a result of which
they may be deemed to participate in fees paid by each Fund.

DISTRIBUTOR

Each Fund has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a subsidiary of
the Adviser, a Delaware corporation. The underwriting agreements of STFMF,
SLTTFF, SMTTFF, SMMB and SHYTFF each dated September 10, 1985, July 15, 1985,
January 12, 1987 and August 12, 1987, respectively, will remain in effect until
September 30, 1998 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 12, 1997.

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.

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 does 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 or post-October loss of a Fund.
SLTTFF, STFMF, SHYTFF and SMMB intend to offset realized capital gains by using
their capital loss carryforwards before distributing any capital gains. In
addition, SHYTFF and SMMB intend to offset realized capital gains by using their
post-October losses before distributing any capital gains. As of December 31,
1997, STFMF had a net tax basis capital loss carryforward of approximately
$699,000, which may be applied against any realized net taxable gains of each
succeeding year until fully utilized or until December 31, 2000 ($7,000),
December 31, 2001 ($29,000), December 31, 2002 ($38,000), December 31, 2003
($78,000), December 31, 2004 ($544,000) and December 31, 2005 ($3,000), the
respective expiration dates, whichever occurs first. As of December 31, 1997,
SHYTFF had a net tax basis capital loss carryforward of approximately
$5,050,000, which may be applied against any realized net taxable capital gains
of each succeeding year until fully utilized or until December 31, 2004, the
expiration date, whichever occurs first. For SMMB, from November 1, 1997 through
December 31, 1997, the Fund incurred approximately $151,000 of net realized
capital losses. As permitted by tax regulations, the Fund intends to elect to
defer these losses and treat them as arising in the fiscal year ending December
31, 1998.

If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by STFT, SMMB or SHYTFF for reinvestment,
requiring federal income taxes to be paid thereon, the Fund involved will elect
to treat such capital gains as having been distributed to its shareholders. As a
result, shareholders will report such capital gains as long-term capital gains
taxable to individual shareholders at a maximum 20% or 28% capital gains rate
(depending on a Fund's holding period for the assets giving rise to the gain),
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.

Properly designated 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, may be taxable.

Any market discount recognized on a tax-exempt bond is taxable as
ordinary income. A market discount bond is a bond acquired in the secondary
market at a price below its redemption value (or its adjusted issue price if
issued with original issue discount). Under prior law, the treatment of market
discount as ordinary income did not apply to tax-exempt obligations. Gain on the
disposition of a tax-exempt obligation will be treated as ordinary income
(instead of capital gain) to the extent of accrued market discount.

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.

Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable at a maximum 20% or
28% capital gains rate (depending on a Fund's holding period for the assets
giving rise to the gain) to shareholders as long-term capital gain, regardless
of the length of time the shares of the Fund involved have been held by such
shareholders. Such distributions are not eligible for the dividends-received
deduction to corporate shareholders of the Funds. Any loss realized upon the
redemption of shares of STFT, SMMB or SHYTFF within six months from the date of
their purchase will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain with respect to such
shares. Any short-term capital loss realized upon the redemption of shares of
STFT, SMMB or SHYTFF within six months from the date of their purchase will be
disallowed to the extent of any tax-exempt dividends received with respect to
such shares. 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 or 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 26% and 28% 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. Redemption's of shares, except shares of STFMF, including exchanges for
shares of another Scupper fund, may result in tax consequences (gain or loss) to
the shareholder and are also subject to these reporting requirements.

Investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them (to the extent that
such distribution is from taxable income or gain).

All futures contracts entered into by STFT, SMMB or SHYTFF, and all
options on futures contracts written or purchased by them will be governed by
Section 1256 of the Code. Absent a tax election to the contrary, gain or loss
attributable to the lapse, exercise or closing out of any such position
generally will be treated as 60% long-term and 40% short-term capital gain or
loss, and on the last trading day of the fiscal year, all outstanding Section
1256 positions will be marked to market (i.e. treated as if such positions were
closed out at their closing price on such day), with any resulting gain or loss
recognized as 60% long-term and 40% short-term capital gain or loss.

Positions of STFT, SMMB or SHYTFF, which consist of at least one debt
security not governed by Section 1256 and at least one futures contract or
option on a futures contract governed by Section 1256 which substantially
diminishes the risk of loss with respect to such debt security, will be treated
as a "mixed straddle." Although mixed straddles are subject to the straddle
rules of Section 1092 of the Code, the operation of which may cause deferral of
losses, adjustments in the holding periods of securities and conversion of
short-term capital losses into long-term capital losses, certain tax elections
exist for them which reduce or eliminate the operation of these rules. SMTTFF,
SMMB and SHYTFF will monitor their transactions in options and futures and may
make certain tax elections in order to mitigate the operation of these rules and
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 SLTTFF, 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 SLTTFF, 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 redemption's 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 Commissions

Allocation of brokerage is supervised by the Adviser.

