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

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

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This combined prospectus sets forth concisely the information about Scudder
Massachusetts Limited Term Tax Free Fund and Scudder Massachusetts Tax Free
Fund, each a series of Scudder State Tax Free Trust, an open-end management
investment company, that a prospective investor should know before investing.
Please retain it for future reference.

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

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

Contents--see page 6.

Scudder Massachusetts
Limited Term Tax Free Fund

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

Scudder Massachusetts
Tax Free Fund

Prospectus
March 1, 1995

Two pure no-load(tm) (no sales charges) mutual funds which seek to provide
double tax-free income, exempt from both Massachusetts personal and regular
federal income tax.

Expense information

Scudder Massachusetts Limited Term Tax Free Fund

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

This information is designed to help you understand the various costs and
expenses of investing in Scudder Massachusetts 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.

Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE

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

Investment management fee 0.00%**
12b-1 fees NONE
Other expenses 0.25%
-------
Total Fund operating expenses 0.25%**
=======

Example

Based on the level 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 the Fund before it distributes its net
investment income to shareholders. (As noted above, the Fund has no redemption
fees of any kind.)

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

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

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

** The Adviser has agreed to maintain the total annualized expenses of the
Fund at no more than 0.25% of average daily net assets of the Fund
until July 31, 1995 . If the Adviser had not agreed to maintain the
Fund's expenses, it is estimated that the total annualized expenses of the
Fund would have amount ed to 1.20% (of which 0.60% would have
consisted of investment management fees) for the initial fiscal period
ended October 31, 1994.

Expense information

Scudder Massachusetts Tax Free Fund

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

This information is designed to help you understand the various costs and
expenses of investing in Scudder Massachusetts 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.

Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE

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

Investment management fee 0.58%
12b-1 fees NONE
Other expenses 0.17%
-------
Total Fund operating expenses 0.75%**
=======

Example

Based on the level 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 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

* You may redeem by writing or calling the Fund. 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."

** The Adviser has agreed to maintain the annualized expenses of the Fund at
not more than 0.75% of average daily net assets of the Fund until December
31, 1995. If the Adviser had not agreed to maintain the Fund's total
annualized expenses at 0% of average daily net assets from April 1, 1993
to January 1, 1994, 0.25% from January 2, 1994 to July 31, 1994 and 0.50%
from August 1, 1994 to December 31, 1994, the investment management fee
would have been 0.60%, other expenses would have been 0.17% and the total
annualized expenses of the Fund would have been 0.77% of average daily net
assets for the fiscal year ended March 31, 1994.

Financial highlights

Scudder Massachusetts Limited Term Tax Free Fund

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

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

<TABLE>

<CAPTION>
For the Period
February 15, 1994
(commencement of
operations) to
October 31, 1994
-----------------

<S> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12.00
-------
Income from investment operations:
Net investment income (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Net realized and unrealized loss on investment transactions . . . .. . . . . . . . . . . . . . . . (.36)
-------
Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .00
-------
Less distributions from net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . (.36)
-------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11.64
=======
TOTAL RETURN (%) (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00*
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Ratio of operating expenses, net to average daily net assets (%) (a) . . . . . . . . . . . . . . . . --
Ratio of net investment income to average daily net assets (%) . . . . . . . . . . . . . . . . . . . 4.45**
Portfolio turnover rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.3**
<FN>
(a) Reflects a per share amount of expenses, exclusive of management fees,
reimbursed by the Adviser of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .04
Reflects a per share amount of management fee and other fees not imposed by the Adviser of . . . $ .07
Operating expense ratio including expenses reimbursed, management fee and
other expenses not imposed (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.44**
(b) Total return is higher due to maintenance of the Fund's expenses.
* Not annualized
** Annualized

</TABLE>

Financial highlights

Scudder Massachusetts 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 March 31, 1994 and may be obtained
without charge by writing or calling Scudder Investor Services, Inc.

<TABLE>
<CAPTION>
FOR THE PERIOD
SIX MONTHS MAY 28, 1987
ENDED (COMMENCEMENT
SEPTEMBER 30, YEARS ENDED MARCH 31, OF OPERATIONS)
1994 ----------------------------------------------------------------- TO MARCH 31,
(UNAUDITED) 1994 1993 1992 1991 1990 1989 1988
------------ ----------------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . . . . . . . $13.16 $13.61 $12.81 $12.44 $12.25 $12.23 $12.28 $12.00
------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (a) . . . . .39 .81 .84 .81 .83 .82 .81 .69
Net realized and unrealized gain
(loss) on investment
transactions . . . . . . . . . (.20) (.33) .96 .46 .19 .13 .22 .21
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations . .19 .48 1.80 1.27 1.02 .95 1.03 .90
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment income . . . . (.39) (.81) (.84) (.81) (.83) (.82) (.88) (.62)
From net realized gains on
investment transactions . . . . (.01) (.08) (.16) (.09) -- (.11)(b) (.20) --
In excess of net realized gains . -- (.04) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions . . . . . . . . (.40) (.93) (1.00) (.90) (.83) (.93) (1.08) (.62)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period . . $12.95 $13.16 $13.61 $12.81 $12.44 $12.25 $12.23 $12.28
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) (c) . . . . . . . 1.43** 3.37 14.59 10.46 8.60 7.89 9.50 7.73**

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
($ millions) . . . . . . . . . . 321 332 267 120 67 46 31 16
Ratio of operating expenses, net
to average daily net
assets (%) (a) . . . . . . . . . .33* .07 -- .48 .60 .60 .51 .50*
Ratio of net investment income to
average daily net assets (%) . . 5.76* 5.80 6.36 6.38 6.72 6.60 7.23 7.55*
Portfolio turnover rate (%) . . . 8.6* 17.0 29.6 23.2 27.1 45.5 110.5 95.9*
(a) Reflects a per share amount
of expenses, exclusive of
management fees,
reimbursed by the
Adviser of . . . . . . . . . . $ -- $ .01 $ .02 $ -- $ -- $ -- $ .01 $ .10
Reflects a per share amount
of management fees and
other fees not imposed of . . . $ .03 $ .09 $ .08 $ .05 $ .06 $ .07 $ .07 $ .05
Operating expense ratio
including expenses
reimbursed, management
fee and other expenses
not imposed (%) . . . . . . . .77* .77 .83 .93 1.05 1.16 1.20 2.25*
<FN>
(b) Includes $.01 per share distributions in excess of realized gains pursuant to Internal Revenue Code Section 4982.
(c) Total returns are higher due to maintenance of the Fund's expenses.
* Annualized
** Not annualized

</TABLE>

A message from Scudder's chairman

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

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

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

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

/s/Daniel Pierce

The Funds

* seek to provide double tax-free income exempt from both Massachusetts
personal and regular federal income tax

* active portfolio management by Scudder's professional team of credit
analysts and municipal bond market experts

* dividends paid monthly

Scudder Massachusetts Limited Term Tax Free Fund

* average portfolio maturity limited to between one and five years

* invests primarily in shorter-term, investment-grade municipal securities

* free checkwriting

Scudder Massachusetts Tax Free Fund

* invests primarily in long-term investment-grade municipal securities

Contents

Investment objectives and policies 7
Summary of important features 9
Tax-exempt vs. taxable income 9
Why invest in these Funds? 10
Additional information about policies and investments 11
Purchases 14
Exchanges and redemptions 15
Distribution and performance information 18
Fund organization 19
Transaction information 20
Shareholder benefits 23
Trustees and Officers 26
Investment products and services 27
How to contact Scudder Back cover

Investment objectives and policies

Scudder Massachusetts Limited Term Tax Free Fund and Scudder Massachusetts Tax
Free Fund (the "Funds"), each a non-diversified series of Scudder State
Tax Free Trust, are pure no load(tm) funds designed for Massachusetts residents
seeking income exempt from both state and federal income tax. Scudder
Massachusetts Limited Term Tax Free Fund and Scudder Massachusetts Tax Free Fund
are designed for investors seeking high double tax-free income--exempt from both
Massachusetts and regular federal income tax. Because these Funds are intended
for investors subject to Massachusetts personal income tax, they may not be
appropriate for all investors and are not available in all states.

The two Funds have different investment objectives and characteristics. Their
two prospectuses are presented together so you can understand their important
differences and decide which Fund or combination of the two is most suitable for
your investment needs.

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

Scudder Massachusetts Limited Term Tax Free Fund

Scudder Massachusetts Limited Term Tax Free Fund seeks a higher and more stable
level of income than normally provided by tax-free money market investments, yet
more price stability than investments in intermediate- and long-term municipal
bonds.

The Fund's objective is to provide as high a level of income exempt from
Massachusetts personal and regular federal income tax as is consistent with a
high degree of price stability. The dollar-weighted average effective maturity
of the Fund's portfolio will range between one and five years. Within this
limitation, Scudder Massachusetts Limited Term Tax Free Fund may not purchase
individual securities with effective maturities greater than 10 years at the
time of purchase or issuance, whichever is later.

Scudder Massachusetts Tax Free Fund

Scudder Massachusetts Tax Free Fund seeks a higher level of income than normally
provided by tax-free money market or tax-free short-term investments. Typically,
however, it will experience less price stability than Scudder Massachusetts
Limited Term Tax Free Fund because the investments will be principally in
municipal securities with long-term maturities (i.e., more than 10 years).
Scudder Massachusetts Tax Free Fund has the flexibility, however, to invest in
Massachusetts municipal securities with short- and medium-term maturities as
well.

Quality standards of both Funds

Normally, at least 75% of the municipal securities purchased by each Fund will
be investment-grade quality, those rated Aaa, Aa, A or Baa by Moody's Investors
Service, Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's ("S&P") or
Fitch Investors Service, Inc. ("Fitch"), or if unrated, judged by the Fund's
investment adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"), to be of
equivalent quality. This limit notwithstanding, Scudder Massachusetts Limited
Term Tax Free Fund will, under normal conditions, invest at least 50% of its
total assets in fixed-income securities rated A or better by Moody's, S&P or
Fitch or unrated securities judged by the Adviser to be of equivalent quality at
the time of purchase. 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. Securities in these three top rating
categories are judged by the Adviser to have an adequate if not strong capacity
to repay principal and pay interest.

Each Fund may invest up to 25% of its total assets in fixed-income securities
rated below investment-grade; that is, rated below Baa by Moody's or below BBB
by S&P or Fitch, or in unrated securities of equivalent quality as
determined by the Adviser . The Funds may not invest in fixed-income
securities rated below B by Moody's, S&P or Fitch, or their equivalent. During
the year ended March 31, 1994, the average monthly dollar-weighted market value
of the bonds in Scudder Massachusetts Tax Free Fund's portfolio were as follows:
25.8% rated AAA, 5.7% AA, 53.7% A and 10.5% BBB. During the fiscal year ended
October 31, 1994, the average monthly dollar-weighted market value of the bonds
in Scudder Massachusetts Limited Term Tax Free Fund's portfolio were as follows:
51.0% rated AAA, 16.1% AA, 25.6% A, and 5.7% BBB.
The bonds are rated by Moody's, S&P or Fitch, or of equivalent quality as
determined by the Adviser.

High quality bonds, those within the two highest of the quality rating
categories, characteristically have a strong capacity to pay interest and repay
principal. Medium-grade bonds, those within the next two such categories, are
defined as having adequate capacity to pay interest and repay principal. In
addition, certain medium-grade bonds are considered to have speculative
characteristics. While some lower-grade bonds (so-called "junk bonds") have
produced higher yields in the past than investment-grade bonds, they are
considered to be predominantly speculative and, therefore, carry greater risk.

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

Investments of both Funds

It is a fundamental policy, which may not be changed without a vote of
shareholders, that each Fund normally invests at least 80% of its net assets in
municipal securities of issuers located in Massachusetts and other qualifying
issuers (including Puerto Rico, the U.S. Virgin Islands and Guam) the income
from which is, in the opinion of bond counsel, exempt from both Massachusetts
personal income tax and regular federal income tax ("Massachusetts municipal
securities"). These securities include 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, and revenue bonds, which may be issued to finance projects owned
or used by either private or public entities and which include bonds issued to
finance industrial enterprises and pollution control facilities. Each Fund may
invest in other municipal securities such as variable rate demand instruments,
as well as municipal notes of issuers located in Massachusetts and other
qualifying issuers, 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. 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.

Under normal market conditions, each Fund expects 100% of its portfolio
securities to consist of Massachusetts municipal securities. However, if
defensive considerations or an unusual disparity between after-tax income on
taxable and municipal securities makes it advisable, up to 20% of a Fund's
assets may be held in cash or invested in short-term taxable investments,
including U.S. Government obligations and money market instruments and, in the
case of Scudder Massachusetts Tax Free Fund, repurchase agreements.

Summary of important features

Investment Investments Maturity Quality Dividends
objectives and
characteristics
<C> <C> <C> <C> <C> <C>
Scudder * prices expected * focus on * primarily * 75% of * declared
Massachusetts to fluctuate investment-grade shorter-term investments daily and paid
Limited Term Tax moderately with Massachusetts bonds, average rated within top monthly
Free Fund changes in interest municipal maturity four quality
rates securities between one ratings, * option to
and five years including 50% receive in
* income exempt within top cash or
from both three, or judged reinvest in
Massachusetts state to be of additional
personal income tax comparable shares
and regular federal quality
income tax

Scudder * prices will * focus on * primarily * 75% of * declared
Massachusetts Tax fluctuate with investment-grade long-term investments daily and paid
Free Fund changes in interest Massachusetts bonds, rated within top monthly
rates municipal generally with four quality
securities maturities of ratings or * option to
* income exempt more than ten judged to be of receive in
from both years comparable cash or
Massachusetts state quality reinvest in
personal income tax additional
and regular federal shares
income tax

</TABLE>

Tax-exempt vs. taxable income

Tax Free Yields and Corresponding Taxable Equivalents. The table
below shows Massachusetts taxpayers what an investor would have to
earn from a comparable taxable investment to equal Scudder
Massachusetts Limited Term Tax Free Fund's or Scudder Massachusetts
Tax Free Fund's double tax-free yield.
Today many investors may find that federal tax and Massachusetts
personal income tax rates make either Fund an attractive
alternative to investments paying taxable income.
<TABLE>
<CAPTION>

TO EQUAL HYPOTHETICAL TAX-FREE YIELDS OF 5%, 7%
COMBINED AND 9%, A TAXABLE INVESTMENT WOULD HAVE TO EARN*:
1995 TAXABLE MARGINAL TAX RATE: 5% 7% 9%
INCOME:
INDIVIDUAL

<S> <C> <C> <C> <C>
$23,351-56,550 36.64% 7.89% 11.05% 14.20%
56,551-117,950 39.28 8.23 11.53 14.82
117,951-256,500 43.68 8.88 12.43 15.98
OVER 256,500 46.85 9.41 13.17 16.93
JOINT RETURN
$39,001-94,250 36.64% 7.89% 11.05% 14.20%
94,251-143,600 39.28 8.23 11.53 14.82
143,601-256,500 43.68 8.88 12.43 15.98
OVER 256,500 46.85 9.41 13.17 16.93
<FN>
* These illustrations assume a marginal federal income tax rate of 28% to 39.6% and that the
federal alternative minimum tax is not applicable. Upper income individuals may be subject to an
effective federal income tax rate in excess of the applicable marginal rate as a result of the
phase-out of personal exemptions and itemized deductions made permanent by the Revenue
Reconciliation Act of 1993. Individuals subject to these phase-out provisions would have to invest
in taxable securities with a yield in excess of those shown on the table in order to achieve an
after-tax yield equivalent to the yield on a comparable tax-exempt security.
</TABLE>

Each 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.

Each Fund may also invest up to 20% of its total assets in municipal securities
the interest income from which is subject to the alternative minimum tax or to
federal income tax. Fund distributions from interest on certain municipal
securities subject to the alternative minimum tax, such as private activity
bonds, will be a preference item for purposes of calculating individual and
corporate alternative minimum taxes, depending upon investors' particular
situations. In addition, state and local taxes may apply, depending upon your
state and local tax laws.

Each Fund may invest in third party puts, and when-issued or forward delivery
securities, which may involve certain expenses and risks, including credit
risks. Scudder Massachusetts Tax Free Fund may also enter into repurchase
agreements and reverse repurchase agreements, which may involve certain expenses
and risks, including credit risks. None of these securities and techniques is
expected to comprise a major portion of the Funds' investments. In addition,
each Fund may engage in strategic transactions. See "Additional information
about policies and investments" for more information about certain of these
investment techniques.

Each 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 each 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.

Why invest in the se Fund s ?

The Funds are professionally managed portfolios consisting primarily of
investment-grade municipal securities. The Adviser believes that investment
results can be enhanced by active professional management. Professional
management distinguishes the Funds from unit investment trusts, which cannot be
actively managed.

Tax-free income

As illustrated by the chart on the preceding page, depending on your tax bracket
and individual situation, you may earn a substantially higher after-tax return
from these Funds than from comparable investments that pay income subject to
both Massachusetts personal income tax and regular federal income tax. For
example, if your regular federal marginal tax rate is 36% and your Massachusetts
tax rate is 12%, your effective combined marginal tax rate is 43.68% when
adjusted for the deductibility of state taxes. This means, for example, you
would need to earn a taxable return of 10.44% to receive after-tax income equal
to the 5.88% tax-free yield provided by Scudder Massachusetts Tax Free Fund for
the 30-day period ended March 31, 1994, or earn a taxable return of 8.47% to
receive after-tax income equal to the 4.77% tax-free yield provided by Scudder
Massachusetts Limited Term Tax Free Fund for the 30-day period ended October 31,
1994. In other words, it would be necessary to earn $1,775 from a taxable
investment to equal $1,000 of tax-free income you receive from either Fund. The
yield levels of tax-free and taxable investments continually change. Before
investing in a Fund, you should compare its yield to the after-tax yield you
would receive from a comparable investment paying taxable income. For up-to-date
yield information on the Funds, shareholders can call SAIL, Scudder Automated
Information Line, for toll-free information at any time.

Investment characteristics

Scudder Massachusetts Limited Term Tax Free Fund is managed for current income,
liquidity and a relatively high degree of price stability. For the investor who
can tolerate more price volatility, Scudder Massachusetts Limited Term Tax Free
Fund can be used 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,
Scudder Massachusetts Limited Term Tax Free Fund may appeal to investors
concerned about market volatility or the possibility of rising interest rates,
and so are willing to accept somewhat lower yields than normally provided by a
longer-term bond fund in exchange for greater price stability. Some investors
may view Scudder Massachusetts Limited Term Tax Free Fund as a tax-free
alternative to a bank certificate of deposit ("CD"). While an investment in
Scudder Massachusetts Limited Term Tax Free Fund is not federally insured and
there is no guarantee of price stability, an investment in the Fund--unlike a
CD--is not locked away for any period, may be redeemed at any time without
incurring early withdrawal penalties and may provide a higher after-tax yield.

Investors may choose Scudder Massachusetts Tax Free Fund as an alternative or
complement to tax-free money market or tax-free shorter-term investments.
Although shareholders will be assuming the possibility of greater price
fluctuation, they will typically be receiving a higher yield than normally
provided by tax-free income funds with relatively short maturities. Investors in
either Fund will also benefit from the convenience, cost-savings and
professional management of a mutual fund free of sales commissions. Scudder,
Stevens & Clark, Inc. has been researching and managing fixed-income investments
since 1929 and currently oversees more than $40 billion in bonds,
including $9 billion in municipal securities. Further, Scudder, Stevens &
Clark, Inc. serves as investment manager to 13 tax-free mutual funds with assets
exceeding $3 billion as of December 31, 1994.

In addition, each Fund offers all the benefits of the Scudder Family of Funds.
Scudder, Stevens & Clark, Inc. manages a diverse family of pure no-load(tm)
funds and provides a wide range of services to help investors meet their
investment needs. Please refer to "Investment products and services" for
additional information.

Additional information about policies and investments

Investment restrictions

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

Each Fund may not borrow money except as a temporary measure for extraordinary
or emergency purposes or, in the case of Scudder Massachusetts Tax Free Fund, in
connection with reverse repurchase agreements. Each Fund may not make loans
except through the purchase of debt obligations or through repurchase
agreements. Neither Fund may invest more than 25% of its assets in pollution
control and industrial development bonds or taxable investments of private
sector companies in the same industry.

In addition, as a matter of nonfundamental policy, Scudder Massachusetts Tax
Free Fund may not invest more than 10% of its net assets, in the aggregate, in
repurchase agreements maturing in more than seven days, restricted securities or
securities which are not readily marketable. Neither Fund may invest more than
5% of its net assets in restricted securities.

Each Fund also may not invest more than 25% of its assets in Massachusetts
municipal securities which are secured by revenues from health facilities, toll
roads, ports and airports, or colleges and universities. The Funds do not expect
to invest in non-publicly offered securities.

A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Funds' Statement of Additional
Information.

Investing in Massachusetts

Each Fund is more susceptible to factors adversely affecting issuers of
Massachusetts municipal securities than is a comparable municipal bond fund that
does not emphasize these issuers to this degree. Throughout much of the 1980s,
the Commonwealth had a strong economy which was evidenced by low unemployment
and high personal income growth as compared to national trends. Economic growth
in the Commonwealth has slowed since 1988. All sectors of the economy have
experienced job losses, including high technology, construction and financial
industries. In addition, the economy has experienced shifts in employment from
labor-intensive manufacturing industries to technology and service-based
industries. After declining since 1989, Massachusetts employment showed positive
annual growth in 1993. The unemployment rate for the Commonwealth as of
October, 1994 was 6.4%, compared to a national rate of 5.8%. Per capita
personal income growth has slowed, after several years during which the per
capita personal income growth rate in Massachusetts was among the highest in the
nation. Although per capita personal income has grown at a rate lower than the
national average in recent years, it is still one of the highest in the nation.
For additional information about the Massachusetts economy, see the
Fund s' Statement of Additional Information dated March 1, 1995.

When-issued securities

Each Fund 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, Scudder
Massachusetts Tax Free Fund may enter into repurchase agreements with selected
banks and broker/dealers. Under a repurchase agreement, the Fund acquires
securities, subject to the seller's agreement to repurchase at a specified time
and price. Income from repurchase agreements will be taxable when distributed to
shareholders.

Stand-by commitments

To facilitate liquidity, Scudder Massachusetts Tax Free Fund may enter into
"stand-by commitments" permitting it to resell municipal securities to the
original seller at a specified price. Stand-by commitments generally involve no
cost to the Fund, and any costs would be, in any event, limited to no more than
0.50% of the value of the total assets of the Fund. Any such costs may, however,
reduce yield.

Third party puts

Each Fund may purchase long-term fixed rate bonds that have been coupled with an
option granted by a third party financial institution allowing the Funds at
specified intervals 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.

Variable rate demand instruments

These instruments also permit the Funds to demand payment of the unpaid
principal balance plus accrued interest upon a specified number of days' notice
to the issuer or its agent.

Municipal lease obligations

Each Fund may invest in municipal lease obligations and participation interests
in such obligations. These obligations, which may take the form of a lease, an
installment purchase contract or a conditional sales contract, are issued by
state and local governments and authorities to acquire land and a wide variety
of equipment and facilities. Generally, the Funds will not hold such obligations
directly, but will purchase a certificate of participation or other
participation interest in a municipal obligation from a bank or other financial
intermediary. A participation interest gives the Funds a proportionate interest
in the underlying obligation.

Indexed securities

Each Fund may invest in indexed securities, the value of which is linked to
currencies, interest rates, commodities, indices or other financial indicators
("reference instruments"). The interest rate or (unlike most fixed-income
securities) the principal amount payable at maturity of an indexed security may
be increased or decreased, depending on changes in the value of the reference
instrument.

Strategic Transactions and derivatives

Each 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 each 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 each Fund's net
assets are required to be invested in tax-exempt Massachusetts municipal
securities, and as limited by each Fund's other investment restrictions) to
attempt to protect against possible changes in the market value of securities
held in or to be purchased for each Fund's portfolio resulting from securities
markets fluctuations, to protect each Fund's unrealized gains in the value of
its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of each 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 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. Each Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not for
speculative purposes. Please refer to "Risk factors--Strategic Transactions and
derivatives" for more information.

(Continued on page 16)

Purchases

Opening an account

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

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

Make checks payable to "The Scudder Funds."

* By Mail

Send your completed and signed application and check

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

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

* By Wire

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

* In Person

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

Purchasing additional shares

Minimum additional investment: $100; IRAs $50

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

Make checks payable to "The Scudder Funds."

* By Mail

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

* By Wire

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

* In Person

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

* By Automatic Investment Plan ($50 minimum)

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

Exchanges and redemptions

Exchanging shares

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

* By Telephone

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

* By Mail or Fax

Print or type your instructions and include:

- - the name of the Fund and the account number you are exchanging from;
- - your name(s) and address as they appear on your account;
- - the dollar amount or number of shares you wish to exchange;
- - the name of the Fund you are exchanging into; and
- - your signature(s) as it appears on your account and a daytime tele phone
number.

Send your instructions

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

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

Redeeming shares

* By Telephone

To speak with a service representative, call 1-800-225-5163 from 8 a.m. to
8 p.m. eastern time or to access SAIL(tm), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may have
redemption proceeds sent to your predesignated bank account, or redemption
proceeds of up to $50,000 sent to your address of record.

* By "Write- A-Check"

For Scudder Massachusetts Limited Term Tax Free Fund, you may redeem shares
by writing checks against your account balance as often as you like for at
least $100, but not more than $5,000,000.

* By Mail or Fax

Send your instructions for redemption to the appropriate address or fax
number above and include:

- - the name of the Fund and account number you are redeeming from;
- - your name(s) and address as they appear on your account;
- - the dollar amount or number of shares you wish to redeem; and
- - your signature(s) as it appears on your account and a daytime tele phone
number.

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

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

(Continued from page 13)

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 the
Funds may use from time to time.

Non-diversified investment company. As "non-diversified" investment companies,
each Fund may invest a greater proportion of their assets in the securities of a
smaller number of issuers. The investment of a large percentage of each Fund's
assets in the securities of a small number of issuers may cause a Fund's share
price to fluctuate more than that of a diversified investment company.

Investing in Massachusetts. If either Massachusetts or any of its local
governmental entities or public instrumentalities were to be unable to meet its
financial obligations, the income derived by the Funds, their net asset value or
liquidity and the ability to preserve or realize appreciation of the Funds'
capital could be adversely affected.

The persistence of serious financial difficulties could adversely affect the
market value and marketability of, or result in default in payment on,
outstanding municipal securities. Massachusetts experienced an operating deficit
in each of the fiscal years ended June 30, 1987 to June 30, 1990 resulting from
lower than anticipated tax revenues. In addition, Massachusetts tax revenues
during the period 1987-1991 repeatedly failed to meet official forecasts. The
Commonwealth had an operating loss in fiscal year 1991 of $21.2 million but had
positive closing fund balances of $237.1 million, after applying opening fund
balances from prior years' deficit borrowings. In fiscal 1992, tax revenues
exceeded official estimates, expenditures were cut and revenues grew by only
0.7%. However, despite the recession, the Commonwealth ended the year with a
$312.3 million operating surplus and a positive fund balance of $549.4 million,
when combined with the prior year surplus attributable to the deficit bonds. The
Commonwealth ended both fiscal 1993 and fiscal 1994 with
surplus es of $13.1 million and $26.8 million, respectively,
and positive aggregate ending fund balances in budgeted operating funds of
$562.5 million and approximately $589.3 million, respectively . The fiscal
1995 budget calls for expenditures of $16.482 billion .

As of the date of this prospectus, the Commonwealth's general obligation bonds
are rated A+ by S&P and A 1 by Moody's. From time to time, the rating
agencies may change their ratings in response to budgetary matters or other
economic indicators. Massachusetts local governmental entities are subject to
certain limitations on their taxing power that could affect their ability or the
ability of the Commonwealth to meet their respective financial obligations. See
"Investing in Massachusetts" in the Funds' Statement of Additional Information
for further details about the risks of investing in Massachusetts municipal
securities.

Lower-grade debt securities. While each Fund invests 75% of its assets in
investment-grade securities, each may invest a portion of its assets in
lower-grade securities rated below Baa by Moody's or below BBB by S&P or Fitch.
Securities rated below investment-grade are commonly referred to as "junk bonds"
and involve greater price volatility and higher degrees of speculation with
respect to the payment of principal and interest than higher quality
fixed-income securities. The market prices of such lower-rated debt securities
may decline significantly in periods of general economic difficulty. In
addition, the trading market for these securities is generally less liquid than
for higher rated securities and a Fund may have difficulty disposing of these
securities at the time it wishes to. The lack of a liquid secondary market for
certain securities may also make it more difficult for a Fund to obtain accurate
market quotations for purposes of valuing its portfolio and calculating its net
asset value.

Third party puts. In connection with a third party put, 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 and
the risk to the Funds will be that of holding a long-term bond.

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.

Indexed securities. Indexed securities may be positively or negatively indexed,
so that appreciation of the reference instrument may produce an increase or a
decrease in the interest rate or value at maturity of the security. In addition,
the change in the interest rate or value at maturity of the security may be some
multiple of the change in the value of the reference instrument. Thus, in
addition to the credit risk of the security's issuer, a Fund will bear the
market risk of the reference instrument.

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

Distribution and performance information

Dividends and capital gains distributions

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

Distributions derived from interest on Massachusetts municipal securities are
not subject to regular federal income taxes, except for the possible
applicability of the federal alternative minimum tax. For federal income tax
purposes, a portion of the Funds' income may be taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable as
long-term capital gains for federal income tax purposes, regardless of the
length of time shareholders have owned their 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.

Under Massachusetts law, dividends paid by the Funds are exempt from
Massachusetts personal income tax for individuals who reside in Massachusetts to
the extent such dividends are exempt from regular federal income tax and are
identified by the Funds as derived from interest payments on Massachusetts
municipal securities and certain other qualifying securities (including Puerto
Rico, the U.S. Virgin Islands and Guam). Long-term capital gains distributions
are taxable as long-term capital gains, except such distributions which the
Funds identify as derived from the sale of certain Massachusetts obligations
which are exempt from Massachusetts personal income tax. These obligations,
which are few in number, are those issued pursuant to legislation which
specifically exempts gain on their sale from Massachusetts income taxation.

The Funds expect to ordinarily provide income that is 100% free from
Massachusetts personal income tax and regular federal income tax. However, gains
from certain Strategic Transactions are taxable.

Some of the Funds' interest income may be treated as a tax preference item that
may subject an individual investor to liability (or increased liability) under
the federal alternative minimum tax, depending upon an investor's particular
situation. However, at least 80% of each Fund's net assets will normally be
invested in Massachusetts municipal securities whose interest income is not
treated as a tax preference item under the individual alternative minimum tax.
Tax-exempt income may also subject a corporate investor to liability (or
increased liability) under the corporate alternative minimum tax.

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

Performance information

From time to time, quotations of each 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. The "yield" of a Fund refers to
income generated by an investment in a Fund over a specified 30-day (one month)
period. Yield is expressed as an annualized percentage. 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 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 the life of the Fund as of a stated
ending date. (If a Fund has not been in operation for at least ten years, the
life of the Fund is used where applicable.) "Cumulative total return" represents
the cumulative change in value of an investment in a Fund for various periods.
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 each Fund's expenses.

Fund organization

Scudder Massachusetts Limited Term Tax Free Fund and Scudder Massachusetts Tax
Free Fund are series of Scudder State Tax Free Trust (the "Trust"), an open-end
management investment company registered under the Investment Company Act of
1940 (the "1940 Act"). The Trust was organized as a Massachusetts business trust
in May 1983.

The Funds' activities are supervised by the Trust's Board of Trustees.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Funds are not required to hold, 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 management 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 both 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 in the prospectus of the other Fund. The Trustees of
the Trust have considered this and approved the use of a combined prospectus.

Investment adviser

Each Fund retains the investment management firm of Scudder, Stevens & Clark,
Inc., a Delaware corporation, to manage the Fund's daily investment and business
affairs subject to the policies established by the Board of Trustees. The
Trustees have overall responsibility for the management of the Funds under
Massachusetts law.

The Adviser receives monthly an investment management fee for its services equal
to 0.60% of each Fund's average daily net assets on an annual basis.

From February 15, 1994 through February 28, 1995 the Adviser maintained the
total annualized expenses for Scudder Massachusetts Limited Term Tax Free Fund
at 0%, and accordingly did not receive an investment management fee for the
initial fiscal period ended October 31, 1994.

The Adviser has agreed to maintain the total annualized expenses for
Scudder Massachusetts Limited Term Tax Free Fund at 0.25% of the average
daily net assets of the Fund until July 31, 1995 .

The Adviser maintained the total annualized expenses for Scudder
Massachusetts Tax Free Fund at 0% of average daily net assets from April 1, 1993
to January 1, 1994, at 0.25% from January 2, 1994 to July 31, 1994 and at 0.50%
from August 1, 1994 to December 31, 1994. For the fiscal year ended March
31, 1994, the Adviser received an investment management fee of 0.025% of the
Fund's average daily net assets on an annualized basis. The Adviser has agreed
to maintain the annualized expenses for Scudder Massachusetts Tax Free Fund at
0.75% of the average daily net assets of the Fund until December 31, 1995.

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

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

Transfer agent

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

Underwriter

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

Custodian

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

Transaction information

Purchasing shares

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

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

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

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

Your wire instructions must also include:

- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).

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

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

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

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

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

Redeeming shares

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

By telephone. This is the quickest and easiest way to sell Fund shares. If you
elected telephone redemption to your bank on your application, you can call to
request that federal funds be sent to your authorized bank account. If you did
not elect telephone redemption to your bank on your application, call
1-800-225-5163 for more information.

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

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

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

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

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

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

Telephone transactions

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

Share price

Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation, a wholly-owned subsidiary of the
Adviser, determines the net asset value per share for each Fund as of the close
of regular trading on the Exchange, normally 4 p.m. eastern time, on each day
the Exchange is open for trading. Net asset value per share is calculated by
dividing the value of total Fund assets, less all liabilities, by the total
number of shares outstanding.

Processing time

All purchase and redemption requests must be received in good order by the
Funds' transfer agent in Boston. Those 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 Scudder
Investor Relations by calling 1-800-225-5163.

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

Short-term trading

Purchases and sales should be made for long-term investment purposes only. The
Funds and Scudder Investor Services, Inc. each reserve the right to restrict
purchases of a Fund's shares (including exchanges) when a pattern of frequent
purchases and sales made in response to short-term fluctuations in a Fund's
share price appears evident.

Tax information

A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.

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 a Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or tax identification number and certain
other certified information or upon notification from the IRS or a broker that
withholding is required. Each Fund reserves the right to reject new account
applications without a certified Social Security or tax identification number.
Each Fund also reserves the right, following 30 days' notice, to redeem all
shares in accounts without a certified Social Security or tax identification
number. A shareholder may avoid involuntary redemption by providing the Fund
with a tax identification number during the 30-day notice period.

Minimum balances

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

Third party transactions

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

Shareholder benefits

Experienced professional management

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

A team approach to investing

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

Philip G. Condon, Lead Portfolio Manager of each Fund, joined Scudder in 1983
and has 15 years of experience as a portfolio manager and in municipal research.
Mr. Condon has had responsibility for Scudder Massachusetts Limited Term Tax
Free Fund since its inception in 1994 and since 1989 for Scudder Massachusetts
Tax Free Fund. Kathleen A. Meany, Portfolio Manager of each Fund, has worked on
Scudder Massachusetts Limited Term Tax Free Fund since it was introduced and
since 1988 for Scudder Massachusetts Tax Free Fund. Ms. Meany joined Scudder in
1988 and has 18 years of municipal sales and portfolio management experience.

SAIL(tm)--Scudder Automated Information Line

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

Investment flexibility

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

Dividend reinvestment plan

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

Shareholder statements

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

Shareholder reports

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

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

Newsletters

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

Scudder Funds Centers

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

T.D.D. service for the hearing impaired

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

Scudder tax-advantaged retirement plans

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

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

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

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

Trustees and Officers

David S. Lee*
President and Trustee

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

Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director

Peter B. Freeman
Trustee; Corporate Director and Trustee

Dudley H. Ladd*
Trustee

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

Juris Padegs*
Trustee

Daniel Pierce*
Trustee

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

Donald C. Carleton*
Vice President

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

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

Coleen Downs Dinneen*
Assistant Secretary

* Scudder, Stevens & Clark, Inc.

The Scudder Family of Funds

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

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

Closed-end Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities Fund, Inc.

Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++

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

How to contact Scudder
Account Service and Information:

For existing account service and transactions

Scudder Investor Relations
1-800-225-5163

For account updates, prices, yields, exchanges and redemptions

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

Investment Information:

To receive information about the Scudder funds, for additional applications
and prospectuses, or for investment questions

Scudder Investor Relations
1-800-225-2470

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

Scudder Defined Contribution Services
1-800-323-6105

Please address all correspondence to:

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

Or Stop by a Scudder Funds Center:

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

Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale

For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts which
utilizes certain portfolios of Scudder Fund, Inc.* ($100,000 minimum), call:
1-800-541-7703.

For information on Scudder Institutional Funds*, funds designed to meet the
broad investment management and service needs of banks and other institutions,
call: 1-800-854-8525.

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

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

<PAGE>

SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
and
SCUDDER MASSACHUSETTS TAX FREE FUND

Two Pure No-Load(tm) (No Sales Charges) Mutual Funds
Specializing in the Management
of Massachusetts Municipal
Security Portfolios

STATEMENT OF ADDITIONAL INFORMATION

March 1, 1995

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES 1
General Investment Objective and Policies of Scudder 1
Massachusetts Limited Term Tax Free Fund
Massachusetts Limited Term Tax Free Fund's Investments 1
General Investment Objective and Policies of Scudder 2
Massachusetts Tax Free Fund
Massachusetts Tax Free Fund's Investments 2
Municipal Obligations 2
Management Strategies 5
Special Considerations 6
Trustees' Power to Change Objective and Policies 19
Investment Restrictions 20
PURCHASES 23
Additional Information About Opening an Account 23
Checks 24
Wire Transfer of Federal Funds 24
Share Price 24
Share Certificates 24
Other Information 24
EXCHANGES AND REDEMPTIONS 25
Exchanges 25
Redemption by Telephone 26
Redemption by Mail or Fax 26
Redemption by Write-a-Check 27
Other Information 27
FEATURES AND SERVICES OFFERED BY THE FUND 27
The Pure No-Load(tm) Concept 27
Distribution Plans 28
Scudder Funds Centers 29
Reports to Shareholders 29
Transaction Summaries 29
THE SCUDDER FAMILY OF FUNDS 29
SPECIAL PLAN ACCOUNTS 32
Automatic Withdrawal Plan 33
Cash Management System - Group Sub-Accounting Plan for Trust
Accounts,
Nominees and Corporations 33
Automatic Investment Plan 33
Uniform Transfers/Gifts to Minors Act 34
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS 34
PERFORMANCE INFORMATION 34
Average Annual Total Return 34
Cumulative Total Return 35
Total Return 35
Yield 36
Tax-Equivalent Yield 36
Comparison of Portfolio Performance 36
ORGANIZATION OF THE FUNDS 40
INVESTMENT ADVISER 40
Personal Investments by Employees of the Adviser 43
TRUSTEES AND OFFICERS 44
REMUNERATION 45
DISTRIBUTOR 46
TAXES 47
Federal Taxation 47
State Taxation 50
PORTFOLIO TRANSACTIONS 50
Brokerage 50
Portfolio Turnover 51
NET ASSET VALUE 52
ADDITIONAL INFORMATION 52
Experts 52
Shareholder Indemnification 53
Ratings of Municipal Obligations 53
Commercial Paper Ratings 54
Glossary 54
Other Information 55
FINANCIAL STATEMENTS 56
Massachusetts Limited Term Tax Free Fund 56
Massachusetts Tax Free Fund 56

</TABLE>

THE FUND'S INVESTMENT OBJECTIVE AND POLICIES

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

Scudder Massachusetts Limited Term Tax Free Fund and Scudder Massachusetts
Tax Free Fund (each a "Fund," collectively the "Funds") are series of
Scudder State Tax Free Trust (the "Trust"). The Trust is a pure no-load(tm)
open-end management investment company presently consisting of six series.

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

Scudder Massachusetts Limited Term Tax Free Fund ("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. In pursuit of its objective, the Fund expects to
invest at least 75% of its assets in Massachusetts municipal securities that are
rated Baa or better by Moody's Investors Service, Inc. ("Moody's"), BBB or
better by Standard and Poor's ("S&P"), or Fitch Investors Service, Inc.
("Fitch"), or in securities considered to be of equivalent quality. There can
be no assurance that the objective of the Fund will be achieved or that all
income to shareholders which is exempt from regular federal income taxes will be
exempt from state income or local taxes or that income exempt from regular
federal income tax will be exempt from the federal alternative minimum tax.

The Fund's portfolio consists primarily of obligations issued by
municipalities located in the Commonwealth of Massachusetts and other qualifying
issuers (including Puerto Rico, the U.S. Virgin Islands and Guam) whose interest
payments, if distributed to Massachusetts residents, would be exempt, in the
opinion of bond counsel, from Massachusetts personal income as well as regular
federal income taxes. Because the Fund is intended for investors subject to
Massachusetts personal income tax and federal income tax it may not be
appropriate for all investors and is not available in all states. As described
below in "The Fund's Investments," the Fund may also invest in taxable
obligations.

Massachusetts Limited Term Tax Free Fund's Investments

As a matter of fundamental policy, which cannot be changed without the
approval of a majority of the Fund's outstanding voting securities (as defined
below under "Investment Restrictions"), at least 80% of the net assets of the
Fund will be normally invested in municipal obligations the income from which
is, in the opinion of bond counsel, exempt from regular federal and
Massachusetts personal income taxes ("Massachusetts municipal securities")
except that the Fund may temporarily invest more than 20% of its net assets in
securities the income from which may be subject to regular federal and
Massachusetts personal income taxes during periods which, in the opinion of the
Funds' investment adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"),
require a temporary defensive position for the protection of shareholders. The
Fund may also invest in when-issued or forward delivery securities and strategic
transactions (as defined below). Investors should be aware that shares of the
Fund do not represent a complete investment program.

Normally, at least 80% of the Fund's net assets will be invested in
securities whose interest income is not treated as a tax preference item under
the individual alternative minimum tax. Furthermore, all of the Fund's
portfolio obligations, including short-term obligations, will be (a) rated at
the time of purchase within the six highest grades assigned by Moody's, S&P or
Fitch, (b) if not rated, judged at the time of purchase by the Adviser, to be of
a quality comparable to the six highest ratings of Moody's, S&P or Fitch and to
be readily marketable, or (c) issued or guaranteed by the U.S. Government.
Should the rating of a portfolio security be downgraded, the Adviser will
determine whether it is in the best interest of the Fund to retain or dispose of
the security.

When, in the opinion of the Adviser, defensive considerations or an unusual
disparity between the after-tax income on taxable investments and comparable
Massachusetts municipal securities make it advisable to do so, up to 20% of the
Fund's net assets may be held in cash or invested in short-term taxable
investments such as (1) U.S. Treasury notes, bills and bonds; (2) obligations of
agencies and instrumentalities of the U.S. Government; and (3) money market
instruments, such as domestic bank certificates of deposit, finance company and
corporate commercial paper, and banker's acceptances.

General Investment Objective and Policies of Scudder Massachusetts Tax Free
Fund

Scudder Massachusetts Tax Free Fund ("Massachusetts Tax Free Fund")
seeks to provide Massachusetts taxpayers with income exempt from Massachusetts
personal income tax and regular federal income tax through a professionally
managed portfolio consisting primarily of investment grade municipal securities.
In pursuit of its objective, the Fund expects to invest principally in
Massachusetts municipal securities that are rated A or better by Moody's, S&P or
Fitch. There can be no assurance that the objective of the Fund will be
achieved or that all income to shareholders which is exempt from regular federal
income taxes will be exempt from state income or local taxes or that income
exempt from regular federal income tax will be exempt from the federal
alternative minimum tax.

The Fund's portfolio consists primarily of obligations issued by
municipalities located in the Commonwealth of Massachusetts and other qualifying
issuers (including Puerto Rico, the U.S. Virgin Islands and Guam) whose interest
payments, if distributed to Massachusetts residents, would be exempt, in the
opinion of bond counsel, from Massachusetts as well as regular federal income
taxes. Because the Fund is intended for investors subject to Massachusetts
personal income tax and federal income tax it may not be appropriate for all
investors and is not available in all states. As described below in "The Fund's
Investments," the Fund may also invest in taxable obligations.

Massachusetts Tax Free Fund's Investments

As a matter of fundamental policy, which cannot be changed without the
approval of a majority of the Fund's outstanding voting securities (as defined
below under "Investment Restrictions"), at least 80% of the net assets of the
Fund will be invested in municipal obligations the income from which is exempt
from regular federal and Massachusetts state income taxes ("Massachusetts
municipal securities") except that the Fund may temporarily invest more than 20%
of its net assets in securities the income from which may be subject to regular
federal and Massachusetts state income taxes during periods which, in the
opinion of the Adviser, require a temporary defensive position for the
protection of shareholders. The Fund may also invest in when-issued or
forward delivery securities, enter into repurchase agreements, reverse
repurchase agreements, and strategic transactions (as defined below). Investors
should be aware that shares of the Fund do not represent a complete investment
program.

Municipal Obligations

Municipal obligations are issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies and
instrumentalities to obtain funds for various public purposes. The interest on
most of these obligations is generally exempt from regular federal income tax in
the hands of most individual investors, although it may be subject to the
individual and corporate alternative minimum tax. Interest on municipal
obligations issued by Massachusetts issuers is generally exempt from
Massachusetts personal income tax. The two principal classifications of
municipal obligations are "notes" and "bonds".

1. Municipal Notes. Municipal notes are generally used to provide for
short-term capital needs and generally have maturities of one year or less.
Municipal notes include: tax anticipation notes; revenue anticipation notes;
bond anticipation notes; and construction loan notes.

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

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

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

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

Industrial development and pollution control bonds, although nominally
issued by municipal authorities, are generally not secured by the taxing power
of the municipality but are secured by the revenues of the authority derived
from payments by the industrial user.