The primary objective of the Adviser in placing orders for the purchase
and sale of securities for a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission 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 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.

For Scupper Tax Free Money Fund, purchases and sales of portfolio
securities, and for SLTTFF, SMTTFF, SMMB and SHYTFF, purchases and sales of
fixed-income 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 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. Purchases of underwritten issues may be made,
which will include an underwriting fee paid to the underwriter.

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
broker/dealers who supply research, market and statistical information to a
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 authorized when placing portfolio transactions for a Fund to pay
a brokerage commission in excess of that which another broker might charge for
executing the same transaction on account of execution services and the receipt
of research, market or statistical information. The Adviser will not place
orders with broker/dealers on the basis that the broker/dealer has or has not
sold shares of a 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 elsewhere.

To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker-dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Funds with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Funds for this service.

Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to the Adviser, it is the opinion of
the Adviser that such information only supplements 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 a Fund, and not all such information is used by
the Adviser in connection with a Fund. Conversely, such information provided to
the Adviser by broker/dealers through whom other clients of the Adviser effect
securities transactions may be useful to the Adviser in providing services to a
Fund.

The Trustees 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
maturates at the time of acquisition were one year or less) for the years ended
December 31, 1996 and 1997 were 14.1% and 13.4%, respectively. The portfolio
turnover rates of SLTTFF for the fiscal years ended October 31, 1996 and 1997
were 37.7% and 17.8%, respectively. The portfolio turnover rates of SMMB for the
years ended December 31, 1996 and 1997 were 12.2% and 9.8%, respectively. The
portfolio turnover rates of SHYTFF for the years ended December 31, 1996 and
1997 were 21.9% and 33.2%, respectively.

NET ASSET VALUE

Scupper Tax Free Money Fund

The net asset value per share of STFMF is determined by Scupper Fund
Accounting Corporation, twice daily as of twelve o'clock noon and the close of
regular trading on the 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, Martin Luther King Jr. Day, Presidents' 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 Staff'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 maturates 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
staff'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.

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

The net asset value of shares of SLTTFF, SMTTFF, SMMB and SHYTFF are
computed as of the close of regular trading on the Exchange on each day the
Exchange is open for trading (the "Value Time"). The Exchange is scheduled to be
closed on the following holidays: New Year's Day, Martin Luther King Jr. 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 NASDAQ Stock Market ("NASDAQ") 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
purchased with remaining maturates of sixty days or less shall be 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 each Fund included in the Funds'
prospectuses and the financial statements incorporated by reference in this
Statement of Additional Information have been so included or incorporated by
reference in reliance upon the accompanying report of Coopers & Lybrand L.L.P.,
One Post Office Square, Boston, Massachusetts 02109, independent accountants,
and, given upon their authority as experts in accounting and auditing. Coopers &
Lybrand L.L.P. is responsible for performing annual (semiannual) audits of the
financial statements and financial highlights of each Fund in accordance with
Generally Accepted Auditing Standards, and the preparation of federal tax
returns.

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 six highest ratings of Moody's for municipal bonds are Aaa, Aa, A,
Baa, Ba and B. 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. Moody's judges municipal bonds rated Ba to have speculative
elements, with very moderate protection of interest and principal payments and
thereby not well safeguarded under any future conditions. Municipal bonds rated
B by Moody's generally lack characteristics of desirable investments. Long-term
assurance of the contract terms of B-rated municipal bonds, such as interest and
principal payments, may be small. Securities rated Ba or below 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 six highest ratings of S&P for municipal bonds are AAA (Prime), AA
(High grade), A (Good grade), BBB (Investment grade), BB (Below investment
grade) and B. 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. Debt
rated BB by S&P faces major ongoing uncertainties or exposure to adverse
conditions which could lead to inadequate capacity to meet timely interest and
principal payments. Municipal bonds rated B have a greater vulnerability to
default but currently have the capacity to meet interest payments and principal
repayments. Securities rated BB or below are commonly referred to as "junk"
bonds and as such they carry a high margin of risk.

S&P's top ratings for municipal notes are SP1 and SP2. The designation
SP1 indicates a very strong capacity to pay principal and interest. A "+" is
added for those issues determined to possess overwhelming safety
characteristics. An SP2 designation indicates a satisfactory capacity to pay
principal and interest.

The six highest ratings of Fitch for municipal bonds are AAA, AA, A,
BBB, BB and B. 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 F1+. 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 ratings.
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. Fitch
considers bonds rated BB to be speculative because the issuer's ability to pay
interest and repay principal may be affected over time by adverse economic
changes, although financial alternatives can be identified to assist the issuer
in meeting its obligations. While bonds rated B are currently meeting debt
service requirements, they are considered highly speculative in light of the
issuer's limited margin of safety. Securities rated BB or below are commonly
referred to as "junk" bonds and as such they carry a high margin of risk.