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

Each Fund may purchase variable rate demand instruments that are tax-exempt
municipal obligations providing for a periodic adjustment in the interest rate
paid on the instrument according to changes in interest rates generally. These
instruments also permit 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. Each Fund intends to exercise
the demand only (1) upon a default under the terms of the municipal obligation,
(2) as needed to provide liquidity to a Fund, or (3) to maintain an investment
grade investment portfolio. A bank that issues a repurchase commitment may
receive a fee from a Fund for this arrangement. The issuer of a variable rate
demand instrument may have a corresponding right to prepay in its discretion the
outstanding principal of the instrument plus accrued interest upon notice
comparable to that required for the holder to demand payment.

The variable rate demand instruments that a Fund may purchase are payable
on demand on not more than thirty calendar days' notice. The terms of the
instruments provide that interest rates are adjustable at intervals ranging from
daily up to six months, and the adjustments are based upon the prime rate of a
bank or other appropriate interest rate adjustment index as provided in the
respective instruments. A Fund will determine the variable rate demand
instruments that it will purchase in accordance with procedures approved by the
Trustees to minimize credit risks. The Adviser may determine that an unrated
variable rate demand instrument meets 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 a 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 a Fund's quality criteria.

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

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

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

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

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

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

Each Fund may invest up to 25% of its total assets in fixed-income
securities rated below investment grade, that is, below Baa by Moody's, or below
BBB by S&P or Fitch, or in unrated securities considered to be of equivalent
quality. Moody's considers bonds it rates Baa to have speculative elements as
well as investment-grade characteristics. Each Fund may not invest in fixed-
income securities rated below B by Moody's, S&P or Fitch, or their equivalent.
Securities rated below BBB are commonly referred to as "junk bonds" and involve
greater price volatility and higher degrees of speculation with respect to the
payment of principal and interest than higher-quality fixed-income securities.
In addition, the trading market for these securities is generally less liquid
than for higher-rated securities and the Funds may have difficulty disposing of
these securities at the time they wish to do so. The lack of a liquid secondary
market for certain securities may also make it more difficult for the Funds to
obtain accurate market quotations for purposes of valuing their portfolios and
calculating their net asset values.

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

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

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

During the fiscal year ended October 31, 1994, the average monthly dollar-
weighted market value of the bonds in Massachusetts Limited Term Tax Free Fund's
portfolio were as follows: 51.0% rated AAA, 16.1% AA, 25.6% A and 5.7% BBB.
The bonds are rated by Moody's, S&P or Fitch, or of equivalent quality as
determined by the Adviser.

During the fiscal year ended March 31, 1994, the average monthly dollar-
weighted market value of the bonds in Massachusetts Tax Free Fund's
portfolio were as follows: 25.8% rated AAA, 5.7% AA, 53.7% A and 10.5% BBB.
The bonds are rated by Moody's, S&P or Fitch, or of equivalent quality as
determined by the Adviser.

Management Strategies

In pursuit of its investment objective, each 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' review, performs credit analysis and manages each Fund's
portfolio continuously, attempting to take advantage of opportunities to improve
total return, which is a combination of income and principal performance over
the long term. The primary strategies employed in the management of each Fund's
portfolio are:

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

The Adviser has over many years developed an experienced staff to assign
its own quality ratings which are considered in making value judgments and in
arriving at purchase or sale decisions. Through the discipline of this
procedure the Adviser attempts to discern variations in credit ratings of the
published services and to anticipate changes in credit ratings.

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

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

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

Special Considerations

Income Level and Credit Risk. Yield on municipal obligations depends on a
variety of factors, including money market conditions, municipal bond market
conditions, the size of a particular offering, the maturity of the obligation
and the quality of the issue. Because each Fund holds primarily investment
grade municipal obligations, the income earned on shares of a Fund will tend to
be less than it might be on a portfolio emphasizing lower quality securities;
investment grade securities, however, may include securities with some
speculative characteristics. Municipal obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal bankruptcy laws, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon municipalities to levy taxes. There is
also the possibility that as a result of litigation or other conditions the
power or ability of any one or more issuers to pay when due principal of and
interest on its or their municipal obligations may be materially affected. Each
Fund may invest in municipal securities rated B by S&P, Fitch or Moody's
although it intends to invest principally in securities rated in higher grades.
Although each Fund's quality standards are designed to reduce the credit risk of
investing in a Fund, that risk cannot be entirely eliminated. Shares of a Fund
are not insured by any agency of Massachusetts or of the U.S. Government.

Investing in Massachusetts. The following information as to certain
Massachusetts risk factors is given to investors in view of each Fund's policy
of concentrating its investments in Massachusetts issuers. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of Massachusetts issuers and other sources believed to be reliable.
No independent verification has been made of the following information.

State Economy. Throughout much of the 1980's, the Commonwealth had a
strong economy which was evidenced by low unemployment and high personal income
growth as compared to national trends. Economic growth in the Commonwealth has
slowed since 1988. All sectors of the economy have experienced job losses,
including high technology, construction and financial industries. In addition,
the economy has experienced shifts in employment from labor-intensive
manufacturing industries to technology and service-based industries. The
unemployment rate for the Commonwealth as of October 1994 was 6.4% compared to a
national average of 5.8%. Comparisons between 1994 data and data for earlier
years are not advisable, due to the Current Population survey redesign.
Increasing unemployment claims have exhausted the balances in the
unemployment compensation trust fund and advances from the federal unemployment
loan account have been obtained. However, legislation enacted in 1992 to
increase employer contributions, and thereby reduce advances from the federal
loan account, eliminate d the deficit in the trust fund in
May 1994. As of November 30, 1994 the unemployment compensation trust
fund was running a surplus of $216 million. Per capita personal income has
grown at a rate lower than the national average in recent years, but is still
one of the highest in the nation.

Moreover, Commonwealth spending exceeded revenues in each of the five
fiscal years commencing fiscal 1987. In particular, from 1987 to 1990, spending
in five major expenditure categories--Medicaid, debt service, public assistance,
group health insurance and transit subsidies--grew at rates in excess of the
rate of inflation for the comparable period. In addition, the Commonwealth's
tax revenues during this period repeatedly failed to meet official forecasts.
For the budgeted funds, operating losses in fiscal 1987 and 1988, of $349
million and $370 million, respectively, were covered by surpluses carried
forward from prior years. The operating losses in fiscal 1989 and 1990, which
totaled $672 million and $1.251 billion, respectively, were covered primarily
through deficit borrowings. During that period, operating fund balances
declined from a budget surplus of $1.072 billion in fiscal 1987 to a deficit of
$1.104 billion for the fiscal year ending 1990.

For the fiscal year ending June 30, 1991, total operating revenues of the
Commonwealth increased by 13.5% over the prior year, to $13.878 billion. This
increase was due chiefly to state tax increases enacted in July, 1990 and to a
substantial federal reimbursement for uncompensated patient care under the
Medicaid program. 1991 expenditures also increased over the prior year to
$13.899 billion resulting in an operating loss in the amount of $21.2 million.
However, after applying the opening fund balances created from proceeds of the
borrowing that financed the fiscal 1990 deficit, no deficit borrowing was
required to close-out fiscal 1991.

For the fiscal year ended June 30, 1992, the budgeted operating funds ended
with an excess of revenues and other sources over expenditures and other uses of
$312.3 million and with a surplus of $549.4 million, when such excess is added
to the fund balances carried forward from fiscal 1991.

The budgeted operating funds of the Commonwealth ended fiscal 1993 with a
surplus of revenues and other sources over expenditures and other uses of $13.1
million and aggregate ending fund balances in the budgeted operating funds of
the Commonwealth of approximately $562.5 million. Budgeted revenues and other
sources for fiscal 1993 totaled approximately $14.710 billion, including tax
revenues of $9.930 billion. Total revenues and other sources increased by
approximately 6.9% from fiscal 1992 to 1993, while tax revenues increased by
4.7% for the same period. In July 1992, tax revenues had been estimated to be
approximately $9.685 billion for fiscal 1993. This amount was subsequently
revised during fiscal 1993 to $9.940 billion.

Commonwealth budgeted expenditures and other uses in fiscal 1993 totaled
approximately $14.696 billion, which is $1.280 billion or approximately 9.6%
higher than fiscal 1992 expenditures and other uses. Fiscal 1993 budgeted
expenditures were $23 million lower than the initial July 1992 estimates of
fiscal 1993 budgeted expenditures.

As of June 30, 1993, after payment of all Local Aid and retirement of
short-term debt, the Commonwealth showed a year-end cash position of
approximately $622.2 million, as compared to a projected position of $485.1
million.

Recent Financial Results. The budgeted operating funds of the Commonwealth
ended fiscal 1994 with a surplus of revenues and other sources over expenditures
and other uses of $26.8 million and aggregate ending fund balances in the
budgeted operating funds of the Commonwealth of approximately $589.3 million.
Budgeted revenues and other sources for fiscal 1994 totaled approximately
$15.550 billion, including tax revenues of $10.607 billion, $87 million below
the Department of Revenue's fiscal 1994 tax revenue estimate of $10.694 billion.
Total revenues and other sources increased by approximately 5.7% from fiscal
1993 to fiscal 1994 while tax revenues increased by 6.8% for the same period.

Commonwealth budgeted expenditures and other uses in fiscal 1994 totaled
$15.523 billion, which is $826.5 million or approximately 5.6% higher than
fiscal 1993 budgeted expenditures and other uses.

As of June 30, 1994, the Commonwealth showed a year-end cash position of
approximately $757 million, as compared to a projected position of $599 million.

Since 1989, S&P and Moody's have lowered their ratings of the
Commonwealth's general obligation bonds from AA+ and Aa, respectively, to BBB
and Baa, respectively. In March 1992, S&P placed the Commonwealth's general
obligation and related guaranteed bond ratings on CreditWatch with positive
implications, citing such factors as continued progress towards balanced
financial operations and reduced short-term borrowing as the basis for the
positive forecast. As of the date hereof, the Commonwealth's general obligation
bonds are rated A+ by S&P and A1 by Moody's. From time to time, the rating
agencies may further change their ratings.

State Budget. On July 10, 1994 the Governor signed into law the
fiscal 1995 budget. As signed by the Governor, and including expected
supplemental appropriations, the budget currently provides for
approximately $16.482 billion in fiscal 1995 expenditures, which
reflects a veto and reduction of individual line items and reduced expenditures
of approximately $298.2 million. The fiscal 1995 budget generally
maintains current service levels for most programs but also provides for
increased funding to reflect various factors including inflation, increased
medical costs, increased pension costs and higher debt services expenditures, as
well as approximately $219 million recommended to fully fund the education
reform law passed in fiscal 1993. The budget also contains increases in
spending in certain priority areas. The budget also projects savings from
proposed reform of the state's welfare system, increased privatization of state
services, higher health insurance contributions from state employees and other
administrative reductions. The fiscal 1995 budget as signed includes $30.6
million in tax reductions.

Budgeted revenues and other sources to be collected in fiscal 1995 are
estimated by the Executive Office for Administration and Finance to be
approximately $16.360 billion. This amount includes estimated fiscal 1995 tax
revenues of $11.179 billion, which is approximately $572 million higher than
fiscal 1994 tax revenues of $10.607 billion. In December, 1994, the Governor
signed into law legislation modifying the capital gains tax by phasing out the
tax for assets held longer than six years and increasing the non-tax status
threshold for personal income tax purposes. The capital gains tax change is not
effective until January 1, 1996 and, therefore, is not expected to affect fiscal
1995 tax revenues and to have only a minor effect on fiscal 1996 tax revenues.
The no-tax status change is estimated to reduce fiscal 1995 tax revenues by
approximately $5.5 million and fiscal 1996 tax revenues by $13.3 million.

The fiscal 1995 budget is based on numerous spending and revenue estimates,
the achievement of which cannot be assured.

On January 25, 1995, the Governor submitted his fiscal 1996 budget
recommendations to the Legislature. The proposal calls for budgeted
expenditures of approximately $16.737 billion. After adjusting for
approximately $147.9 million in higher education revenues and expenditures that
the Governor's budget recommendation proposes moving to an off-budget trust fund
for fiscal 1996, as described below, the recommended fiscal 1996 spending level
is approximately $436 million, or 2.6%, above currently estimated fiscal 1995
expenditures of $16.449 billion. Proposed budgeted revenues for fiscal 1996 are
approximately $16.741 billion. The Governor's recommendation projects a fiscal
1996 ending balance of approximately $505 million, of which approximately $419
million will be in the Stabilization Fund. The Governor's budget recommendation
is based on a fiscal 1996 tax revenue estimate of $11.720 billion, an increase
of approximately $542 million, or approximately 4.8%, as compared to currently
estimated fiscal 1995 tax revenues of $11.179 billion. The Governor's fiscal
1996 budget recommendation proposes several reductions in personal and business
taxes, including an increase of $500 in the dependent allowance and a $500
increase in the exemption for blind and elderly taxpayers, corporate tax credits
for job training, revisions to the definitions of research and development tax
credits for companies in the defense industry, and a phasing out of the sales
tax on bulk purchases of telecommunications services. The Executive Office for
Administration and Finance estimates that these tax law changes would result in
reduced tax revenues of approximately $34.6 million in fiscal 1996.

Debt Limits and Outstanding Debt. Growth of tax revenues in the
Commonwealth is limited by law. Tax revenues in each of fiscal years 1988 to
1992 were lower than the limits set by law. In addition, during each of the
fiscal years 1989 through 1991, the official tax revenue forecasts made at the
beginning of the year proved to be substantially more optimistic than the actual
results. The fiscal 1992 budget initially was based on the joint revenue
estimate of $8.292 billion, a 7% decrease from 1991, while actual tax revenues
were $9.484 billion, a 5.4% increase over fiscal 1991. The fiscal 1993 budget
initially was based on the joint revenue estimate of $9.685 billion, an
increase of 2.1% over 1992. The actual 1993 tax revenues were $9.930 billion, a
4.7% increase over 1992. On May 13, 1993, the tax revenue forecast of the
Chairman of the House and Senate Ways and Means Committee and the Secretary for
Administration and Finance for fiscal 1994 was $10.540 billion, an increase of
6.1% over 1993. Actual fiscal 1994 tax revenues were $10.607
billion, a 6.8% increase over fiscal 1993.

In May, 1994, the chairpersons of the House and Senate Ways and Means
Committee and the Secretary for Administration and Finance jointly endorsed an
estimate of tax revenues for fiscal 1994 of $11.328 billion, an increase of $634
million, or 5.9%, from then expected tax revenues for fiscal 1994 of $10.694
billion. The fiscal 1995 budget was based upon this tax revenue estimate, less
$19.3 million of tax cuts signed by the Governor in the fiscal 1995 budget. On
September 26, 1994, the Secretary for Administration and Finance revised the
fiscal 1995 tax revenue estimate to $11.234 billion, a reduction of
approximately $75 million from the prior estimate. On January 25, 1995, based
on tax revenue collections through December 31, 1994, the Secretary for
Administration and Finance further revised the fiscal 1995 tax revenue estimate
to $11.179 billion, a reduction of approximately $55 million from the September,
1994 estimate, which amount includes a $5.5 million reduction estimated to
result from change in the no-tax status threshold for Massachusetts personal
income tax purposes. The Governor's fiscal 1996 budget recommendation projects
total fiscal 1996 tax revenues to be approximately $11.720 billion.

Effective July 1, 1990, limitations were placed on the amount of direct
bonds the Commonwealth may have outstanding in a fiscal year, and the amount of
the total appropriation in any fiscal year that may be expended for payment of
principal of and interest on general obligation debt of the Commonwealth was
limited to 10 percent of such appropriation. Bonds in the aggregate principal
amount of $1.399 billion issued in October and December, 1990, under Chapter 151
of the Acts of 1990 to meet the fiscal 1990 deficit are excluded from the
computation of these limitations, and principal of and interest on such bonds
are to be repaid from up to 15% of the Commonwealth's income receipts and tax
receipts in each year that such principal or interest is payable.

Furthermore, certain of the Commonwealth's cities and towns have at times
experienced serious financial difficulties which have adversely affected their
credit standing. For example, due in large part to prior year cutbacks, the
City of Chelsea was forced into receivership in September 1991. The recurrence
of such financial difficulties, or financial difficulties of the Commonwealth,
could adversely affect the market values and marketability, or result in default
in payment on, outstanding obligations issued by the Commonwealth or its public
authorities or municipalities. In addition, recent developments regarding the
Massachusetts statutes which limit the taxing authority of the Commonwealth or
certain Massachusetts governmental entities may impair the ability of issuers of
some Massachusetts obligations to maintain debt service on their obligations.

The Commonwealth currently has three types of bonds and notes outstanding:
general obligation debt, dedicated income tax debt and special obligation debt.
Dedicated income tax debt consists of general obligation bonds or notes issued
pursuant to Chapter 151 of the Acts of 1990, to which a portion of the
Commonwealth's income tax receipts is dedicated for the payment of debt service.
Special obligation revenue debt consists of special obligation revenue bonds
("Special Obligation Bonds") issued under Section 20 of Chapter 29 of the
Massachusetts General Laws (the "Special Obligation Act") which may be secured
by all or a portion of the revenues credited to the Commonwealth's Highway Fund.
The Commonwealth has issued Special Obligation Bonds secured by a pledge of two
cents of the Commonwealth's 21-cent gasoline tax. Certain independent
authorities and agencies within the Commonwealth are statutorily authorized to
issue debt for which the Commonwealth is either directly, in whole or in part,
or indirectly liable. The Commonwealth's liabilities with respect to these
bonds and notes are classified as either (i) Commonwealth supported debt; (ii)
Commonwealth guaranteed debt; or (iii) indirect obligations. Indirect
obligations consist of (i) obligations of the Commonwealth to fund capital
reserve funds pledged to certain Massachusetts Housing Finance Agency bonds,
(ii) the obligation of the Commonwealth, acting through the Higher Education
Coordinating Council ("HECC"), to fund debt service, solely from moneys
otherwise appropriated to HECC, on certain community college program bonds
issued by the Massachusetts Health and Educational Facilities Authority, (iii)
the obligation of the Commonwealth, acting through the Executive Office of
Public Safety ("EOPS"), to fund debt service from amounts appropriated by the
Legislature to EOPS, on certificates of participation issued to finance the new
Plymouth County Correctional Facility, and (iv) the obligation of the
Commonwealth to make lease payments from amounts appropriated by the Legislature
with respect to the Massachusetts Information Technology Center under
construction in Chelsea, Massachusetts. In addition, the Commonwealth has
liabilities under certain tax-exempt capital leases. Guaranteed debt consists
of certain liabilities arising out of the Commonwealth's guarantees of the bonds
of local housing authorities and the four higher education building authorities
and certain bonds of the town of Mashpee. Commonwealth supported debt of the
Commonwealth arises from statutory requirements for payments by the Commonwealth
with respect to debt service of the Massachusetts Bay Transportation Authority
(including the Boston Metropolitan District), the Massachusetts Convention
Center Authority, the Massachusetts Government Land Bank, the Steamship
Authority and certain regional transit authorities. Hence, the Commonwealth's
fiscal condition could adversely affect the market values and marketability of,
or result in default in payment on, obligations of certain authorities and
agencies.

Local Governments. Proposition 2 1/2, an initiative petition adopted by
the voters of the Commonwealth of Massachusetts on November 4, 1980, constrains
levels of property taxation and limits the charges and fees imposed on cities
and towns by certain governmental entities, including county governments. At
the time Proposition 2 1/2 was enacted, many cities and towns had property tax
levels in excess of the limit and were therefore required to roll back property
taxes with a concurrent loss of revenues. While many communities have responded
to the limits of Proposition 2 1/2 through statutorily permitted overrides and
exclusions (such as exclusion of debt service on specific bonds and notes),
Proposition 2 1/2 has and will continue to restrain significantly the ability of
cities and towns to pay for local services, including certain debt service. To
mitigate the impact of Proposition 2 1/2 on local programs and services since
1980, the Commonwealth has increased payments to its cities, towns and regional
school districts.

Direct Local Aid decreased from $2.937 billion in fiscal 1990 to $2.360
billion in fiscal 1992; increased to $2.547 billion in fiscal 1993 and increased
to $2.727 billion in fiscal 1994. It is estimated that fiscal 1995 expenditures
for direct Local Aid will be $2.984 billion, which is an increase of
approximately 9.4% above the fiscal 1994 level. The additional amount of
indirect Local Aid provided over and above direct Local Aid was approximately
$2.069 billion in fiscal 1994 . It is estimated that in fiscal
1995 , approximately $2.318 billion of indirect local aid will
also be paid. The Governor's proposed fiscal 1996 budget includes
approximately $3.222 billion and $2.585 billion of direct Local
Aid and indirect local aid , respectively. A petition approved in the
November 1990 election requires distributions to cities and towns of no less
than 40% of collections from personal income taxes, sales and use taxes,
corporate excise taxes and lottery fund proceeds. However, local aid payments
explicitly remain subject to annual appropriation, and fiscal 1992, 1993
and 1994 appropriations for local aid did not meet, and fiscal
1995 appropriations for local aid do not meet, the levels set forth in
the initiative law. Reductions in, failure to fund or delays in the payment of
local aid may create financial difficulties for certain municipalities or other
local government entities.

In fiscal 1992, Medicaid accounted for more than half of the Commonwealth's
appropriations for health care. It was the largest item in the Commonwealth's
budget and has been one of the fastest growing budget items. The
Executive Office for Administration and Finance has estimated that fiscal
1995 Medicaid expenditures will be approximately $3.411 billion,
an increase of 3.0% over 1994 expenditures. Substantial Medicaid
expenditures in recent years have been provided through supplemental
appropriations because program requirements consistently exceeded initial
appropriations. The large Medicaid expenditure increases experienced in recent
years have been driven by several forces, including rising health care costs in
general and, in particular, forces affecting the aggregate cost of long-term
care for the elderly. Medicaid costs in the long-term care area increased from
$1.158 billion in fiscal 1990 to approximately $1.499
billion in fiscal 1994 . The future burdens of long-term care on Medicaid
expenditures are expected to continue to be high.

To further stem the considerable annual cost increases in the Medicaid
program, the Administration has commenced the implementation of a managed-care
program, which is in addition to major rate controlling initiatives implemented
since fiscal 1991. A waiver of federal regulations granting recipients freedom
of choice of provider recently was approved by federal authorities in fiscal
1992 . This waiver enables the program to assign certain recipients to
primary care clinicians who will function as gatekeepers to specialty and
inpatient care and to enroll recipients in need of mental health or substance
abuse services in a capitated managed system of care. Selective contracts with
certain service providers will also be executed in an effort to obtain services
in a more cost-effective fashion. In addition, nursing home prescreening and
community service planning for long-term care will be concentrated in 27 Home
Care Corporations to provide a single entry point and coordinated nursing home
diversion services for the elderly. Other savings initiatives include the
repricing and buy-in of Medicare services for Medicaid recipients and
restrictions, both financial and clinical, on nursing home eligibility.

Pension Liabilities. The aggregate unfunded actuarial liabilities of the
pension systems of the Commonwealth and the unfunded liability of the
Commonwealth related to state employees' and teachers' retirement systems and
the Boston teachers' retirement system and of costs of living increases are
significant--estimated to be approximately $9.651 billion as of January 1, 1993,
on the basis of certain actuarial assumptions. No assurance can be given that
these assumptions will be realized. The legislature adopted a comprehensive
pension bill addressing the issue in January 1988, which requires the
Commonwealth, beginning in fiscal year 1989, to fund future pension liabilities
currently and amortize the Commonwealth's unfunded liabilities over 40 years in
accordance with funding schedules prepared by the Secretary of Administration
and Finance and approved by the legislature. As of December 31, 1994 ,
the Commonwealth's state pension reserve was approximately $4.925
billion.

When-Issued Securities. Each Fund may purchase securities offered on a
"when-issued" or "forward delivery" basis. When so offered, the price, which is
generally expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for the when-issued or forward
delivery securities take place at a later date. During the period between
purchase and settlement, no payment is made by the purchaser to the issuer and
no interest accrues to the purchaser. To the extent that assets of a Fund are
not invested prior to the settlement of a purchase of securities, a Fund will
earn no income; however, it is intended that a Fund will be fully invested to
the extent practicable and subject to the policies stated herein. When-issued
or forward delivery purchases are negotiated directly with the other party, and
are not traded on an exchange. While when-issued or forward delivery securities
may be sold prior to the settlement date, it is intended that a Fund will
purchase such securities with the purpose of actually acquiring them unless a
sale appears desirable for investment reasons. At the time a 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. Each Fund does not believe that a Fund's net asset value
or income will be adversely affected by its purchase of securities on a
when-issued or forward delivery basis. Each Fund will not enter into such
transactions for leverage purposes.

Stand-by Commitments. Scudder Massachusetts Tax Free Fund, subject to the
receipt of any required regulatory authorization, may acquire "Stand-by
Commitments," which will enable the Fund to improve its portfolio liquidity by
making available same day settlements on portfolio sales (and thus facilitate
the payment of same day payments of redemption proceeds in federal funds). The
Fund may enter into such transactions subject to the limitations in the rules
under the Investment Company Act of 1940. A Stand-by Commitment is a right
acquired by the Fund, when it purchases a municipal obligation 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 the Fund's option, at
a specified price. Stand-by Commitments are also known as "puts." The Fund's
investment policies permit the acquisition of Stand-by Commitments solely to
facilitate portfolio liquidity. The exercise by the 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 Fund will have the following features:
(1) they will be in writing and will be physically held by the Fund's custodian,
State Street Bank and Trust Company; (2) the 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 obligations
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) the Fund's acquisition cost (excluding the cost, if any, of the Stand-by
Commitment) of the municipal obligations which are subject to the commitment
(excluding any accrued interest which the Fund paid on their acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date. The 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
obligations, determined as described below under "Net Asset Value," in order to
avoid imposing a loss on a seller and thus jeopardizing the Fund's business
relationship with that seller.

The Fund expects that Stand-by Commitments generally will be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the 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 the Fund in either manner for outstanding Stand-by Commitments
will not exceed 1/2 of 1% of the value of the total assets of the Fund
calculated immediately after any Stand-by Commitment is acquired. If the Fund
pays additional consideration for a Stand-by Commitment, the yield on the
security to which the Stand-by Commitment relates will, in effect, be lower than
if the Fund had not acquired such Stand-by Commitment.

It is difficult to evaluate the likelihood of use or the potential benefit
of a Stand-by Commitment. Therefore, it is expected that the 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,
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. Where the 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.

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

Third Party Puts. Each Fund 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 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. A Fund receives a short-term rate of interest
(which is periodically reset), and the interest rate differential between that
rate and the fixed rate on the bond is retained by the financial institution.
The financial institution granting the option does not provide credit
enhancement, and in the event that there is a default in the payment of
principal or interest or downgrading of a bond to below investment grade or a
loss of its tax-exempt status, the put option will terminate automatically and
the risk to a Fund will be that of holding a long-term bond. A Fund may be
assessed "tender fees" for each tender period at a rate equal to the difference
between the bond's fixed coupon rate and the rate, as determined by a
remarketing or similar agent, that would cause the bond coupled with the option
to trade at par on the date of such determination.

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

Municipal Lease Obligations and Participation Interests. A municipal lease
obligation may take the form of a lease, installment purchase contract or
conditional sales contract which is issued by a state or local government and
authorities to acquire land, equipment 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 a Fund's original investment.

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

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

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

Repurchase Agreements. Massachusetts Tax Free Fund may enter into
repurchase agreements with any member bank of the Federal Reserve System or any
broker-dealer which is recognized as a reporting government securities dealer if
the creditworthiness has been determined by the Adviser 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 the Fund to earn taxable income
on funds for periods as short as overnight. It is an arrangement under which
the purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a
segregated account and the value of such securities kept at least equal to the
repurchase price on a daily basis. The repurchase price may be higher than the
purchase price, the difference being income to the Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Fund together with the repurchase price on the date of repurchase. In either
case, the income to the Fund (which is taxable) is unrelated to the interest
rate on the Obligation itself. Obligations will be held by the Custodian or in
the Federal Reserve Book Entry system.

For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
Obligation subject to the repurchase agreement and is therefore subject to the
Fund's investment restriction applicable to loans. It is not clear whether a
court would consider the Obligation purchased by the Fund subject to a
repurchase agreement as being owned by the Fund or as being collateral for a
loan by the 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, the 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 characterizes the transaction as a loan and the Fund has not perfected a
security interest in the Obligation, the 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, the Fund would be at risk of losing some or
all of the principal and income involved in the transaction. As with any
unsecured debt obligation purchased for the 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 the Fund may incur a loss
if the proceeds to the Fund of 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 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 the Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities.

Reverse Repurchase Agreements. Massachusetts Tax Free Fund may enter
into "reverse repurchase agreements," which are repurchase agreements in which
the Fund, as the seller of the securities, agrees to repurchase them at an
agreed time and price. The Fund will maintain a segregated account, as
described under "Use of Segregated and Other Special Accounts" in connection
with outstanding reverse repurchase agreements. Reverse repurchase agreements
are deemed to be borrowings subject to the Fund's investment restrictions
applicable to that activity. The Fund will enter into a reverse repurchase
agreement only when the Adviser believes that the interest income to be earned
from the investment of the proceeds of the transaction will be greater than the
interest expense of the transaction. There is no current intention to invest
more than 5% of the Fund's net assets in reverse repurchase agreements.

Indexed Securities. Each Fund may invest in indexed securities, the value of
which is linked to currencies, interest rates, commodities, indices or other
financial indicators ("reference instruments"). Most indexed securities have
maturities of three years or less.

Indexed securities differ from other types of debt securities in which a
Fund may invest in several respects. First, the interest rate or, unlike other
debt securities, the principal amount payable at maturity of an indexed security
may vary based on changes in one or more specified reference instruments, such
as an interest rate compared with a fixed interest rate or the currency exchange
rates between two currencies (neither of which need be the currency in which the
instrument is denominated). The reference instrument need not be related to the
terms of the indexed security. For example, the principal amount of a U.S.
dollar denominated indexed security may vary based on the exchange rate of two
foreign currencies. An indexed security may be positively or negatively
indexed; that is, its value may increase or decrease if the value of the
reference instrument increases. Further, the change in the principal amount
payable or the interest rate of an indexed security may be a multiple of the
percentage change (positive or negative) in the value of the underlying
reference instrument(s).

Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities
may be more volatile than the reference instruments underlying indexed
securities.

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

In the course of pursuing these investment strategies, a Fund may purchase
and sell exchange-listed and over-the-counter put and call options on
securities, fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, and enter into various
interest rate transactions such as swaps, caps, floors or collars (collectively,
all the above are called "Strategic Transactions"). Strategic Transactions may
be used without limit (except to the extent that 80% of each Fund's net
assets are required to be invested in tax-exempt Massachusetts municipal
securities, and as limited by each Fund's other investment restrictions) to
attempt to protect against possible changes in the market value of securities
held in or to be purchased for a Fund's portfolio resulting from securities
markets fluctuations, to protect a Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of 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. Each Fund will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes.

Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to a Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation 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 that 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 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
a 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. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.

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

Each 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.

Each 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.

Each 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. Each Fund will not sell put options if, as a result, more than 50%
of such 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. Each 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.

Each 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.

Each 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. Each 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. Each 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. Each 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. Each 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.

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

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

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

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

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

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

Trustees' Power to Change Objective and Policies

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

Investment Restrictions

Unless specified to the contrary, the following restrictions may not be
changed without the approval of a majority of the outstanding voting securities
of that 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 a Fund present at a meeting if the holders of more than 50% of the
outstanding shares of a Fund are present in person or by proxy, or (2) more than
50% of the outstanding shares of the Fund. Any investment restrictions herein
which involve a maximum percentage of securities or assets shall not be
considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition or encumbrance of securities
or assets of, or borrowings by, the Fund.

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

1. invest more than 25% of the value of its total assets in the
securities of any one issuer;

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

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

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

5. issue senior securities, except as appropriate to evidence
indebtedness which the Fund is permitted to incur pursuant to
investment restriction (2) and except for shares of any other series
which may have been or may be hereafter established by the Trustees;

6. with respect to 50% of the value of the total assets of the Fund,
invest more than 5% of its total assets in securities of any one
issuer, except U.S. Government securities; and

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

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

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

1. invest more than 25% of the value of its total assets in the
securities of any one issuer;

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

3. purchase and sell real estate (though it may invest in securities of
companies which deal in real estate and in other permitted investments
secured by real estate) or commodities or commodities contracts,
except futures contracts, including but not limited to contracts for
the future delivery of securities and contracts based on securities
indices;

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

6. issue senior securities, except as appropriate to evidence
indebtedness which the Fund is permitted to incur pursuant to
investment restriction (2) and except for shares of any additional
series which may be established by the Trustees;

7. with respect to 50% of the total assets of the Fund, purchase the
securities of any issuer if such purchase would cause more than 10% of
the voting securities of such issuer to be held by the Fund;

8. with respect to 50% of the total assets of the Fund, invest more than
5% of its total assets in securities of any one issuer, except U.S.
Government securities; and

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

As a matter of nonfundamental policy, Massachusetts Limited Term Tax
Free Fund may not:

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

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

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

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

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

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

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

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

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

(x) make securities loans if the value of such securities loaned exceeds
30% of the value of the Fund's total assets at the time any loan is
made; all loans of portfolio securities will be fully collateralized
and marked to market daily. The Fund has no current intention of
making loans of portfolio securities that would amount to greater than
5% of the Fund's total assets;

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

(xii) purchase or sell real estate limited partnership interests.

As a matter of nonfundamental policy, Massachusetts Tax Free Fund
may not:

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

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

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

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

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

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

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

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

(ix) purchase restricted securities if, as a result thereof, more than 5%
of the value of the Fund's net assets would be invested in restricted
securities;

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

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

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

PURCHASES

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

Additional Information About Opening an Account

Shareholders of other Scudder funds who have submitted an account
application and have a certified tax identification number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the
National Association of Securities Dealers, Inc. (the "NASD"), and banks may
open an account by wire. These investors must call 1-800-225-5163 to get an
account number. During the call, the investor will be asked to indicate the
Fund name, amount to be wired ($1,000 minimum), name of the bank or trust
company from which the wire will be sent, the exact registration of the new
account, the tax identification or Social Security number, address and telephone
number. The investor must then call his bank to arrange a wire transfer to The
Scudder Funds, State Street Bank and Trust Company, Boston, MA 02110, 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, that Fund reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Fund or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, a Fund will have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse that Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled
may be prohibited from or restricted in placing future orders in any of the
Scudder funds.

Wire Transfer of Federal Funds

To purchase shares of a Fund and obtain the same day dividend you must have
your bank forward federal funds by wire transfer and provide the required
account information so as to be available to a 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.

To obtain the net asset value determined as of the close of regular trading
on the Exchange on a selected day, your bank must forward federal funds by wire
transfer and provide the required account information so as to be available to a
Fund prior to the close of regular trading on the Exchange (normally 4 p.m.
eastern time).

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

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

Share Price

Purchases will be filled without sales charge at the net asset value next
computed after receipt of the purchase order in good order. Net asset value
normally will be computed once a day, as of the close of regular trading on each
day when the Exchange is open for trading. Orders received after the close of
regular trading on the Exchange will be executed at the next business day's net
asset value. If the order has been placed by a member of the NASD, other than
Scudder Investor Services, Inc., it is the responsibility of that member broker,
rather than 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.

Other Information

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

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

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

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

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

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

Investors currently receive the exchange privilege, including exchange by
telephone, automatically without having to elect it. Each 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 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. Each Fund and the Transfer Agent each reserves the right to suspend or
terminate the privilege of exchanging by telephone or fax at any time.

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

Redemption by Telephone

Shareholders currently receive the right to redeem by telephone up to
$50,000 to their address of record automatically, without having to elect it.
Shareholders may also request by telephone to have the proceeds mailed or wired
to their predesignated bank account. In order to request redemptions by
telephone, shareholders must have completed and returned to the Transfer Agent
the application, including the designation of a bank account to which the
redemption proceeds are to be sent.

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

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

If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.

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

Each 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 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.

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

Redemption by Mail or Fax

Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with signatures guaranteed as explained in the
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 five business days
after receipt by the Transfer Agent of a request for redemption that complies
with the above requirements. Delays of more than seven days of payment for
shares tendered for repurchase or redemption may result, but only until the
purchase check has cleared.

Redemption by Write-a-Check

All new investors and existing shareholders of Massachusetts Limited
Term Tax Free Fund who apply to State Street Bank and Trust Company 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 a Fund's book for seven
business days. Shareholders who use this service may also use other redemption
procedures. The Fund pays the bank charges for this service. However,
each Fund will review the cost of operation periodically and reserve the right
to determine if direct charges to the persons who avail themselves of this
service would be appropriate. The Fund, Scudder Service Corporation and State
Street Bank and Trust Company reserve the right at any time to suspend or
terminate the "Write-a-Check" procedure.

Other Information

If a shareholder redeems all shares in the account after the record date of
a dividend, the shareholder will receive, in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares
redeemed or repurchased may be more or less than a shareholder's cost depending
upon the net asset value at the time of redemption or repurchase. Each Fund
does not impose a redemption or repurchase charge, although a wire charge may be
applicable for redemption proceeds wired to an investor's bank account.
Redemptions of shares, including redemptions undertaken to effect an exchange
for shares of another Scudder fund, may result in tax consequences (gain or
loss) to the shareholder and the proceeds of such redemptions may be subject to
backup withholding (see "TAXES").

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

The determination of net asset value may be suspended at times and a
shareholder's right to redeem shares and to receive payment therefore may be
suspended at times (a) during which the Exchange is closed, other than customary
weekend and holiday closings, (b) during which trading on the Exchange is
restricted for any reason, (c) during which an emergency exists as a result of
which disposal by a Fund of securities owned by it is not reasonably practicable
or it is not reasonably practicable for a Fund fairly to determine the value of
its net assets, or (d) during which the SEC by order permits a suspension of the
right of redemption or a postponement of the date of payment or of redemption;
provided that applicable rules and regulations of the SEC (or any succeeding
governmental authority) shall govern as to whether the conditions prescribed in
(b), (c) or (d) exist.

If transactions at any time reduce a shareholder's account balance in a
Fund to below $1,000 in value, that Fund may notify the shareholder that, unless
the account balance is brought up to at least $1,000, the Fund will redeem all
shares, close the account and send redemption proceeds to the shareholder. The
shareholder has sixty days to bring the account balance up to $1,000 before any
action will be taken by the Fund. (This policy applies to accounts of new
shareholders, but does not apply to certain Special Plan Accounts.)

FEATURES AND SERVICES OFFERED BY THE FUND

The Pure No-Load(tm) Concept

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

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

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

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

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

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

<TABLE>
<CAPTION>
Scudder Load Fund No-Load Fund
Pure No- 8.50% Load with 0.75% with 0.25%
YEARS Load(tm) Fund Fund 12b-1 Fee 12b-1 Fee
----- ------------- ---- --------- ---------
<C> <C> <C> <C> <C>
10 $25,937 $23,733 $24,222 $25,354
15 41,772 38,222 37,698 40,371
20 67,275 61,557 58,672 64,282
</TABLE>

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

Distribution Plans

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

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

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

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

Scudder Funds Centers

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

Reports to Shareholders

Each Fund issues to shareholders semiannual financial statements (audited
annually by independent accountants), including a list of investments held and
statements of assets and liabilities, operations, changes in net assets and
supplementary information for each Fund.

Transaction Summaries

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

THE SCUDDER FAMILY OF FUNDS

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

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

MONEY MARKET

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

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

INCOME

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

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

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

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

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

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

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

TAX FREE MONEY MARKET

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

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

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

TAX FREE

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

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

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

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

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

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

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

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

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

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

GROWTH AND INCOME

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

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

GROWTH

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SPECIAL PLAN ACCOUNTS

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

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

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

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

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

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

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

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

Automatic Investment Plan

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

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

Uniform Transfers/Gifts to Minors Act

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

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

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

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

Each Fund will follow the practice of distributing substantially all, and
in no event less than 90%, of its taxable and tax-exempt net investment income
(defined under "ADDITIONAL INFORMATION--Glossary") and any excess of net
realized short-term capital gains over net realized long-term capital losses.
Each Fund may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, if it appears to be in the best interest of a Fund and its
shareholders, a Fund may retain all or part of such gain for reinvestment.

Dividends will be declared daily and distributions of net investment income
will be made monthly. Any dividend declared in October, November, or December
as of a record date in such a month will be treated by shareholders for federal
income tax purposes as if received in December if it is paid during the
following January. Distributions of net short-term and net long-term capital
gains realized during each fiscal year, if any, will be made annually within
three months after the end of each Fund's fiscal year. An additional
distribution may also be made (or treated as made) shortly before December 31 in
order to avoid the excise tax enacted by the Tax Reform Act of 1986 (See
"TAXES," below). Both types of distributions will be made in shares of a Fund
and confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent.

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

PERFORMANCE INFORMATION

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

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

Average Annual Total Return

Average annual total return is the average annual compound rate of return
for one year, five years and for the life of a Fund, ended on the last day of a
recent calendar quarter. Average annual total return quotations reflect changes
in the price of a Fund's shares and assume that all dividends and capital gains
distributions during the respective periods were reinvested in Fund shares.
Average annual total return is calculated by finding the average annual compound
rates of return of a hypothetical investment, over such periods, according to
the following formula (average annual total return is then expressed as a
percentage):

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

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

The average annual total return of Scudder Massachusetts Tax Free Fund for
the one and five year periods ended March 31, 1994, and life of the Fund(1) are
3.37%, 8.92%, and 9.06%, respectively.

(1) For the period beginning May 28, 1987.

If the Adviser had not maintained Scudder Massachusetts Tax Free Fund
expenses and had imposed a full management fee, the average annual total return
for the one and five year periods, and life of the Fund would have been
approximately 2.64%, 8.29%, and 8.35%, respectively.

Cumulative Total Return

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

C = (ERV/P) - 1
Where:

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

As of October 31, 1994 the cumulative total return of Massachusetts
Limited Term Tax Free Fund for the life of the Fund(1) was 0.00%. The
Adviser maintained Massachusetts Limited Term Tax Free Fund expenses for
the period February 15, 1994 through October 31, 1994. The cumulative total
return for the life of the Fund had the Adviser not maintained Fund expenses
would have been approximately -0.84%.

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

The cumulative total return of Massachusetts Tax Free Fund for the
one and five year periods ended March 31, 1994, and life of the Fund(2) were
3.37%, 53.33%, and 80.87%, respectively. If the Adviser had not maintained
Massachusetts Tax Free Fund expenses and had imposed a full management
fee, the cumulative total return for the one and five year periods, and life of
the Fund would have been approximately 2.64%, 48.94%, and 72.93%, respectively.

(2) For the period beginning May 28, 1987.

Total Return

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

Yield

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

YIELD = 2[((a-b)/cd + 1)^6-1]
Where:
a = dividends and interest earned during the period
including the amortization of market premium or
accretion of market discount.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day
of the period.

The 30-day net-annualized yield of Massachusetts Limited Term Tax
Free Fund for the period ended October 31, 1994 was 4.77%.

The 30-day net-annualized yield of Massachusetts Tax Free
Fund for the period ended March 31, 1994 was 5.88%

Tax-Equivalent Yield

Tax-Equivalent Yield is the net annualized taxable yield needed to produce
a specified tax-exempt yield at a given tax rate based on a specified 30 day (or
one month) period assuming semiannual compounding of income. Tax-equivalent
yield is calculated by dividing that portion of the Fund's yield (as computed in
the yield description above) which is tax-exempt by one minus a stated income
tax rate and adding the product to that portion, if any, of the yield of the
Fund that is not tax-exempt. Thus, taxpayers with a federal tax rate of 36%
and an effective combined marginal tax rate of 43.68% would need to earn a
taxable yield of 8.47% to receive after-tax income equal to the 4.77% tax-free
yield of Massachusetts Limited Term Tax Free Fund for the 30-day period
ended October 31, 1994. Taxpayers with a federal tax rate of 36% and an
effective combined marginal tax rate of 43.68% would need to earn a taxable
yield of 10.44% to receive after-tax income equal to the 5.88% tax-free yield of
Massachusetts Tax Free Fund for the 30-day period ended on March 31,
1994.

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

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

Comparison of Portfolio Performance

A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner.
Since there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of a Fund with performance quoted with respect to other investment
companies or types of investments.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

IBC/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity and
including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

USA Today, a leading national daily newspaper.

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

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

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

Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.

Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.

ORGANIZATION OF THE FUNDS

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

Each Fund is a series of Scudder State Tax Free Trust. The Trust is a
Massachusetts business trust established under a Declaration of Trust dated May
25, 1983. Such Declaration of Trust was amended and restated on December 8,
1987. Its authorized capital consists of an unlimited number of shares of
beneficial interest of $0.01 par value. The shares are currently divided into
six series. The other series of the Trust are: Scudder New York Tax Free Fund,
Scudder New York Tax Free Money Fund, Scudder Ohio Tax Free Fund and Scudder
Pennsylvania Tax Free Fund. The Trustees have the authority to issue more
series of shares and to designate the relative rights and preferences as between
the different series. Each share of each Fund has equal rights with each other
share of that Fund as to voting, dividends and liquidation. Shareholders have
one vote for each share held on matters on which they are entitled to vote. All
shares issued and outstanding will be fully paid and non-assessable by the
Trust, and redeemable as described in this Statement of Additional Information
and in the Funds' prospectus.

The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with its equitable share of the
general liabilities of the Trust, as determined by the Trustees. Expenses with
respect to any two or more series are to be allocated in proportion to the asset
value of the respective series except where allocations of direct expenses can
otherwise be fairly made. The officers of the Trust, subject to the general
supervision of the Trustees, have the power to determine which liabilities are
allocable to a given series, or which are general or allocable to two or more
series. In the event of the dissolution or liquidation of the Trust or any
series, the holders of the shares of any series are entitled to receive as a
class the underlying assets of such shares available for distribution to
shareholders.

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon only by shareholders of the series involved. Additionally, approval of the
investment advisory agreement is a matter to be determined separately by each
series. Approval by the shareholders of one series is effective as to that
series whether or not enough votes are received from the shareholders of the
other series to approve such agreement as to the other series.

The Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Trust. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of their
office.