Commercial Paper Ratings

Commercial paper rated A1 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 F1 is the highest rating assigned by Fitch. Among the
factors considered by Fitch in assigning this rating are: (1) the issuer's
liquidity; (2) its standing in the industry; (3) the size of its debt; (4) its
ability to service its debt; (5) its profitability; (6) its return on equity;
(7) its alternative sources of financing; and (8) its ability to access the
capital markets. Analysis of the relative strength or weakness of these factors
and others determines whether an issuer's commercial paper is rated F-1.

Relative strength or weakness of the above factors determine how the
issuer's commercial paper is rated within the above categories.

Recently comparatively short-term obligations have been introduced in
the municipal market. S&P, Moody's and Fitch rate such obligations. While the
factors considered in municipal credit evaluations differ somewhat from those
relevant to corporate credits, the rating designations and definitions used with
respect to such obligations by S&P and Moody's are the same, respectively, as
those used in their corporate commercial paper ratings.

Glossary

1. Bond

A contract by an issuer (borrower) to repay the owner of the contract
(lender) the face amount of the bond on a specified date (maturity
date) and to pay a stated rate of interest until maturity. Interest is
generally paid semiannually in amounts equal to one half the annual
interest rate.

2. Debt Obligation

A general term which includes fixed income and variable rate
securities, obligations issued at a discount and other types of
securities which evidence a debt.

3. Discount and Premium

(a) Market Discount and Premium

A discount (premium) bond is a bond selling in the market at a
price lower (higher) than its face value. The amount of the
market discount (premium) is the difference between market
price and face value.

(b) Original Issue Discount

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

4. Face Value

The value of a bond that appears on the face of the bond, unless the
value is otherwise specified by the issuing company. Face value is
ordinarily the amount the issuing company promises to pay at maturity.
Face value is not an indication of market value.

5. Liquidation

The process of converting securities or other property into cash.

6. Maturity

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

7. Municipal Security

Securities issued by or on behalf of states, territories and
possessions of the United States, their political subdivisions,
agencies and instrumentalities and the District of Columbia and other
issuers, the interest from which is, at the time of issuance in the
opinion of bond counsel for the issuers, exempt from federal income
tax, except for the applicability of the alternative minimum tax.

8. Net Asset Value Per Share

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

9. Net Investment Income

The net investment income of a Fund is comprised of its interest
income, including accretion of original issue discounts, less
amortization of premiums and expenses paid or accrued computed under
Generally Accepted Accounting Principles (GAAP).

10. Par Value

Par value of a bond is a dollar amount representing the denomination
and assigned value of the bond. It signifies the dollar value on which
interest on the bonds is computed and is usually the same as face value
and maturity value for an individual bond. For example, most bonds are
issued in $1,000 denominations and they have a face value, maturity
value and par value of $1,000. Their market price can of course vary
significantly from $1,000 during their life between issuance and
maturity.

11. Series

SMT is composed of two series: SMMB and SHYTFF. Each Series is
distinct from the other, although both SMMB and SHYTFF are combined in
one investment company--SMT.

STFT is composed of two series: SMTTFF and SLTTFF. Each series is
distinct from the other, although both SMTTFF and SLTTFF are combined
in one investment company--STFT.

Other Information

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

The CUSIP number for SLTTFF is 81123Q104.

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

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

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

STFMF, SMTTFF, SMMB and SHYTFF have a taxable year ending on December
31, SLTTFF has a taxable year ending October 31.

Portfolio securities of each Fund and each series of SMT are held
separately, pursuant to a custodian agreement, by the Funds' custodian, State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02101.

Costs of $41,953 incurred by SLTTFF in conjunction with its
organization had been deferred and are being amortized over five years beginning
February 15, 1994.

The firm of Willkie Farr & Gallagher is legal counsel for each Fund.

The name "Scudder Tax Free Money Fund" is the designation of the
Trustees for the time being under an Amended and Restated Declaration of Trust
dated December 9, 1987, the name "Scudder Tax Free Trust" is the designation of
the Trustees for the time being under an Amended and Restated Declaration of
Trust dated December 8, 1987 and the name "Scudder Municipal Trust" is the
designation of the Trustees for the time being under an Amended and Restated
Declaration of Trust dated December 11, 1987, each as amended from time to time,
and all persons dealing with a Fund must look solely to the property of that
Fund for the enforcement of any claims against that Fund as neither the
Trustees, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of a Fund. Upon the initial purchase of
shares, the shareholder agrees to be bound by a Fund's Declaration of Trust, as
amended from time to time. The Declaration of Trust of each Fund is on file at
the Massachusetts Secretary of State's Office in Boston, Massachusetts. All
persons dealing with a Fund must look only to the assets of that Fund for the
enforcement of any claims against such Fund as no other series of a Trust
assumes any liabilities for obligations entered into on behalf of a Fund.

Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes each
Fund's net asset value. STFMF pays SFAC an annual fee equal to 0.020% of the
first $150 million of average daily net assets, 0.0060% of such assets in excess
of $150 million, 0.0035% of such assets in excess of $1 billion, plus holding
and transaction charges for this service. For the year ended December 31, 1997,
the amount charged to STFMF by SFAC aggregated $44,913, of which $3,793 was
unpaid on December 31, 1997. SLTTFF, SMTTFF, SMMB and SHYTFF pay SFAC an annual
fee equal to 0.024% of the first $150 million of average daily net assets,
0.0070% of such assets in excess of $150 million, 0.0040% of such assets in
excess of $1 billion, plus holding and transaction charges for this service. The
fee incurred by SLTTFF to SFAC for the fiscal year ended October 31, 1997
amounted to $38,322, of which $6,212 was unpaid at October 31, 1997. For the
year ended December 31, 1997, the amounts charged to SMTTFF, SMMB and SHYTFF by
SFAC aggregated $91,551, $96,839 and $60,501, respectively. For the year ended
December 31, 1997, the amounts unpaid by SMTTFF, SMMB, and SHYTFF aggregated
were $7,665, $8,012 and $5,500, respectively.

Scudder Service Corporation ("Service Corporation"), P.O. Box 2291, Boston,
Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer and
dividend disbursing agent for the Fund. Service Corporation also serves as
shareholder service agent and provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans. The
Funds pay Service Corporation an annual fee for each account maintained for a
participant. The Funds, or the Adviser (including any affiliate of the Adviser),
or both, may pay unaffiliated third parties for providing recordkeeping and
other administrative services with respect to accounts of participants in
retirement plans or other beneficial owners of a Fund's shares whose interests
are held in an omnibus account. $204,129 was charged to STFMF for the year ended
December 31, 1997 of which $16,512 was unpaid at December 31, 1997. A total of
$329,430 was charged by Service Corporation to SMMB for the calendar year ended
December 31, 1997, of which $26,971 was unpaid at December 31, 1997. A total of
$287,904 was charged to SHYTFF for the year ended December 31, 1997, of which
$23,216 was unpaid at December 31, 1997. $382,526 was charged to SMTTFF for the
year ended December 31, 1997, of which $29,515 was unpaid at December 31, 1997.
For SLTTFF for the year ended October 31, 1997, Service Corporation imposed an
aggregated fee of $46,003, of which $3,813 was unpaid at October 31, 1997.

The Funds, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.

Scudder Trust Company, an affiliate of the Adviser, provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. Annual service fees are paid by the Fund
to Scudder Trust Company, Two International Place, Boston, Massachusetts
02110-4103 for such accounts. Each Fund pays Scudder Trust Company an annual fee
of $17.55 per shareholder account.

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 Report of Independent
Accountants, Financial Highlights and notes to financial statements are
incorporated by reference and attached hereto in the Annual Report to the
Shareholders of the Fund dated December 31, 1997 and are hereby deemed to be
part of this Statement of Additional Information.

Scudder Limited Term Tax Free Fund

The financial statements, including the investment portfolio of Scudder
Limited Term Tax Free Fund together with the Report of Independent Accountants,
Financial Highlights and notes to financial statements are incorporated by
reference and attached hereto in the Annual Report to the Shareholders of the
Fund dated October 31, 1997, and are hereby deemed to be part of this Statement
of Additional Information.

Scudder Medium Term Tax Free Fund

The financial statements, including the investment portfolio, of
Scudder Medium Term Tax Free Fund, together with the Report of Independent
Accountants, Financial Highlights and notes to financial statements are
incorporated by reference and attached hereto in the Annual Report to the
Shareholders of the Fund dated December 31, 1997, and are hereby deemed to be
part of this Statement of Additional Information.

Scudder Managed Municipal Bonds

The financial statements, including the investment portfolio, of
Scudder Managed Municipal Bonds, together with the Report of Independent
Accountants, Financial Highlights and notes to financial statements are
incorporated by reference and attached hereto in the Annual Report to the
Shareholders of the Fund dated December 31, 1997 and are hereby deemed to be
part of this Statement of Additional Information.

Scudder High Yield Tax Free Fund

The financial statements, including the investment portfolio, of
Scudder High Yield Tax Free Fund, together with the Report of Independent
Accountants, Financial Highlights and notes to financial statements are
incorporated by reference and attached hereto in the Annual Report to the
Shareholders of the Fund dated December 31, 1997 and are hereby deemed to be
part of this Statement of Additional Information.