INVESTMENT ADVISER

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

Scudder, Stevens & Clark, Inc., an investment counsel firm, acts as
investment adviser to each Fund. This organization is one of the most
experienced investment management firms in the United States. It was
established as a partnership in 1919 and pioneered the practice of providing
investment counsel to individual clients on a fee basis. In 1928 it introduced
the first no-load mutual fund to the public. In 1953, the Adviser introduced
Scudder International Fund, the first mutual fund registered with the SEC in the
U.S. investing internationally in several foreign countries.

The principal source of the Adviser's income is professional fees received
from providing continuous investment advice, and the firm derives no income from
brokerage or underwriting of securities. Today, it provides investment counsel
for many individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations. In addition,
it manages Montgomery Street Income Securities, Inc., Scudder California Tax
Free Trust, Scudder Cash Investment Trust, Scudder Development Fund, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder Institutional Fund,
Inc., Scudder International Fund, Inc., Scudder Investment Trust, Scudder
Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder State Tax Free Trust, Scudder Tax Free
Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder
Variable Life Investment Fund, Scudder World Income Opportunities Fund, Inc.,
The Argentina Fund, Inc., The Brazil Fund, Inc., The First Iberian Fund, Inc.,
The Korea Fund, Inc., The Japan Fund, Inc. and The Latin America Dollar Income
Fund, Inc. Some of the foregoing companies or trusts have two or more series.

The Adviser also provides investment advisory services to the mutual funds
which comprise the AARP Investment Program from Scudder. The AARP Investment
Program from Scudder has assets of over $11 billion and includes the AARP Growth
Trust, AARP Income Trust, AARP Tax Free Income Trust and AARP Cash Investment
Funds.

In selecting the securities in which each Fund may invest, the conclusions
and investment decisions of the Adviser with respect to a Fund are based
primarily on the analyses of its own research department. The Adviser receives
published reports and statistical compilations of the issuers themselves, as
well as analyses from brokers and dealers who may execute portfolio transactions
for the Adviser's clients. However, the Adviser regards this information and
material as an adjunct to its own research activities.

Certain investments may be appropriate for a Fund and also for other
clients advised by the Adviser. Investment decisions for a Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by 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 a Fund.

The Investment Advisory Agreement between the Trust, on behalf of
Massachusetts Limited Term Tax Free Fund, and the Adviser was approved by the
Trustees on December 14, 1993 and by the Fund's sole shareholder on February 10,
1994. The Investment Advisory Agreement between the Trust, on behalf of
Massachusetts Tax Free Fund, and the Adviser was last approved by the Trustees
on August 9, 1994 and by the Fund's shareholders on December 8, 1987. The
Massachusetts Limited Term Tax Free Fund Investment Advisory Agreement dated
February 15, 1994 and the Massachusetts Tax Free Fund Investment Advisory
Agreement dated June 1, 1987 (collectively, the "Agreements") will continue in
effect until September 30, 1995 and from year to year thereafter only if
their continuance is approved annually by the vote of a majority of those
Trustees who are not parties to such Agreements or interested persons of the
Adviser or the Trust cast in person at a meeting called for the purpose of
voting on such approval and either by vote of a majority of the Trustees or a
majority of the outstanding voting securities of each Fund. The Agreements may
be terminated at any time without payment of penalty by either party on sixty
days' written notice, and automatically terminates in the event of its
assignment.

Under each Agreement, the Adviser regularly provides a Fund with investment
research, advice and supervision and furnishes continuously an investment
program consistent with the Fund's investment objectives and policies. The
Adviser determines what securities shall be purchased for the Fund's portfolio,
what securities shall be held or sold by the Fund, and what portion of the
Fund's assets shall be held uninvested, subject always to the provisions of the
Trust's Declaration of Trust and By-Laws, the 1940 Act , the
Internal Revenue Code of 1986 and to the Fund's investment objective, policies
and restrictions, and subject further to such policies and instructions as the
Trustees of the Trust may from time to time establish. The Adviser also advises
and assists the officers of the Trust in taking such steps as are necessary or
appropriate to carry out the decisions of its Trustees and the appropriate
committees of the Trustees regarding the conduct of the business of each Fund.

The Adviser pays the compensation and expenses of all affiliated Trustees
and executive employees of the Trust and makes available, without expense to the
Trust, the services of such Advisers, Directors, Officers, and employees as may
duly be elected officers or Trustees of the Trust, subject to their individual
consent to serve and to any limitations imposed by law, and provides the Fund's
office space and facilities and provides investment advisory, research and
statistical facilities and all clerical services relating to research,
statistical and investment work.

For these services, Massachusetts Limited Term Tax Free Fund pays
the Adviser a monthly fee of 0.60 of 1% (approximately 0.60 of 1% on an annual
basis) of the average daily net assets of the Fund. Massachusetts Tax Free Fund
pays the Adviser a monthly fee of 1/20 of 1% (approximately 0.60 of 1% on an
annual basis) of the average daily net assets of the Fund.

The Agreements provide that if a Fund's expenses, exclusive of taxes,
interest, and extraordinary expenses, exceed specified limits, such excess, up
to the amount of the management fee, will be paid by the Adviser. The Adviser
retains the ability to be repaid by a Fund if expenses fall below the specified
limit prior to the end of the fiscal year. These expense limitation
arrangements can decrease a Fund's expenses and improve its performance.
For the period February 15, 1994 (commencement of operations) to October
31, 1994, these agreements resulted in Massachusetts Limited Term Tax Free Fund
incurring no investment management fee. Had the Adviser imposed the management
fee for the period February 15, 1994 (commencement of operations) to
October 31, 1994, the investment management fee would have equaled $95,975. For
the period February 15, 1994 (commencement of operations) to October 31,
1994 for Massachusetts Limited Term Tax Free Fund, the amount to be
reimbursed by the Adviser equaled $83,314.

The Adviser has agreed to maintain the annualized expenses of
Massachusetts Limited Term Tax Free Fund at not more than 0.25% of
the average daily net assets of the Fund until July 31, 1995 .

The Agreements provide that if a Fund's expenses, exclusive of taxes,
interest, and extraordinary expenses, exceed specified limits, such excess, up
to the amount of the management fee, will be paid by the Adviser. The Adviser
retains the ability to be repaid by a Fund if expenses fall below the specified
limit prior to the end of the fiscal year. These expense limitation
arrangements can decrease a Fund's expenses and improve its performance.
For the fiscal years ended March 31, 1992, 1993 and 1994, pursuant to these
agreements, the investment management fees incurred by Massachusetts Tax
Free Fund were $185,103, $0 and $85,149, respectively. Had the Adviser imposed
a full investment management fee for the fiscal years ended March 31, 1992, 1993
and 1994, the investment management fees would have equaled $531,494, $1,146,901
and $2,042,707, respectively. For the fiscal year ended March 31, 1994 for
Massachusetts Tax Free Fund, the amount reimbursed by the Adviser equaled
$272,909.

The Adviser has agreed to maintain the annualized expenses of
Massachusetts Tax Free Fund at not more than 0.75% of the average daily
net assets of the Fund until December 31, 1995.

Under the Agreements each Fund is responsible for all of its other
expenses, including organization expenses; clerical salaries; fees and expenses
incurred in connection with membership in investment company organizations;
brokers' commissions; payment for portfolio pricing services to a pricing agent,
if any; legal, auditing or accounting expenses; taxes or governmental fees; the
fees and expenses of the Transfer Agent; the cost of preparing share
certificates and any other expenses, including clerical expense, of issuance,
redemption or repurchase of shares of beneficial interest; the expenses of and
fees for registering or qualifying securities for sale; the fees and expenses of
the Trustees of the Trust who are not affiliated with the Adviser; the cost of
preparing and distributing reports and notices to shareholders; and the fees or
disbursements of custodians. The Trust is also responsible for its expenses
incurred in connection with litigation, proceedings and claims and the legal
obligation it may have to indemnify its officers and Trustees with respect
thereto.

Each Agreement further provides that as between each Fund and the Adviser
each Fund will be responsible for all expenses, including clerical expense, of
offer, sale, underwriting and distribution of a Fund's shares only so long as a
Fund employs a principal underwriter to act as the distributor of a Fund's
shares pursuant to an underwriting agreement which provides that the underwriter
will assume such expenses. The Trust's underwriting agreement provides that the
principal underwriter shall pay all expenses of offer and sale of a Fund's
shares except the expenses of preparation and filing of registration statements
under the Securities Act of 1933 and under state securities laws, issue and
transfer taxes, if any, and a portion of the prospectuses used by a Fund. In
the event that a Fund ceases to employ a principal underwriter to act as the
distributor of a Fund's shares, the expenses of distributing a Fund's shares
will be borne by the Adviser unless a Fund shall have adopted a plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 providing that a Fund shall
be responsible for some or all of such distribution expenses.

Each Agreement requires the Adviser to return to a Fund all or a portion of
advances of its management fee to the extent annual expenses of a Fund
(including the management fee stated above) exceed the limitations prescribed by
any state in which a Fund's shares are offered for sale. Management has been
advised that, while most states have eliminated expense limitations the lowest
such limitation is currently 2 1/2% of average daily net assets up to $30
million, 2% of the next $70 million of average daily net assets and 1 1/2% of
average daily net assets in excess of that amount. Certain expenses such as
brokerage commissions, taxes, extraordinary expenses and interest are excluded
from such limitations. Any such fee advance required to be returned to a Fund
will be returned as promptly as practicable after the end of each 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."

Each Agreement also provides that the Trust and either Fund may use any
name derived from the name "Scudder, Stevens & Clark" only as long as each
Agreement or any extension, renewal or amendment thereof remains in effect.

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

Each Agreement provides that the Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by a Fund in connection
with matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the Agreement.

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

None of the Trustees or officers of the Trust may have dealings with either
Fund as principals in the purchase or sale of securities, except as individual
subscribers to or holders of shares of such Fund.

Personal Investments by Employees of the Adviser

Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.

<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS

Position with
Underwriter,
Position Principal Scudder Investor
Name and Address with Trust Occupation** Services, Inc.
- ---------------- ---------- ------------ ------------------
<C> <C> <C> <C>
David S. Lee*+@ President and Managing Director President,
Trustee of Scudder, Assistant
Stevens & Clark, Treasurer and
Inc. Director

Henry P. Becton, Jr. Trustee President and --
WGBH General Manager,
125 Western Avenue WGBH Educational
Allston, MA Foundation

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

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

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

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

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

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

Jean C. Tempel Trustee Director, --
Ten Post Office Executive Vice
Square President and
Suite 1325 Manager, Safeguard
Boston, MA Scientifics, Inc.

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

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

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

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

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

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

Coleen Downs Dinneen+ Assistant Vice President of Assistant Clerk
Secretary Scudder, Stevens &
Clark, Inc.
<FN>
* Messrs. Lee, Ladd, Padegs and Pierce are considered by the Trust and its
counsel to be Trustees who are "interested persons" of the Adviser or of
each Fund within the meaning of the Investment Company Act of 1940, as
amended.

** Unless otherwise stated, all officers and Trustees have been associated
with their respective companies for more than five years but not
necessarily in the same capacity.

+ Address: Two International Place, Boston, Massachusetts 02110

# Address: 345 Park Avenue, New York, New York 10154

@ Messrs. Lee, Freeman, Marple and Pierce are members of the Executive
Committee of each Fund, which has the power to declare dividends from
ordinary income and distributions of realized capital gains to the same
extent as the Board is so empowered.
</FN>
</TABLE>

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

As of January 31, 1995 all Trustees and officers of the Trust as a group
owned beneficially (as that term is defined in Section 13(d) under the
Securities Exchange Act of 1934) less than 1% of the shares of Scudder
Massachusetts Limited Term Tax Free Fund outstanding on such date.

As of January 31, 1995 Scudder, Stevens & Clark, Inc. owned in the
aggregate, by or on behalf of accounts for which it acts as investment adviser,
823,406 shares or 19.65% of the outstanding shares of Scudder Massachusetts
Limited Term Tax Free Fund. Scudder, Stevens & Clark, Inc. may be deemed to be
the beneficial owner of such shares but disclaims any beneficial ownership in
such shares.

As of January 31, 1995 Scudder, Stevens & Clark, Inc. owned in the
aggregate, by or on behalf of accounts for which it acts as investment adviser,
2,092,044 shares or 9.48% of the outstanding shares of Scudder
Massachusetts Tax Free Fund. Scudder, Stevens & Clark, Inc. may be deemed to be
the beneficial owner of such shares but disclaims any beneficial ownership in
such shares.

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

REMUNERATION

Several of the officers and Trustees of the Trust may be officers of the
Adviser, Scudder Investor Services, Inc., Scudder Service Corporation or Scudder
Trust Company and participate in fees paid by either Fund. Each Fund pays no
direct remuneration to any officer of the Trust. However, each of the Trustees
who is not affiliated with the Adviser will be paid by the Trust. Each of these
unaffiliated Trustees receives an annual Trustee's fee of $12,000 from the Trust
allocated equally among the series of the Trust and fees of $300 from the Trust
allocated equally among the series of the Trust for each attended Trustees'
meeting, audit committee meeting or meeting held for the purpose of considering
arrangements between the Fund and the Adviser. Each unaffiliated Trustee also
receives $100 per committee meeting, other than those set forth above. For the
fiscal year ended October 31, 1994 such fees totaled $7,083 for Scudder
Massachusetts Limited Term Tax Free Fund, and for the fiscal year ended March
31, 1994, such fees totaled $16,611 for Scudder Massachusetts Tax Free Fund.

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

Column (1): all Trustees who receive compensation from the Trust.
Column (2): aggregate compensation received by a Trustee from all the series of
the Trust.
Columns (3) and (4): pension or retirement benefits accrued or proposed be paid
by the Trust. Scudder State Tax Free Trust does not pay its Trustees such
benefits.
Column (5): total compensation received by a Trustee from the Trust, plus
compensation received from all funds for which a Trustee serves in a fund
complex. The total number of funds from which a Trustee receives such
compensation is also provided.

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

(1) (2) (3) (4) (5)
Pension or
Retirement Total Compensation
Benefits Accrued Estimated From Scudder State
Aggregate Compensation As Part of Fund Annual Tax Free Trust and
Name of Person, from Scudder State Tax Expenses Benefits Upon Fund Complex Paid
Position Free Trust* -------- Retirement to Trustee
-------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Henry P. Becton, Jr., $17,097.83 N/A N/A $90,597.83
Trustee (15 funds)

Dawn-Marie Driscoll, $17,097.83 N/A N/A $94,793.83
Trustee (16 funds)

Peter B. Freeman, $17,097.83 N/A N/A $141,843.83
Trustee (31 funds)

Wesley W. Marple, Jr., $17,097.83 N/A N/A $95,693.83
Trustee (15 funds)

Jean C. Tempel, $3,100 N/A N/A $15,076.00
Trustee (14 funds)

* Scudder State Tax Free Trust consists of six Funds: Scudder Massachusetts
Limited Term Tax Free Fund, Scudder Massachusetts Tax Free Fund, Scudder New
York Tax Free Money Fund, Scudder New York Tax Free Fund, Scudder Ohio Tax
Free Fund and Scudder Pennsylvania Tax Free Fund.
</TABLE>

DISTRIBUTOR

The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a wholly-owned
subsidiary of Scudder, Stevens & Clark, Inc., a Delaware corporation. The
Trust's underwriting agreement dated June 1, 1987 will remain in effect until
September 30, 1995, and from year to year thereafter only if its continuance is
approved annually by a majority of the members of the Board of Trustees who are
not parties to such agreement or interested persons of any such party and either
by vote of a majority of the Board of Trustees or a majority of the outstanding
voting securities of the Trust. The underwriting agreement was last approved by
the Trustees on August 9, 1994.

Under the underwriting agreement, the Trust is responsible for the payment
of all fees and expenses in connection with the preparation and filing with the
SEC of the Trust's registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering the Trust as a broker or dealer; the
fees and expenses of preparing, printing and mailing prospectuses annually to
existing shareholders (see below for expenses relating to prospectuses paid by
the Distributor), notices, proxy statements, reports or other communications to
shareholders of the Trust; the cost of printing and mailing confirmations of
purchases of shares and the prospectuses accompanying such confirmations; any
issuance taxes and/or any initial transfer taxes; a portion of shareholder
toll-free telephone charges and expenses of shareholder service representatives;
the cost of wiring funds for share purchases and redemptions (unless paid by the
shareholder who initiates the transaction); the cost of printing and postage of
business reply envelopes; and a portion of the cost of computer terminals used
by both the Trust and the Distributor.

The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of each Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of a 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 a Fund, unless a Rule 12b-1 plan is in effect which
provides that each Fund shall bear some or all of such expenses.

Note: Although each Fund does not currently have a 12b-1 Plan and the
Trustees have no current intention of adopting one, either Fund would
also pay those fees and expenses permitted to be paid or assumed by
such Fund pursuant to a 12b-1 Plan, if any, were such a plan adopted
by a Fund, notwithstanding any other provision to the contrary in the
underwriting agreement.

As agent the Distributor currently offers shares of each Fund on a
continuous basis to investors in all states in which shares of a Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of a Fund.

TAXES

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

Shareholders should consult their tax advisers about the application of the
provisions of tax law described in this Statement of Additional Information in
light of their particular tax situation.

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

Federal Taxation

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

As a regulated investment company qualifying under Subchapter M of the
Code, each Fund is required to distribute to its shareholders at least 90
percent of its taxable net investment income (including net short-term capital
gain in excess of net long-term capital loss) and at least 90 percent of its
tax-exempt net investment income and is not subject to federal income tax to the
extent that it distributes annually all of its taxable net investment income and
net realized capital gains in accordance with the timing requirements of the
Code. Each Fund intends to distribute at least annually substantially all, and
in no event less than 90%, of its taxable and tax-exempt net investment income
and net realized capital gains.

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

Each Fund is subject to a 4% non-deductible excise tax on amounts required
to be but not distributed under a prescribed formula. The formula requires
payment to shareholders during a calendar year of distributions representing at
least 98% of a Fund's taxable ordinary income for the calendar year and at least
98% of the excess of its capital gains over capital losses realized during the
one-year period ending October 31 during such year, together with any
undistributed, untaxed amounts of ordinary income and capital gains from the
previous calendar year. Each Fund has adjusted its distribution policies to
minimize any adverse impact from this tax or eliminate its application.

Distributions of taxable net investment income and the excess of net
short-term capital gain over net long-term capital loss are taxable to
shareholders as ordinary income.

Subchapter M of the Code permits the character of tax-exempt interest
distributed by a regulated investment company to flow through as tax-exempt
interest to its shareholders, provided that at least 50% of the value of its
assets at the end of each quarter of its taxable year is invested in state,
municipal and other obligations the interest on which is excluded from gross
income under Section 103(a) of the Code. Each Fund intends to satisfy this 50%
requirement in order to permit its distributions of tax-exempt interest to be
treated as such for federal income tax purposes in the hands of its
shareholders. Distributions to shareholders of tax-exempt interest earned by a
Fund for the taxable year are therefore not expected to be subject to federal
income tax, although they may be subject to the individual and corporate
alternative minimum taxes described below.

The Revenue Reconciliation Act of 1993 requires that market discount
recognized on a tax-exempt bond is taxable as ordinary income. This rule
applies only for disposals of bonds purchased after April 30, 1993. A market
discount bond is a bond acquired in the secondary market at a price below its
redemption value. Under prior law, the treatment of market discount as ordinary
income did not apply to tax-exempt obligations. Instead, realized market
discount on tax-exempt obligations was treated as capital gain. Under the new
law, gain on the disposition of a tax-exempt obligation or any other market
discount bond that is acquired for a price less than its principal amount will
be treated as ordinary income (instead of capital gain) to the extent of accrued
market discount.

Since no portion of either Fund's income will be comprised of dividends
from domestic corporations, none of the income distributions of a Fund will be
eligible for the dividends-received deduction available for certain taxable
dividends received by corporations.

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

Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of a Fund have been held by such
shareholders. Such distributions to corporate shareholders of a Fund are not
eligible for the dividends-received deduction. Any loss realized upon the
redemption of shares 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 during such six-month period with
respect to such shares.

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

Distributions of taxable net investment income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.

All distributions of taxable net investment income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends or capital gains
distributions declared and payable to shareholders of record on a specified date
in October, November or December, if any, will be deemed to have been received
by shareholders in December if paid during January of the following year.
Shareholders are also required to report tax-exempt interest. Redemptions of
shares, including exchanges for shares of another Scudder fund, may result in
tax consequences (gain or loss) to the shareholder and are also subject to these
reporting requirements.

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

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

Interest on indebtedness incurred by shareholders to purchase or carry
shares of a Fund will not be deductible for federal income tax purposes. Under
rules used by the IRS to determine when borrowed funds are used for the purpose
of purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though the borrowed funds
are not directly traceable to the purchase of shares.

Section 147(a) of the Code prohibits exemption from taxation of interest on
certain governmental obligations to persons who are "substantial users" (or
persons related thereto) of facilities financed by such obligations. Neither
Fund has undertaken any investigation as to the users of the facilities financed
by bonds in such Fund's portfolio.

Distributions by each Fund result in a reduction in the net asset value of
a Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder, to the extent it is derived from other than tax-exempt interest, as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes
the amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which, to the extent it is derived from other than tax-exempt
interest, will nevertheless be taxable to them.

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

All futures contracts entered into by a Fund and all listed nonequity
options written or purchased by a Fund (including options on futures contracts
and options on securities indices) will be governed by Section 1256 of the Code.
Absent a tax election to the contrary, gain or loss attributable to the lapse,
exercise or closing out of any such position generally will be treated as 60%
long-term and 40% short-term capital gain or loss, and on the last trading day
of a Fund's fiscal year, all outstanding Section 1256 positions will be marked
to market (i.e. treated as if such positions were closed out at their closing
price on such day), with any resulting gain or loss recognized as 60% long-term
and 40% short-term capital gain or loss. Under certain circumstances, entry
into a futures contract to sell a security may constitute a short sale for
federal income tax purposes, causing an adjustment in the holding period of the
underlying security or a substantially identical security in a Fund's portfolio.

Positions of each Fund which consist of at least one debt security not
governed by Section 1256 and at least one futures contract or nonequity option
governed by Section 1256 which substantially diminishes a Fund's risk of loss
with respect to such debt security will be treated as a "mixed straddle." Mixed
straddles are subject to the straddle rules of Section 1092 of the Code, the
operation of which may cause deferral of losses, adjustments in the holding
periods of securities and conversion of short-term capital losses into long-term
capital losses. Certain tax elections, however, exist for them which reduce or
eliminate the operation of these rules. Each Fund will monitor its transactions
in options and futures and may make certain tax elections in order to mitigate
the operation of these rules and prevent disqualification of a Fund as a
regulated investment company for federal income tax purposes.

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

The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. persons, i.e., U.S. citizens and residents
and U.S. domestic corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of each 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.

State Taxation

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

Individual shareholders of a Fund resident in Massachusetts will not be
subject to Massachusetts personal income tax on distributions received from a
Fund to the extent such distributions constitute either (1) exempt-interest
dividends under Section 852(b)(5) of the Code which a Fund properly identifies
as consisting of interest on tax-exempt obligations of the Commonwealth of
Massachusetts for its political subdivisions or any agency or instrumentality of
the foregoing, or (2) dividends which a Fund properly identifies as attributable
to interest on tax-exempt obligations of the United States and instrumentalities
or obligations issued by the Governments of Puerto Rico, The Virgin Islands and
Guam.

Other distributions from either Fund, including those derived from taxable
interest income and long-term and short-term capital gains, generally will not
be exempt from Massachusetts personal income taxation except for distributions
which qualify as capital gain dividends under Section 852(b)(3) of the Code, and
are properly identified by a Fund as attributable to the sale of certain
Massachusetts obligations issued pursuant to legislation which specifically
exempts capital gain on the sale of such obligations from Massachusetts income
taxation.

Fund distributions will not be excluded from net income, and shares of
either Fund will not be excluded from the net worth of intangible property
corporations, for purposes of computing the Massachusetts corporate excise tax.

Shares of either Fund will not be subject to Massachusetts local property
taxes.

PORTFOLIO TRANSACTIONS

Brokerage

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

Each Fund's purchases and sales of portfolio securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by 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 involve an underwriting
fee paid to the underwriter.

The primary objective of the Adviser in placing orders for the purchase and
sale of securities for each Fund's portfolio is to obtain the most favorable net
results taking into account such factors as price, commission (negotiable in the
case of U.S. national securities exchange transactions), where applicable, size
of order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by a Fund to reported commissions paid by others.
The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.

When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
brokers and dealers who supply market quotations to the Custodian for appraisal
purposes, or 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 not authorized when placing portfolio transactions for a Fund to
pay a brokerage commission (to the extent applicable) in excess of that which
another broker might have charged for executing the same transaction on account
of the receipt of research, market or statistical information, although it may
do so in seeking to obtain the most favorable net results with respect to a
particular transaction. The Adviser will not place orders with brokers or
dealers on the basis that a broker or dealer has or has not sold shares of 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
otherwise.

The Adviser may place brokerage transactions through the Custodian and a
credit against the Custodian fee due to State Street Bank and Trust Company
equal to one-half of the commission on any such transaction will be given.
Except for implementing the policy stated above, there is no intention to place
portfolio transactions with particular brokers or dealers or groups thereof.

Although certain research, market and statistical information from brokers
and dealers can be useful to a Fund and to the Adviser, it is the opinion of the
Adviser that such information will only supplement the Adviser's own research
effort, since the information must still be analyzed, weighed, and reviewed by
the Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than 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 brokers and 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 intend to review from time to time whether the recapture for
the benefit of a Fund of some portion of the brokerage commissions or similar
fees paid by a Fund on portfolio transactions is legally permissible and
advisable.

Portfolio Turnover

Each Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration date at the time of acquisition of one year or less. A higher rate
involves greater brokerage transaction expenses to a Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Scudder Massachusetts Limited Term Tax Free Fund's annualized
portfolio turnover rate for the fiscal year ended October 31, 1994 was 26.3%.
Scudder Massachusetts Tax Free Fund's portfolio turnover rate for the fiscal
periods ended March 31, 1992, 1993 and 1994 were 23.2%, 29.6% and 17.0%,
respectively. Purchases and sales are made for a Fund's portfolio whenever
necessary in management's opinion, to meet a Fund's objective.

NET ASSET VALUE

The net asset value of shares of each Fund is computed as of the close of
regular trading on the New York Stock Exchange (the "Exchange") on each day the
Exchange is open for trading. The Exchange is scheduled to be closed on the
following holidays: New Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of a Fund, less
all liabilities, by the total number of shares outstanding.

An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent
bid quotation. An equity security which is traded on the National Association
of Securities Dealers Automated Quotation ("NASDAQ") system is valued at its
most recent sale price. Lacking any sales, the security is valued at the high
or "inside" bid quotation. The value of an equity security not quoted on the
NASDAQ System, but traded in another over-the-counter market, is its most recent
sale price. Lacking any sales, the security is valued at the Calculated Mean.
Lacking a Calculated Mean, the security is valued at the most recent bid
quotation.

Debt securities, other than short-term securities, are valued at prices
supplied by each Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities
with remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.

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

If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.

If, in the opinion of a Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by a Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.

Following the valuations of securities or other portfolio assets in terms
of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.

ADDITIONAL INFORMATION

Experts

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

Shareholder Indemnification

The Trust is an organization of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with a Fund's property or the
acts, obligations or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of a Fund's property of any shareholder held
personally liable for the claims and liabilities to which a shareholder may
become subject by reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which 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, with factors giving security to principal and interest
inadequate and potentially unreliable over any period of time. Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small. Such securities are
commonly referred to as "junk" bonds and as such they carry a high margin of
risk.

Moody's ratings for municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition
of the differences between short-term and long-term credit risk. Loans bearing
the designation MIG-1 are of the best quality, enjoying strong protection by
establishing cash flows of funds for their servicing or by established and
broad-based access to the market for refinancing, or both. Loans bearing the
designation MIG-2 are of high quality, with margins of protection ample although
not as large as in the preceding group.

The six highest ratings of S&P for municipal bonds are AAA (Prime), AA
(High-grade), A (Good-grade), BBB (Investment-grade) and BB or B (Below
investment-grade). Bonds rated AAA have the highest rating assigned by S&P to a
municipal obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions. Bonds rated BBB have an adequate
capacity to pay interest and to repay principal. Adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds of this category than for bonds of higher
rated categories. Securities rated BB or below by S&P are considered below
investment grade, with factors giving security to principal and interest
inadequate and potentially unreliable over any period of time. Debt rated B has
a greater vulnerability to default but currently has the capacity to meet
interest payments and principal repayments. Adverse business, financial, or
economic conditions will likely impair capacity or willingness to pay interest
and repay principal. Such securities 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 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 rates.
Bonds rated BBB are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse effects on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings. Securities rated BB or below by Fitch are considered below investment
grade, with factors giving security to principal and interest inadequate and
potentially unreliable over any period of time. Such securities are commonly
referred to as "junk" bonds and as such they carry a high margin of risk.

Commercial Paper Ratings

Commercial paper rated A-1 or better by S&P has the following
characteristics: liquidity ratios are adequate to meet cash requirements;
long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed; the issuer has access to at least two additional
channels of borrowing; and basic earnings and cash flow have an upward trend
with allowance made for unusual circumstances. Typically, the issuer's industry
is well established and the issuer has a strong position within the industry.
The reliability and quality of management are unquestioned.

The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.

The rating F-1+ is the highest rating assigned by Fitch. Among the factors
considered by Fitch in assigning this rating are: (1) the issuer's liquidity;
(2) its standing in the industry; (3) the size of its debt; (4) its ability to
service its debt; (5) its profitability; (6) its return on equity; (7) its
alternative sources of financing; and (8) its ability to access the capital
markets. Analysis of the relative strength or weakness of these factors and
others determines whether an issuer's commercial paper is rated F-1+.

Relative strength or weakness of the above factors determine how the
issuer's commercial paper is rated within the above categories.

Glossary

1. Bond

A contract by an issuer (borrower) to repay the owner of the contract
(lender) the face amount of the bond on a specified date (maturity date)
and to pay a stated rate of interest until maturity. Interest is generally
paid semi-annually in amounts equal to one half the annual interest rate.

2. Debt Obligation

A general term which includes fixed income and variable rate securities,
obligations issued at a discount and other types of securities which
evidence a debt.

3. Discount and Premium

A discount (premium) bond is a bond selling in the market at a price lower
(higher) than its face value. The amount of the market discount (premium)
is the difference between market price and face value.

4. Maturity

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

5. Municipal Obligation

Obligations issued by or on behalf of states, territories and possessions
of the United States, their political subdivisions, agencies and
instrumentalities and the District of Columbia and other issuers, the
interest from which is, at the time of issuance in the opinion of bond
counsel for the issuers, exempt from federal income tax.

6. Net Asset Value Per Share

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

7. Net Investment Income

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

Other Information

The CUSIP number of Scudder Massachusetts Limited Term Tax Free Fund is
811209105.

The CUSIP number of Scudder Massachusetts Tax Free Fund is 811184-30-8.

Scudder Massachusetts Limited Term Tax Free Fund has a fiscal year ending
on October 31.

Scudder Massachusetts Tax Free Fund has a fiscal year ending on March 31.

Portfolio securities of the Fund are held separately, pursuant to a
custodian agreement, by the Funds' Custodian, State Street Bank and Trust
Company.

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

The name "Scudder State Tax Free Trust" is the designation of the Trustees
for the time being under an Amended and Restated Declaration of Trust dated
December 8, 1987, as amended from time to time, and all persons dealing with a
Fund must look solely to the property of that Fund for the enforcement of any
claims against that Fund as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of a Fund. No Fund of the Trust is liable for the obligations of any
other Fund. Upon the initial purchase of shares, the shareholder agrees to be
bound by the Trust's Declaration of Trust, as amended from time to time. The
Declaration of Trust of the Trust is on file at the Massachusetts Secretary of
State's Office in Boston, Massachusetts. All persons dealing with a Fund must
look only to the assets of such Fund for the enforcement of any claims against
such Fund as no other series of the Trust assumes any liabilities for
obligations entered into on behalf of that Fund.

Costs of $29,959 incurred by Scudder Massachusetts Limited Term Tax Free
Fund in conjunction with its organization are amortized over five years
beginning December 31, 1993.

Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a wholly-owned subsidiary of the Adviser, computes
net asset value for each Fund. Each Fund pays Scudder Fund Accounting
Corporation 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, 0.004% of
such assets in excess of $1 billion, plus holding and transaction charges for
this service. The fee incurred by Scudder Massachusetts Limited Term Tax Free
Fund to Scudder Fund Accounting Corporation for the period February 15, 1994
(commencement of operations) to October 31, 1994 would have amounted to $25,263,
had this been imposed.

Scudder Service Corporation ("Service Corporation"), P.O. Box 2291, Boston,
Massachusetts 02107-2291, a wholly-owned subsidiary of the Adviser, is the
transfer and dividend-paying agent. Service Corporation also serves as
shareholder service agent. Each Fund pays Service Corporation an annual fee of
$25.00 for each account maintained for a shareholder. The fee incurred by
Scudder Massachusetts Limited Term Tax Free Fund to Service Corporation for the
period February 15, 1994 (commencement of operations) to October 31, 1994 would
have amounted to $21,437, had this fee been imposed. The fee incurred by
Scudder Massachusetts Tax Free Fund to Service Corporation for the year ended
March 31, 1994 amounted to $58,998, of which $19,444 is unpaid at March 31, 1994

The Funds' prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Trust has
filed with the SEC under the Securities Act of 1933 and reference is hereby made
to the Registration Statement for further information with respect to each Fund
and the securities offered hereby. This Registration Statement is available for
inspection by the public at the SEC in Washington, D.C.

FINANCIAL STATEMENTS

Massachusetts Limited Term Tax Free Fund

The financial statements, including the investment portfolio of
Massachusetts 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, 1994, and are hereby deemed to be a
part of this Statement of Additional Information.

Massachusetts Tax Free Fund

The financial statements, including the investment portfolio, of
Massachusetts Tax Free Fund, together with Financial Highlights and notes to
financial statements are incorporated by reference and attached hereto in the
Semiannual Report to the Shareholders of the Fund dated September 30, 1994, and
are hereby deemed to be a part of this Statement of Additional Information.

<PAGE>

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

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

Scudder
Massachusetts
Limited Term
Tax Free Fund

Annual Report
October 31, 1994

* For investors seeking double tax-free income, exempt from both
Massachusetts and regular federal income taxes consistent with a high
degree of principal stability.

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

CONTENTS

2 Highlights
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Investment Portfolio
13 Financial Statements
16 Financial Highlights
17 Notes to Financial Statements
21 Officers and Trustees
21 Tax Information
22 Investment Products and Services
23 How to Contact Scudder

HIGHLIGHTS

* Scudder Massachusetts Limited Term Tax Free Fund provided shareholders
with a federal and state tax-exempt yield of 4.77% for the 30-day period
ending October 31, 1994, equivalent to a 8.97% taxable yield for
shareholders subject to the 46.85% combined federal and state income tax
rate.

(BAR CHART TITLE) 30-Day Yield on October 31, 1994
(CHART DATA)
<TABLE>
<CAPTION>
Scudder
Massachusetts IBC/Donoghue
Limited Term Tax Taxable equivalent Taxable Money Fund
Free Fund yield Average
--------- ------ ------
<C> <C> <C>
4.77 8.97 2.68
</TABLE>

* The Fund invests in high- and medium-quality municipal bonds. As of
October 31, 1994, 90% of the securities in the Fund were rated in the top
three categories: A, AA, and AAA.

* Since the Fund commenced operations in February, assets have grown
steadily and were $35.5 million on October 31, 1994.

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

The fixed-income markets have endured sharp increases in interest
rates during the past year. But from March through October 1994, the
municipal marketplace was helped by a decline in the overall supply of
municipal bonds. The scarcity of new bonds helped support prices compared
to Treasury securities as demand for tax-free investments among investors
remained strong.

Even so, interest rates continue to have a profound effect on the
municipal market, as the market's November downturn showed. Rates will
likely remain higher in the months ahead due in part to the global
competition for capital. With limited savings among most of the world's
nations, capital is in short supply to fund economic recoveries underway
here and abroad, the continued development of emerging markets, and
investments in stocks and bonds. Nations are finding they need to maintain
higher interest rates to attract available capital.

What does this mean for tax-free fund investors? In the near term,
current yields will likely make up most of your Fund's total return, and
the pressure on bond prices will probably continue. On the plus side,
because interest rates are now higher, investors are receiving more
tax-free income. Though any additional rise in interest rates could detract
from price performance, your portfolio management team will seek to provide
as high a level of income, exempt from Massachusetts personal and federal
income tax, as is consistent with price stability. Regardless of the
investment environment, municipal bonds and tax-exempt funds remain one of
the few shelters for long-term investors who desire tax-free income.

Please call Scudder Investor Information at 1-800-225-2470 if you have
questions about your Fund or other Scudder investments. Page 23 contains
more information on how to contact Scudder. Thank you for choosing Scudder
Massachusetts Limited Term Tax Free Fund to help meet your investing needs.

Sincerely,

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

Scudder Massachusetts Limited Term Tax Free Fund
Performance Update as of October 31, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
Scudder Massachusetts Limited Term Tax Free Fund
- ------------------------------------------------
Total Return
Period Growth -------------
Ended of Average
10/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
Life of
Fund* $10,000 .00% --

LB Municipal Bond Index (3 year)
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
10/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
Life of
Fund* $10,056 .56% --

*The Fund commenced operations on February 15, 1994.
Index comparisons begin February 28, 1994.

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

Scudder Massachusetts Limited Term Tax Free Fund
Year Amount
- ----------------------
2/94* 10000
3/94 9892
4/94 9912
5/94 9973
6/94 9966
7/94 10071
8/94 10108
9/94 10072
10/94 10030

LB Municipal Bond Index (3 year)
Year Amount
- ----------------------
2/94* 10000
3/94 9880
4/94 9938
5/94 9984
6/94 9987
7/94 10070
8/94 10106
9/94 10081
10/94 10056

The unmanaged Lehman Brothers (LB) Municipal Bond Index (3 year)
is a market value-weighted measure of the investment grade tax-exempt
bond market consisting of approximately 2,700 municipal bonds with a
maturity of at least one year. Index returns assume dividends are
reinvested and, unlike Fund returns, do not reflect any fees or expenses.

- -----------------------------------------------------------------
Returns and Per Share Information
- -------------------------------------------------------------------

A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.

Period ended October 31
- ----------------------------------
<TABLE>
<S> <C>
1994*
--------
Net Asset Value... $ 11.64
Income Dividends.. $ .36
Fund Total
Return (%)........ .00
Index Total
Return (%)........ .56
</TABLE>

All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares, when
redeemed, may be worth more or less than when purchased. If the Adviser
had not maintained the Fund's expenses, the total return would have
been approximately -.84%.

Scudder Massachusetts Limited Term Tax Free Fund
Portfolio Summary as of October 31, 1994
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------
Escrow & Collateral 32% Escrow and collateral bonds
General Obligation 28% offer the highest quality
Hospital/Health 14% available in the municipal
Sales & Special Tax 6% marketplace, yet are typically
Housing Finance Authority 5% priced more attractively than
Higher Education 4% similar bonds of slightly lower
Water/Sewer 4% quality.
Electric Utility 4%
Other 3%
----
100%
====

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

- --------------------------------------------------------------------------
Quality
- --------------------------------------------------------------------------
AAA 62% As short-term interest rates
AA 11% have risen, the differences in
A 17% yields among Massachusetts bonds
BBB 4% has narrowed, making it easier
Not Rated 6% to purchase higher-quality bonds
---- for the Fund's portfolio.
100%
====
Weighted average quality: AA

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

- --------------------------------------------------------------------------
Effective Maturity
- --------------------------------------------------------------------------
Less than 1 year 34% Municipal securities maturing
1 < 5 years 30% in five- to 10-years have, in our
5 < 10 years 36% judgement, become fully valued.
---- As a result, we are now focusing
100% on municipal securities with
==== maturities of one year or less.
Weighted average maturity: 3.6 years

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

PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

We would like to welcome you once again as shareholders of Scudder
Massachusetts Limited Term Tax Free Fund. This annual report covers the
Fund's performance, strategy, and investment environment for the
abbreviated fiscal year, which began at the Fund's inception on February
15, 1994. Scudder Massachusetts Limited Term Tax Free Fund is designed to
deliver income free from federal and state taxes, with a relatively high
degree of principal stability due to its shorter-term investments. The Fund
seeks higher income than is typically available from more stable tax-free
money market investments and less share-price fluctuation than
higher-yielding intermediate- and long-term tax-free bonds.

During the Fund's initial annual period ended October 31, 1994,
shareholders received a total of $0.36 per share of income exempt from
federal and Massachusetts income taxes. On October 31, the Fund provided a
net annualized 30-day yield of 4.77%. For shareholders subject to the
46.85% maximum combined federal and Massachusetts income tax rate, the
Fund's yield translated into an 8.97% taxable yield, significantly higher
than current yields provided by comparable taxable investments. During the
year, a portion of the Fund's expenses were waived by Scudder. Had these
expenses not been absorbed, the Fund's yield would have been 3.61%.

During a period of sharp interest-rate increases and corresponding
declines in the prices of most municipal securities, the Fund's net asset
value declined modestly from $12.00 on February 15, 1994, to $11.64 on
October 31, 1994. But the Fund's income distributions canceled out the
price decline during this time period, resulting in a flat total return of
0.00%.

Reduction in Supply Aided Municipal Market

During Scudder Massachusetts Limited Term Tax Free Fund's abbreviated
fiscal year, interest rates of tax-exempt securities rose across all
maturities. Prices declined as investors focused on signs of future
inflation, including rising commodity prices, the weaker U.S. dollar, and
the increasing pace of global economic expansion. Even though inflation has
been relatively restrained up to this point, investors' fears seem to be
outweighing that reality, resulting in persistently negative market
sentiment. Municipals outperformed Treasury securities during the period,
however, aided by a 44% reduction in new issues of municipal bonds for the
first three quarters of 1994 compared with the same period in 1993.

Our ongoing strategy is to purchase shorter-maturity bonds that
provide attractive after-tax yields. Lower relative volatility is the goal
of the Fund's maturity restrictions. The Fund will not hold bonds with
effective maturities of more than 10 years, and must maintain an average
effective maturity range of one to five years.

(BAR CHART TITLE) Increases in Yield for Municipal Bonds of
Various Maturities From 1/1/94 to 10/31/94
(CHART DATA)
<TABLE>
<CAPTION>
1-Year 5-Year 10-Year
Maturities Maturities Maturities
---------- ------ ------
<C> <C> <C>
+1.7 +1.25 +1.2
</TABLE>

Our first semiannual report dated April 30 noted that as we began to
invest the assets of the Fund, we focused primarily on bonds with
intermediate maturities of five to 10 years. This initial concentration
served us well, as intermediate-maturity municipals were the
best-performing sector of the bond market during the first nine months of
1994. As evident in the above chart, securities maturing in five to 10
years experienced smaller increases in yield and thus smaller decreases in
price than those maturing in one year. But this sector has, in our
judgment, become somewhat overvalued, and, with interest rates still
rising, we have begun to refocus on short-term municipal securities with
maturities of one year or less. We will continue to concentrate our new
purchases on these instruments to provide a measure of price stability and
competitive yields until we believe the interest-rate environment becomes
more appropriate for a longer average maturity. The Fund's weighted average
effective maturity was 3.6 years on October 31, 1994.

Pre-refunded bonds represented the largest single sector of the Fund's
portfolio on October 31. Bonds are pre-refunded when issuers sell new debt
at lower prevailing interest rates and use the proceeds to establish an
escrow account designated to retire the original bonds on their future call
dates. Typically, when bonds are pre-refunded, their prices rise because
they offer no credit risk (the escrowed funds are invested in Treasury
securities) and less time to maturity. These bonds offer the highest
quality available in the municipal marketplace, yet they are typically
priced lower than similar bonds of slightly lower quality and higher
coupons.

The weighted average quality of bonds in the Fund was AA as of October
31, 1994, and 90% of the Fund's portfolio was invested in bonds rated A,
AA, and AAA. As short-term interest rates have risen, the differences in
yields among Massachusetts bonds with differing quality ratings has
narrowed, making it easier to purchase higher-quality bonds and maintain a
competitive average yield. Ratings for portfolio holdings are assigned by
Moody's Investors Service, Standard & Poor's, Fitch Investors Service, or
Scudder's own research analysts.

Massachusetts Recovery Boosts Bond Ratings

After suffering from a severe recession in recent years, Massachusetts
now enjoys a modest recovery. Fiscal stability has returned to the state,
thanks to conservative budget practices and the adoption of consensus
revenue forecasting. Massachusetts reduced its short-term borrowing from
$1.2 billion to only $100 million over the first nine months of 1994. In
addition, two years of operating surpluses have led the Standard & Poor's
and Fitch Investors Service rating agencies to upgrade Massachusetts
tax-exempt bonds. When 1994 tax revenues were slightly below projections,
the state took prompt action to reduce expenditures. Finally,
Massachusetts' 1995 fiscal year budget is balanced, with a 6.6% revenue
increase over the prior year.

Our Near-Term Outlook

We believe the world economy will continue to grow over the coming
months, but are cautiously optimistic that inflation will not increase
significantly beyond its current moderate level. We expect that the
tax-exempt bond market, especially intermediate-maturity bonds, will
continue to experience some price volatility in light of investor
uncertainty about inflation and interest rates. The selling pressure
municipals experienced in November may continue to a lesser degree into
early 1995, as individuals and institutional investors sell bonds to book
capital losses for tax purposes. But we expect demand to pick up again in
1995.

We plan to maintain our current strategy and confine ourselves
primarily to purchases of short-term securities in the near term. At the
same time, we seek to maintain as high a yield as possible by being fully
invested. We will maintain a relatively "neutral" average maturity for a
fund of this type -- approximately 3.5 years -- until we once again believe
that purchases of intermediate-maturity bonds offer attractive value for
the Fund's portfolio. In short, we will work to maximize Scudder
Massachusetts Limited Term Tax Free Fund's income without jeopardizing its
relative principal stability.

Sincerely,

Your Portfolio Management Team

/s/Philip G. Condon /s/Kathleen A. Meany
Philip G. Condon Kathleen A. Meany

Scudder Massachusetts Limited Term Tax Free Fund:
A Team Approach to Investing

Scudder Massachusetts 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. 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 Scudder Massachusetts Limited
Term Tax Free Fund investors by bringing together many disciplines and
leveraging Scudder's extensive resources.

Philip G. Condon, Lead Portfolio Manager, joined Scudder in 1983 and
has 14 years of experience as a portfolio manager and in municipal
research. Phil has managed Scudder Massachusetts Limited Term Tax Free Fund
since its inception and Scudder Massachusetts Tax Free Fund since 1988.
Kathleen A. Meany, Portfolio Manager, joined Scudder in 1988 and has 17
years of municipal sales and portfolio management experience. Kathleen has
managed Scudder Massachusetts Limited Term Tax Free Fund since its
inception and Scudder Massachusetts Tax Free Fund since 1988.

<PAGE>

SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
INVESTMENT PORTFOLIO as of October 31, 1994
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Unaudited
-----------
Principal Credit Market
Amount ($) Rating (b) Value ($)
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
33.1% SHORT-TERM MUNICIPAL INVESTMENTS
---------------------------------------------------------------------------------------------------------

MASSACHUSETTS Barnstable, MA, School and Sewer Improvement,
5%, 9/15/95 . . . . . . . . . . . . . . . . . . . . 1,030,000 AA 1,033,420
Boston, MA, Water and Sewer Commission Revenue:
Series A, Weekly Demand Note, 2.95%, 11/1/15* . . . 100,000 MIG1 100,000
Series A, Weekly Demand Note, 3.35%, 11/1/24* . . . 700,000 A1+ 700,000
Massachusetts Bay Transportation Authority,
Series B, 5%, 9/8/95 . . . . . . . . . . . . . . . 2,000,000 SP1 2,011,600
Massachusetts General Obligation, Series B,
Daily Demand Note, 3.55%, 12/1/97* . . . . . . . . 400,000 A1+ 400,000
Massachusetts Health & Educational Facilities
Authority:
Series B, Daily Demand Note, 3.55%, 7/1/05* (c) . . 200,000 A1+ 200,000
Beth Israel Hospital, Periodic Auction Reset,
3.3%, 7/1/25 (c) . . . . . . . . . . . . . . . . 1,500,000 AAA 1,500,000
Boston University, Select Auction Variable Rate
Security, 3.411%, 10/1/31* (c) . . . . . . . . . 1,100,000 AAA 1,100,000
Massachusetts Industrial Finance Agency,
Merritt Care, Daily Demand Note, 3.6%, 4/1/09* . . 200,000 MIG1 200,000
Massachusetts Water Resource Authority, Bond
Anticipation Note, Series A, 4.125%, 10/15/95 . . . 440,000 SP1 439,890
Natick, MA, Bond Anticipation Note, 4.1%, 9/1/95 . . . 1,000,000 NR 1,000,000
New Bedford, MA, Bond Anticipation Note,
4.75%, 8/11/95 . . . . . . . . . . . . . . . . . . . 1,000,000 SP1 1,004,080
Springfield, MA, Bond Anticipation Note,
4.75%, 8/4/95 . . . . . . . . . . . . . . . . . . . 1,000,000 NR 1,003,680
Yarmouth, MA, Bond Anticipation Note,
3.64%, 4/11/95 . . . . . . . . . . . . . . . . . . . 585,000 A 584,397
----------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $11,290,508) . . . . . . . . . . . . . . . . . 11,277,067
----------
---------------------------------------------------------------------------------------------------------
66.9% INTERMEDIATE-TERM MUNICIPAL INVESTMENTS
---------------------------------------------------------------------------------------------------------

MASSACHUSETTS Lowell, MA, General Obligation 8.3%, 2/15/05,
Prerefunded 2/15/01** . . . . . . . . . . . . . . . 635,000 BBB 737,286
Massachusetts Educational Loan Authority, Issue E,
Series A, 6.7%, 1/1/02 (c) . . . . . . . . . . . . 485,000 AAA 504,216
Massachusetts General Obligation:
Series A, 5.2%, 6/1/04 . . . . . . . . . . . . . . 1,000,000 AA 927,130
Series C, 7.5%, 12/1/07, Prerefunded 12/1/00** . . . 750,000 AAA 837,802
Series C, 7%, 12/1/10, Prerefunded 12/1/00** . . . . 275,000 AAA 295,916

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

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

<TABLE>
<CAPTION>
Unaudited
---------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts Dedicated Income Tax, Series A,
7.875%, 6/1/97 . . . . . . . . . . . . . . . . . . . 1,190,000 A 1,270,087
Massachusetts Health & Educational Facilities Authority:
Bentley College, Series G, 8.125%, 7/1/17,
Prerefunded 7/1/95** . . . . . . . . . . . . . . . . 250,000 AAA 261,068
Central Massachusetts Medical Center, Series B,
6%, 7/1/02 (c) . . . . . . . . . . . . . . . . . . . 500,000 AAA 507,305
Children's Hospital, Series D, 7.75%, 12/1/18,
Prerefunded 6/1/98** . . . . . . . . . . . . . . . . 1,750,000 AA 1,921,955
Daughters of Charity, Carney Hospital, 7.5%, 7/1/05,
Prerefunded 7/1/00** . . . . . . . . . . . . . . . . 1,000,000 AAA 1,109,790
Valley Regional Health System, Series C,
HIBI Insured, 5.3%, 7/1/00 . . . . . . . . . . . . . 1,500,000 AAA 1,451,445
Wheaton College, Series B, 7.2%, 7/1/09
Prerefunded 7/1/99** . . . . . . . . . . . . . . . . 590,000 AAA 642,681
Massachusetts Housing Finance Agency Revenue:
Series A, 5.2%, 10/1/00 . . . . . . . . . . . . . . . 575,000 A 557,894
Series B, 4.05%, 12/1/95 . . . . . . . . . . . . . . 1,000,000 AAA 992,860
Massachusetts Housing Finance Agency Multi-Family
Housing Project, 1988 Series A, 8.7%, 4/1/14,
Prerefunded 4/1/98** . . . . . . . . . . . . . . . . 1,525,000 A 1,715,991
Massachusetts Industrial Finance Agency:
Cape Cod Health Systems, Series 1990,
8.5%, 11/15/20, Prerefunded 11/15/00** . . . . . . . 1,650,000 AAA 1,920,517
Milton Academy, Revenue Refunding, Series A,
7.25%, 9/1/19, Prerefunded 9/1/99** (c) . . . . . . 700,000 AAA 765,506
Resource Recovery, North Andover Solid Waste,
Series A, 6.15%, 7/1/02 . . . . . . . . . . . . . . 750,000 BBB 737,332
Springfield College, 7.8%, 10/1/09, Prerefunded
10/1/99** . . . . . . . . . . . . . . . . . . . . . 1,500,000 AAA 1,686,765
Massachusetts Municipal Wholesale Electric Co.
Power Authority:
Series B, 6.3%, 7/1/00 . . . . . . . . . . . . . . . 345,000 A 353,194
Series B, 6.375%, 7/1/01 . . . . . . . . . . . . . . 1,000,000 A 1,025,210
Massachusetts Water Resource Authority, Series A,
6.75%, 7/15/12, Prerefunded 7/1/02** . . . . . . . . 1,000,000 AAA 1,077,650
Nantucket, MA, General Obligation, 6.25%, 12/1/02 . . . 250,000 A 257,975
Worcester, MA, General Obligation, FSA Insured,
5.25%, 10/1/96 . . . . . . . . . . . . . . . . . . . 1,250,000 AAA 1,259,663
----------
TOTAL INTERMEDIATE-TERM MUNICIPAL INVESTMENTS
(Cost $23,253,443) . . . . . . . . . . . . . . . . . 22,817,238
----------
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $34,543,951) (a) . . . . . . . . . . . . . . . 34,094,305
==========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>

<PAGE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
- --------------------------------------------------------------------------------

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

(a) The cost for federal income tax purposes was $34,555,558. At
October 31, 1994, net unrealized depreciation for all securities
was $461,253. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess
of market value over tax cost of $45,519 and aggregate gross
unrealized depreciation for all investment securities in which
there was an excess of tax cost over market value of $506,772.

(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 are either Standard & Poor's Ratings
Group, Moody's Investors Service, Inc. or Fitch Investors Service,
Inc. Unrated securities (NR) have been determined to be of
comparable quality to rated eligible securities.

* Floating rate and monthly, weekly, or daily demand notes are
securities whose yields vary with a designated market index or
market rate, such as the coupon-equivalent of the Treasury bill
rate. Variable rate demand notes are securities whose yields
are periodically reset at levels that are generally comparable
to tax-exempt commercial paper. These securities are payable on
demand within seven calendar days and normally incorporate an
irrevocable letter of credit or line of credit from a major bank.
These notes are carried, for purposes of calculating average
weighted maturity, at the longer of the period remaining until
the next rate change or to the extent of the demand period.

** 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.

<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
OCTOBER 31, 1994
- ----------------------------------------------------------------------
ASSETS
Investments, at market (identified cost $34,543,951)
(Note A) . . . . . . . . . . . . . . . . . $34,094,305

Cash . . . . . . . . . . . . . . . . . . . . 43,217
Receivables:
Investments sold . . . . . . . . . . . . . 1,400,000
Interest . . . . . . . . . . . . . . . . . 500,180
Fund shares sold . . . . . . . . . . . . . 812,357
Due from Adviser (Note C) . . . . . . . . 83,314
Deferred organization expenses (Note A) . . . 25,723
-----------
Total assets . . . . . . . . . . . . . . . 36,959,096

LIABILITIES
Payables:
Investments purchased . . . . . . . . . . $1,204,637
Dividends . . . . . . . . . . . . . . . . 29,144
Fund shares redeemed . . . . . . . . . . . 67,516
Organization fees . . . . . . . . . . . . 29,959
Other accrued expenses (Note C) . . . . . 79,859
----------
Total liabilities . . . . . . . . . . . . 1,411,115
-----------
Net assets, at market value . . . . . . . . . $35,547,981
===========

NET ASSETS
Net assets consist of:
Unrealized depreciation on investments . . $ (449,646)
Accumulated net realized loss . . . . . . (89,201)
Shares of beneficial interest . . . . . . 30,529
Additional paid-in capital . . . . . . . . 36,056,299
-----------
Net assets, at market value . . . . . . . . . $35,547,981
===========

NET ASSET VALUE, offering and redemption price per
share ($35,547,981/3,052,899 outstanding
shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) . . $11.64
======

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

</TABLE>

<PAGE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
- --------------------------------------------------------------------------------

<TABLE>
- ---------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 15, 1994
(COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1994
- ---------------------------------------------------------------------------------------------

<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 709,232
Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . $ --
Services to shareholders (Note C) . . . . . . . . . . . . 10,957
Accounting fees (Note C) . . . . . . . . . . . . . . . . --
Trustees' fees (Note C) . . . . . . . . . . . . . . . . . 7,083
Custodian fees . . . . . . . . . . . . . . . . . . . . . 4,448
Auditing . . . . . . . . . . . . . . . . . . . . . . . . 21,874
Reports to shareholders . . . . . . . . . . . . . . . . . 8,969
Federal registration . . . . . . . . . . . . . . . . . . 13,009
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . 8,876
Amortization of organization expense (Note A) . . . . . . 4,236
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 3,862
--------
Total expenses before reimbursement from Adviser . . . . 83,314
Reimbursement of expenses from Adviser (Note C) . . . . . (83,314)

--------
Expense, net . . . . . . . . . . . . . . . . . . . . . . --
---------
Net investment income . . . . . . . . . . . . . . . . . . 709,232
---------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENT
TRANSACTIONS
Net realized loss from investments . . . . . . . . . . . (89,201)
Net unrealized depreciation on investments during
the period . . . . . . . . . . . . . . . . . . . . . . (449,646)
---------
Net loss on investments . . . . . . . . . . . . . . . . . (538,847)
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $ 170,385
=========
</TABLE>

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

<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 15, 1994
(COMMENCEMENT OF
OPERATIONS) TO
INCREASE (DECREASE) IN NET ASSETS OCTOBER 31, 1994
- ------------------------------------------------------------------------------------
<S> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . $ 709,232
Net realized loss from investments . . . . . . . . . . . . . . . . . (89,201)
Net unrealized depreciation on investments during the period . . . . (449,646)
-----------
Net increase in net assets resulting from operations . . . . . . . . 170,385
-----------
Distributions to shareholders from net investment income
($.36 per share) . . . . . . . . . . . . . . . . . . . . . . . . . (709,232)
-----------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . 45,335,631
Net asset value of shares issued to shareholders in
reinvestment of distributions . . . . . . . . . . . . . . . . . . 540,042
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . (9,790,045)
-----------
Net increase in net assets from Fund share transactions . . . . . . . 36,085,628
-----------
INCREASE IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . 35,546,781
Net assets at beginning of period . . . . . . . . . . . . . . . . . . 1,200
-----------
NET ASSETS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . 35,547,981
===========

OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . . . . . . . . . . . . . 100
-----------
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,839,448
Shares issued to shareholders in reinvestment of distributions . . . 45,947
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . (832,596)
-----------
Net increase in Fund shares . . . . . . . . . . . . . . . . . . . . . 3,052,799
-----------
Shares outstanding at end of period . . . . . . . . . . . . . . . . . 3,052,899
===========

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

</TABLE>

<PAGE>
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

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

<CAPTION>
For the Period
February 15, 1994
(commencement of
operations) to
October 31, 1994
-----------------

<S> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12.00
-------
Income from investment operations:
Net investment income (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Net realized and unrealized loss on investment transactions . . . .. . . . . . . . . . . . . . . . (.36)
-------
Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .00
-------
Less distributions from net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . (.36)
-------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11.64
=======
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00*
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Ratio of operating expenses, net to average daily net assets (%) (a) . . . . . . . . . . . . . . . . --
Ratio of net investment income to average daily net assets (%) . . . . . . . . . . . . . . . . . . . 4.45**
Portfolio turnover rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.3**
<FN>
(a) Reflects a per share amount of expenses, exclusive of management fees,
reimbursed by the Adviser of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .04
Reflects a per share amount of management fee and other fees not imposed by the Adviser of . . . $ .07
Operating expense ratio including expenses reimbursed, management fee and
other expenses not imposed (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.44**

* Not annualized
** Annualized

</TABLE>

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

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

Scudder Massachusetts Limited Term Tax Free Fund (the "Fund") is a
non-diversified series of Scudder State 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 six series in the Trust. The policies described below are
followed by the Fund in the preparation of its financial statements in
conformity with generally accepted accounting principles.

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

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

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

At October 31, 1994, the Fund had a net tax basis capital loss carryforward
of approximately $77,594, which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until October 31,
2002, whichever occurs first.

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

<PAGE>

SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
- --------------------------------------------------------------------------------

shareholders. An additional distribution may be made to the extent necessary to
avoid the payment of a four percent federal excise tax.

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles. As
a result, net investment income (loss) and net realized gain (loss) on
investment transactions for a reporting period may differ significantly from
distributions during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.

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

ORGANIZATION COST. Costs incurred by the Fund in connection with its
organization and initial registration of shares have been deferred and are
being amortized on a straight-line basis over a five-year period.

OTHER. Investment transactions are accounted for on a trade date basis.
Distributions of net realized gains to shareholders are recorded on the
ex-dividend date. Interest income is accrued pro rata to the earlier of call or
maturity.

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

For the period February 15, 1994 (commencement of operations) to October 31,
1994, purchases and sales of investments (excluding short-term) aggregated
$32,457,990 and $3,461,923, 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 Agreement also provides that if the Fund's
expenses, exclusive of taxes, interest, and extraordinary expenses, exceed
specified limits, such excess, up to the

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

amount of the management fee, will be paid by the Adviser. The Adviser has
agreed not to impose all of its management fee and to maintain the annualized
expenses of the Fund at not more than 0.0% of average daily net assets until
February 28, 1995. For the period February 15, 1994 (commencement of
operations) to October 31, 1994, the Adviser did not impose its fee amounting
to $95,975. Further, due to the limitation of such Agreement, the Adviser's
reimbursement payable for the period February 15, 1994 (commencement of
operations) to October 31, 1994 amounted to $83,314.

Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
For the period February 15, 1994 (commencement of operations) to
October 31, 1994, SSC did not impose its fee amounting to $21,437.

Scudder Fund Accounting Corporation ("SFAC"), a wholly-owned subsidiary of the
Adviser,is responsible for determining the daily net asset value per share and
maintaining the portfolio and general accounting records of the Fund. For the
period February 15, 1994 (commencement of operations) to October 31, 1994, SFAC
did not impose its fee amounting to $25,263.

The Fund pays each Trustee not affiliated with the Adviser $12,000 annually,
divided equally among the series of the Trust, plus specified amounts for
attended board and committee meetings. For the period February 15, 1994
(commencement of operations) to October 31, 1994, Trustees' fees aggregated
$10,366 of which $3,283 was not imposed.

<PAGE>

SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

TO THE TRUSTEES OF SCUDDER STATE TAX FREE TRUST AND TO THE SHAREHOLDERS OF
SCUDDER MASSACHUSETTS LIMITED TERM TAX FREE FUND:

We have audited the accompanying statement of assets and liabilities of Scudder
Massachusetts Limited Term Tax Free Fund, including the investment portfolio,
as of October 31, 1994, and the related statements of operations and changes in
net assets, and the financial highlights for the period February 15, 1994
(commencement of operations) to October 31, 1994. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian 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 audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Massachusetts Limited Term Tax Free Fund as of October 31, 1994,
the results of its operations, the changes in its net assets, and the financial
highlights for the period February 15, 1994 (commencement of operations) to
October 31, 1994 in conformity with generally accepted accounting principles.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 7, 1994

OFFICERS AND TRUSTEES

David S. Lee*
President and Trustee

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

Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director

Peter B. Freeman
Trustee; Corporate Director and Trustee

Dudley H. Ladd*
Trustee

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

Juris Padegs*
Trustee

Daniel Pierce*
Trustee

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

Donald C. Carleton*
Vice President

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

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

Coleen Downs Dinneen*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.

TAX INFORMATION

Of the dividends paid by the Scudder Massachusetts Limited Term Tax Free
Fund from net investment income for the taxable year ended October 31,
1994, 100% constituted exempt interest dividends for regular federal income
tax and Massachusetts state income tax purposes.

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

INVESTMENT PRODUCTS AND SERVICES

The Scudder Family of Funds

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

Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++

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

HOW TO CONTACT SCUDDER

Account Service and Information

For existing account service and transactions
SCUDDER SERVICE CORPORATION
1-800-225-5163

For account updates, prices, yields, exchanges and redemptions
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890

Investment Information

To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR INFORMATION
1-800-225-2470

For establishing Keogh, 401(k) and 403(b) plans
SCUDDER GROUP RETIREMENT SERVICES
1-800-323-6105

Please address all correspondence to

THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291

Or stop by a Scudder Funds Center

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

Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale

For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts
which utilizes certain portfolios of Scudder Fund, Inc.* ($100,000
minimum), call: 1-800-541-7703.

For information on Scudder Institutional Funds,* funds designed to meet the
broad investment management and service needs of banks and other
institutions, call: 1-800-854-8525.

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

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

Celebrating 75 Years of Serving Investors

This year marks the 75th anniversary of the founding of Scudder,
Stevens & Clark, Inc., investment adviser for the Scudder Funds.
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder was the first independent investment counsel firm in the
United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load
mutual fund. Today we offer 36 pure no load(tm) funds, including the first
international mutual fund offered to U.S. investors.

Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped Scudder
become one of the largest and most respected investment managers in the
world. Though times have changed since our beginnings, we remain committed
to our longstanding principles: managing money with integrity and
distinction, keeping the interests of our clients first; providing access
to investments and markets that may not be easily available to individuals;
and making investing as simple and convenient as possible through friendly,
comprehensive service.

<PAGE>

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

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

Scudder Massachusetts Tax Free Fund

Semiannual Report September 30, 1994

* For investors seeking double tax-free income exempt from both
Massachusetts and regular federal income taxes.

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

CONTENTS

2 Highlights

3 Letter from the Fund's President

4 Performance Update

5 Portfolio Summary

6 Portfolio Management Discussion

10 Investment Portfolio

15 Financial Statements

18 Financial Highlights

19 Notes to Financial Statements

21 Officers and Trustees

22 Investment Products and Services

23 How to Contact Scudder

HIGHLIGHTS

* As of September 30, 1994, Scudder Massachusetts Tax Free Fund posted a
30-day net annualized yield of 5.69%, equivalent to a 10.71% taxable
yield for investors subject to the 46.85% combined federal and state
income tax rate.

(BAR CHART TITLE) 30-Day Yield on September 30, 1994

(CHART DATA)
Scudder Massachusetts Tax Free Fund 5.69%
Taxable equivalent yield 10.71%

* The Fund's total return for the six-month period ended September 30
was 1.43%, outpacing the average return on similar Massachusetts funds
as tracked by Lipper Analytical Services. Lipper is an independent
analyst of investment performance.

* For the two-, three-, four-, and five-year periods ended September 30,
1994, Scudder Massachusetts Tax Free Fund ranked number one in
total-return performance among comparable funds. Page six contains
additional information concerning the Fund's rankings.

* In its September 30, 1994, review by Morningstar, Inc. the Fund
received their highest rating, five stars. Morningstar is an
independent mutual fund monitor. Page seven contains more information
concerning Morningstar's rankings.

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

The fixed-income markets have endured sharp increases in interest
rates during the past year. But since the beginning of the year, the
municipal marketplace has been buoyed by a significant decline in the
overall supply of municipal bonds. The scarcity of new bonds helped support
prices compared to Treasury securities as demand for tax-free investments
among investors remained steady.

Even so, interest rates continue to have the most profound effect on
the municipal market. Rates will likely remain higher in the months ahead
due in part to the global competition for capital. With a finite amount of
savings, capital is in short supply to fund economic recoveries underway
here and abroad, the continued development of emerging markets, and
investments in stocks and bonds. Nations are finding they need to maintain
higher interest rates to attract available capital.

What does this mean for tax-free fund investors? In the near term,
current yields will likely make up most of your Fund's total return and the
pressure on bond prices will probably continue. On the plus side, because
interest rates are now higher, investors are currently receiving more
tax-free income. Although any additional rise in interest rates could
detract from price performance, your portfolio management team's mandate
will be to balance changes in bond prices with attractive levels of income
to provide shareholders with the best possible total return performance.
Regardless of the investment environment, municipal bonds and tax-exempt
funds remain one of the few shelters for long-term investors who desire
tax-free income.

Sincerely,

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

<PAGE>
Scudder Massachusetts Tax Free Fund
Performance Update as of September 30, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- ------------------------------------------------------------------
Scudder Masssachusetts Tax Free Fund
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
9/30/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,664 -3.36% -3.36%
5 Year $14,854 48.54% 8.24%
Life of
Fund* $18,344 83.44% 8.62%

Lehman Brothers Municipal Bond Index
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
9/30/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,756 -2.44% -2.44%
5 Year $14,685 46.85% 7.98%
Life of
Fund* $18,100 81.00% 8.43%

*The Fund commenced operations on May 28, 1987.
Index comparisons begin on May 31, 1987.

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

Yearly periods ended September 30

Scudder Massachusetts Tax Free Fund
Year Amount
- --------------------
5/31/87 10000
87 9871
88 11353
89 12349
90 12933
91 14660
92 16432
93 18981
94 18344

Lehman Brothers Municipal Bond Index
Year Amount
- --------------------
5/31/87 10000
87 10038
88 11341
89 12325
90 13163
91 14899
92 16456
93 18553
94 18100

The unmanaged Lehman Brothers Municipal Bond Index is a market value
weighted measure of approximately 15,000 municipal bonds issued across
the United States. Index issues have a credit rating of at least Baa
and a maturity of at least two years. Index returns assume reinvestment
of dividends and, unlike Fund returns, do not reflect any fees
or expenses.

- -----------------------------------------------------------------
Returns and Per Share Information
- -------------------------------------------------------------------

A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.

Yearly periods ended September 30
- ----------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1987* 1988 1989 1990 1991 1992 1993 1994
----------------------------------------------------------------
Net Asset Value... $11.60 $12.30 $12.30 $12.03 $12.74 $13.28 $14.24 $12.95
Income Dividends.. $ .25 $ .81 $ .85 $ .82 $ .82 $ .83 $ .84 $ .78
Capital Gains
Distributions..... $ -- $ .10 $ .19 $ .02 $ .04 $ .12 $ .18 $ .04
Fund Total
Return (%)........ -1.29 15.01 8.77 4.73 13.35 12.09 15.51 -3.36
Index Total
Return (%)........ .38 12.98 8.68 6.80 13.19 10.45 12.74 -2.44
</TABLE>

All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
If the Adviser had not temporarily capped expenses, the average annual total
return for the Fund for the one year, five year and life of Fund would
have been approximately -3.92%, 7.62% and, 7.92%, respectively.

Scudder Massachusetts Tax Free Fund
Portfolio Summary as of September 30, 1994
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------

General Obligation 21% We reduced our exposure to the
Hospital/Health 17% hospital/healthcare sector slightly
Water/Sewer Revenue 17% during the six-month period because
Electric Utility Revenue 11% of recent financial pressures on
Housing Finance Authority 10% healthcare institutions.
Higher Education 8%
Toll Revenue 5%
Other 11%
----
100%
====

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

- --------------------------------------------------------------------------
Quality
- --------------------------------------------------------------------------
AAA 29% As Standard & Poor's and Fitch upgraded
AA 7% Massachusetts' tax-exempt bond ratings,
A 50% the Fund's overall credit quality
BBB 11% remained high.
Not Rated 3%
----
100%
====
Weighted average quality: A

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 3% We purchased a number of bonds with
1 - 4 years 4% 15-20 year maturities. These bonds
5 - 9 years 33% offer attractive yields and price
10 - 19 years 47% appreciation potential over time.
20 years or greater 13%
----
100%
====
Weighted average effective maturity: 13 years

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

<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

During the six-month period ended September 30, 1994, the municipal
bond market enjoyed a calmer period compared with the prior six months,
though occasional increases in interest rates unsettled the market from
time to time. Following successive years of falling rates and rising bond
prices, the fixed-income markets had reversed direction in the autumn of
1993 over worries about accelerating economic growth and a possible rise in
the inflation rate. From October 1993 through March 1994, municipal bonds
experienced their largest interest-rate increases and price declines since
1987. But between March and September 1994, interest-rate increases in the
municipal market were more modest in general, as well as compared with the
Treasury market. For example, the yield for the average 10-year municipal
bond increased only 10 basis points over the period, while a comparable
10-year Treasury bond increased 85 basis points over the same time frame.

(LINE CHART TITLE) The Recent Course of Interest Rates

(CHART DATA)
Dates Interest Rates (%)
3/31/93 5.86
5.84
5.7
5.67
5.75
5.71
5.69
5.77
5.73
5.67
5.68
5.61
5.57
5.55
5.55
5.55
5.61
5.65
5.61
5.45
5.4
5.35
5.35
5.24
5.27
5.3
5.3
5.3
5.2
5.2
5.31
5.45
5.46
5.46
5.46
5.46
5.33
5.36
5.34
5.28
5.34
5.31
5.29
5.28
5.25
5.36
5.42
5.58
5.84
5.88
5.84
5.92
6.07
6.22
6.19
6.16
6.18
6.32
6.14
6.13
6.13
5.96
6.04
6.16
6.28
6.27
6.22
6.22
6.22
6.16
6.25
6.22
6.21
6.18
6.24
6.37
9/30/94 6.43

(CALLOUT NEXT TO CHART) -
<TABLE>
<CAPTION>
Scudder Massachusetts Tax Free Fund: A Top Total Return Performer Over
Time
(Lipper rankings for periods through September 30, 1994)

Period Rank Number of Funds
<S> <C> <C>
One year 16 of 31
Two years 1 of 23
Three years 1 of 20
Four years 1 of 18
Five years 1 of 16

Rankings are based on historical total returns, although the Fund's main
objective is income. Rankings for the Fund reflect the effect of an expense
limitation since the Fund's inception. Had the Fund's expenses not been
limited, total returns would have been lower. Past performance does not
guarantee future results.
</TABLE>

(CALLOUT NEXT TO CHART) - Interest rates of tax-exempt securities rose
modestly during the past six months, as illustrated by the Bond Buyer
Index, an unmanaged composite of 20 municipal bonds.

Scudder Massachusetts Tax Free Fund posted a positive total return of
1.43% for the six months ended September 30, 1994. The Fund closed
September with a 30-day net annualized yield of 5.69%. For investors
subject to the 46.85% maximum combined federal and state income tax rate,
the Fund's yield translated into a 10.71% taxable yield, significantly
higher than current yields provided by comparable taxable investments.
During the six-month period ended September 30, 1994, the Fund paid
distributions of $0.39 per share in tax-free income dividends and $0.01 per
share in taxable long-term capital gains. Despite the Fund's positive total
return performance, its net asset value declined slightly, to $12.95 on
September 30, 1994, from $13.16 six months earlier.

Longer-term, the relative total-return performance of the Fund is
outstanding: For the two-, three-, four-, and five-year periods ended
September 30, 1994, the Fund ranks number one among all Massachusetts
tax-exempt funds tracked by Lipper Analytical Services for the respective
periods. Lipper is an independent analyst of investment performance. Please
refer to page six for additional information concerning the Fund's
rankings.

We are pleased to report that Scudder Massachusetts Tax Free Fund
continues to earn a "five star" (highest) rating from Morningstar, Inc., a
respected independent mutual fund monitor. (The Fund also received "five
star" ratings for the three- and five-year periods ended September 30,
1994.) No more than 10% of funds in a Morningstar category can be awarded
five stars. Morningstar's rating was based on the Fund's historical
risk-adjusted performance as of September 30, 1994. Ratings, which are
updated monthly, reflect the Fund's three- and five-year average annual
returns relative to returns from three-month Treasury bills. Of course,
past performance and ratings do not guarantee future results.

Massachusetts Recovery Carries On

After suffering from a severe recession in recent years, Massachusetts
continues its modest recovery. One important piece of positive evidence is
job growth: The Commonwealth's unemployment rate has been consistently
below that of the United States as a whole since February 1994. As of
September 1994, Massachusetts' rate was 5.2% compared to the U.S. rate of
5.9%, according to the U.S. Bureau of Labor Statistics.

Fiscal stability has returned to the state, thanks to conservative
budget practices and the adoption of consensus revenue forecasting. For
example, Massachusetts reduced its short-term borrowing from $1.2 billion
to only $100 million over the first nine months of 1994. In addition, two
years of operating surpluses have led the Standard & Poor's and Fitch
Investors Service rating agencies to upgrade Massachusetts tax-exempt bonds
from A to A+. When 1994 tax revenues were slightly below projections, the
state took prompt action to reduce expenditures. And importantly,
Massachusetts' 1995 fiscal year budget is balanced, with a 6.6% revenue
increase over the prior year.

The Fund's Consistent Strategy

As always, we are committed to providing you with a competitive level
of tax-exempt income. We also pay close attention to price performance and
total return. In pursuit of our goals, we have consistently focused on
three types of Massachusetts tax-free bonds:

* Noncallable bonds, which an issuer cannot redeem before the maturity
date. When interest rates fall, bond issuers tend to reduce their borrowing
expenses by redeeming "callable" existing high-coupon bonds and issuing new
securities that pay lower interest rates.

* Steeply discounted callable bonds, which because of their prices, are
unlikely to be subject to redemption by their issuers in the immediate
future.

* "Cushion" bonds and housing bonds. As in the past, we balanced the
Fund's long-maturity bonds by purchasing so-called cushion bonds
(high-coupon bonds) that can be redeemed by their issuer in a relatively
short time but offer higher yields and less price volatility to compensate
for their being callable. Because cushion bonds have been in shorter supply
since the recent round of interest rate increases, we supplemented them
with other lower volatility bonds including housing bonds. Housing bonds
currently offer higher yields and, we believe, greater price stability than
other municipal market sectors.

In the past, we have focused on noncallable bonds and callable bonds
trading at a discount because these types of bonds tended to perform well
when interest rates were falling. Despite the change in the interest-rate
environment since October 1993, we continue to seek these types of bonds
because they currently offer attractive yields at relatively inexpensive
prices.

In addition, we manage the Fund with a value orientation. We generally
sell bonds that we feel are overvalued and select replacements that may be
out of favor but in our judgment offer good value for the future. To this
end, we sold a number of pre-refunded bonds, which were a very successful
sector for the Fund during the prior fiscal year. (Bonds are pre-refunded
when issuers sell new debt at lower prevailing interest rates and use the
proceeds to establish an escrow account designated to retire the original
bonds on their future call date.) In the place of these pre-refunded bonds,
we purchased tax-free bonds with 15- to 20-year maturities. These bonds
offer high relative yields and, we believe, price appreciation potential
over time.

While the Fund has focused on holdings of longer- to intermediate-term
bonds, we have maintained a relatively short average effective
maturity--13.2 years as of the close of the period. And portfolio quality
remains high: The average quality of the Fund was A as of September 30,
1994. At the close of the period, the Fund's top three sectors were
represented by Massachusetts general obligation (G.O.) bonds, water and
sewer revenue bonds, and hospital and healthcare bonds. Though we remain
committed to this last sector, we sold two hospital bonds during the period
because of recent financial pressures on healthcare institutions.

Increased Stability on the Horizon

Local and global factors provide cause for cautious optimism about the
near-term future, in our opinion. The increasingly bright prospects for the
Massachusetts economy should enable issuers to borrow at reasonable rates
and create further stability via improved credit quality in the municipal
marketplace. And while increasing economic growth worldwide means that
interest rates will probably remain close to or higher than current levels,
we do not anticipate a significant resurgence of inflation. Though
meaningful decreases in interest rates are unlikely in the immediate
future, we believe the municipal market will earn returns approximating
prevailing bond coupon rates. In the current marketplace, we will continue
to search for good value when purchasing bonds for the Fund, while
maintaining high quality and strong diversification within the Fund's
portfolio.

Sincerely,

Your Portfolio Management Team

/s/Philip Condon /s/Kathleen A. Meany
Philip G. Condon Kathleen A. Meany
<PAGE>

SCUDDER MASSACHUSETTS TAX FREE FUND
INVESTMENT PORTFOLIO as of September 30, 1994 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3.2% SHORT-TERM MUNICIPAL INVESTMENTS

MASSACHUSETTS Commonwealth of Massachusetts, General
Obligation, Series B, Daily Demand Note,
3.5%, 12/1/97* . . . . . . . . . . . . . . . . . . . 3,000,000 A1+ 3,000,000
Massachusetts Health and Educational Facilities
Authority, Beth Israel Hospital, Weekly Demand
Note, 3.25%, 7/1/25* (c) . . . . . . . . . . . . . . 3,500,000 AAA 3,500,000
Massachusetts Industrial Finance Agency, Resource
Recovery, Ogden Haverill Project, Weekly Demand
Note, 3.4%, 12/1/06* . . . . . . . . . . . . . . . . 1,300,000 A1+ 1,300,000
Massachusetts Industrial Finance Agency,
Merritt Care, Daily Demand Note, 3.6%, 4/1/09* . . . 600,000 MIG1 600,000
Massachusetts Health and Educational Facilities
Authority, Harvard University, Series I, Weekly
Demand Note, 3.35%, 2/1/16* . . . . . . . . . . . . 1,800,000 A1+ 1,800,000
----------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $10,200,000) . . . . . . . . . . . . . . . . . 10,200,000
----------

96.8% LONG-TERM MUNICIPAL INVESTMENTS

MASSACHUSETTS Boston, MA, General Obligation, Series A,
6.5%, 7/1/12 (c) . . . . . . . . . . . . . . . . . . 2,320,000 AAA 2,370,066
Chicopee, MA, Electric System Revenue, ETM,
7.125%, 1/1/17** . . . . . . . . . . . . . . . . . . 1,210,000 AAA 1,358,177
Dedham-Westwood, MA, Water District,
General Obligation, 5%, 10/15/08 (c) . . . . . . . 1,035,000 AAA 910,759
Framingham, MA, Housing Authority Mortgage
Revenue GNMA Collateralized-Beaver
Terrace Apartments, 6.65%, 2/20/32 . . . . . . . . 3,650,000 AAA 3,590,323
Haverhill, MA, Unlimited Tax, General Obligation,
Series A, 7%, 6/15/12 (c) . . . . . . . . . . . . . 2,600,000 AAA 2,741,674
Inverse Variable Rate Certificate Trust, Series D,
5.872%, 4/30/03 (c)*** . . . . . . . . . . . . . . . 9,000,000 NR 7,773,750
Massachusetts Bay Transportation Authority,
Certificate of Participation, 7.75%, 1/15/06 . . . . 1,000,000 A 1,065,760
General Transportation System:
Series A, 5.4%, 3/1/07 . . . . . . . . . . . . . . 13,325,000 A 12,421,165
Series A, 5.5%, 3/1/12 . . . . . . . . . . . . . . 3,000,000 A 2,709,960
</TABLE>

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

<PAGE>

INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series C, 6.2%, 3/1/10 . . . . . . . . . . . . . . . 1,925,000 A 2,042,714
Series B, 6.2%, 3/1/16 . . . . . . . . . . . . . . . 2,100,000 A 2,039,352
Series C, 6.1%, 3/1/13 . . . . . . . . . . . . . . . 1,250,000 A 1,221,563
Massachusetts General Obligation:
Consolidated Loan, Series A, 7.5%, 6/1/04 . . . . . . 12,400,000 A 14,330,308
Hynes Convention Center, Zero Coupon, 9/1/04 . . . . . 2,000,000 A 1,136,460
Series A, 5.25%, 2/1/08 . . . . . . . . . . . . . . . 1,375,000 A 1,242,423
Series A, 6.5%, 6/1/08 . . . . . . . . . . . . . . . 5,500,000 A 5,682,600
Series A, Zero Coupon, 8/1/02 . . . . . . . . . . . . 1,700,000 A 1,102,773
Series B, 5.4%, 11/1/06 . . . . . . . . . . . . . . . 5,000,000 A 4,719,800
Series B, 6.5%, 8/1/08 . . . . . . . . . . . . . . . 5,400,000 A 5,650,830
Series 1993 C, 5%, 8/1/07 . . . . . . . . . . . . . . 5,000,000 A 4,429,150
Zero Coupon, 12/1/04 . . . . . . . . . . . . . . . . 8,415,000 A 4,714,083
Massachusetts Health & Educational Facilities Authority:
Anna Jaques Hospital, Series B, 6.875%, 10/1/12 . . . 2,000,000 BBB 1,949,700
Cooley Dickson Hospital Inc., 7.125%, 11/15/18 . . . 2,200,000 BBB 2,173,512
Charlton Memorial Hospital, Series B,
7.25%, 7/1/07 . . . . . . . . . . . . . . . . . . . 10,000,000 A 10,644,200
Community College Program, Series A,
Connie Lee Insured, 6.5%, 10/1/09 . . . . . . . . . 1,000,000 AAA 1,013,930
Dana Farber Cancer Institute, Series F,
6%, 12/1/15 (c) . . . . . . . . . . . . . . . . . . 2,500,000 AAA 2,387,400
Deaconess Hospital, Series B, 6.625%, 4/1/12 (c) . . 2,000,000 AAA 2,041,640
Faulkner Hospital, Series C, 6%, 7/1/13 . . . . . . . 2,650,000 BBB 2,305,527
Lahey Clinic Medical Center, Series B,
5.4%, 7/1/06 (c) . . . . . . . . . . . . . . . . . . 2,500,000 AAA 2,370,475
Massachusetts General Hospital:
Series F, 6.25%, 7/1/12 (c) . . . . . . . . . . . . 3,500,000 AAA 3,451,595
Series G 5.375%, 7/1/11 (c) . . . . . . . . . . . . 5,625,000 AAA 5,036,963
Medical Center of Central Massachusetts,
Series A, 7%, 7/1/12 . . . . . . . . . . . . . . . . 3,600,000 A 3,639,276
Mount Auburn Hospital, 7.875%, 7/1/18 (c) . . . . . . 1,000,000 AAA 1,103,320
Newton-Wellesley Hospital, Series D, 7%, 7/1/15 (c) . 4,000,000 AAA 4,174,760
Northeastern University:
Series E, 6.4%, 10/1/07 (c) . . . . . . . . . . . . 1,000,000 AAA 1,025,220
Series E, 6.5%, 10/1/12 (c) . . . . . . . . . . . . 450,000 AAA 456,935
St. Luke's Hospital New Bedford, Series C,
Yield Curve Notes, 8.27%, 8/15/10 (c)*** . . . . . . 3,400,000 AAA 3,004,750
South Shore Hospital, 6.5%, 7/1/10 (c) . . . . . . . 2,500,000 AAA 2,559,450
Stonehill College, 6.55%, 7/1/12 (c) . . . . . . . . 5,000,000 AAA 5,093,000
Tufts University, Series C, 7.4%, 8/1/18 . . . . . . 530,000 A 565,743
Wellesley College:
Series D, 5.1%, 7/1/09 . . . . . . . . . . . . . . . 1,800,000 AA 1,595,844
Series D, 5.3%, 7/1/14 . . . . . . . . . . . . . . . 2,000,000 AA 1,736,900
</TABLE>

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

<PAGE>

SCUDDER MASSACHUSETTS TAX FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts Housing Finance Agency:
Housing Project Refunding Revenue:
Series A, 6.3%, 10/1/13 . . . . . . . . . . . . 7,000,000 A 6,774,320
Series B, 6.05%, 12/1/09 (c) . . . . . . . . . . 3,000,000 AAA 2,935,680
Housing Project Revenue, Series A,
6.375%, 4/1/21 . . . . . . . . . . . . . . . . . 4,000,000 A 3,839,760
Residential Development, Series C,
6.87%, 11/15/11 . . . . . . . . . . . . . . . . 10,250,000 AAA 10,447,313
Single-Family Mortgage Revenue:
Series 2, 8.25%, 6/1/14 . . . . . . . . . . . . 285,000 AA 297,489
Series 3, 7.875%, 6/1/14 . . . . . . . . . . . . 4,000,000 AA 4,219,600
Massachusetts Industrial Finance Agency:
Evanswood, Series A, 7.875%, 1/15/20 . . . . . . . 1,000,000 NR 973,130
Holy Cross College, Issue II:
6.375%, 11/1/09 . . . . . . . . . . . . . . . . 1,000,000 A 1,010,650
Series 1992 A, 6.45%, 1/1/12 . . . . . . . . . . 2,000,000 A 2,030,320
Leominister Hospital, Series 1989 A,
8.625%, 8/1/09 . . . . . . . . . . . . . . . . . 2,000,000 BBB 2,190,880
Massachusetts Biomedical Research Corp.,
Series A, Zero Coupon:
8/1/00 . . . . . . . . . . . . . . . . . . . . 2,860,000 A 2,056,712
8/1/01 . . . . . . . . . . . . . . . . . . . . 3,650,000 A 2,465,867
8/1/02 . . . . . . . . . . . . . . . . . . . . 3,650,000 A 2,314,246
Milton Academy, Revenue Refunding, Series B,
5.25%:
9/1/09 (c) . . . . . . . . . . . . . . . . . . 870,000 AAA 780,077
9/1/13 (c) . . . . . . . . . . . . . . . . . . 1,160,000 AAA 1,002,205
Museum of Science, Capital Guaranty Insured:
4.9%, 11/1/06 . . . . . . . . . . . . . . . . . 480,000 AAA 423,322
5%, 11/1/07 . . . . . . . . . . . . . . . . . . 1,000,000 AAA 886,840
Phillips Academy, Revenue Refunding,
5.375%, 9/1/23 . . . . . . . . . . . . . . . . . 8,000,000 AA 6,732,640
Pollution Control Revenue, Boston Edison
Company, Series A, 5.75%, 2/1/14 . . . . . . . . 2,000,000 BBB 1,752,340
Pollution Control Revenue, Eastern Edison Company
Project, 5.875%, 8/1/08 . . . . . . . . . . . . 2,250,000 BBB 2,091,645
Provider Lease Program, Series 1988 A-1,
8.4%, 7/15/08 . . . . . . . . . . . . . . . . . 1,985,000 NR 2,024,700
Resource Recovery, North Andover Solid Waste,
Series A, 6.3%,7/1/05 . . . . . . . . . . . . . 6,500,000 BBB 6,389,760
Sturdy Memorial Hospital, 7.9%, 6/1/09 . . . . . 2,000,000 BBB 2,080,840
</TABLE>

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

<PAGE>

INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts Municipal Wholesale Electric
Company, Power Supply Revenue:
Series A, 5%, 7/1/12 (c) . . . . . . . . . . . 1,000,000 AAA 838,620
Series A, 5%, 7/1/17 (c) . . . . . . . . . . . 3,610,000 AAA 2,912,440
Series A, 5.1%, 7/1/08 (c) . . . . . . . . . . 6,500,000 AAA 5,750,485
Series A, 6.75%, 7/1/06 . . . . . . . . . . . 2,855,000 BBB 3,008,856
Series B, 6.75%, 7/1/08 . . . . . . . . . . . 9,000,000 BBB 9,430,830
Series B, 4.95%, 7/1/09 (c) . . . . . . . . . 2,000,000 AAA 1,718,680
Series C, 6.625%, 7/1/10 . . . . . . . . . . . 1,000,000 BBB 1,029,160
Series C, 6.625%, 7/1/10 (c) . . . . . . . . . 3,500,000 AAA 3,609,760
Massachusetts Water Pollution Abatement Trust,
Pooled Loan Program, Series I, 5.6%, 8/1/13 . . 5,425,000 AA 4,925,683
Massachusetts Port Authority Revenue, Tax Exempt
Receipts, ETM, Zero Coupon, 7/1/13** . . . . . 1,000,000 AAA 834,530
Massachusetts Special Obligation Revenue Bonds:
Series A, 5.5%, 6/1/08 . . . . . . . . . . . . 1,000,000 AA 935,130
Series A, 5.8%, 6/1/14 . . . . . . . . . . . . 2,000,000 AA 1,851,860
Massachusetts Water Resource Authority:
Series A, 6.5%,7/15/09 . . . . . . . . . . . . 15,000,000 A 15,168,750
Series A, 6.5%, 7/15/19 . . . . . . . . . . . . 3,000,000 A 3,006,930
Series B, 6%, 11/1/08 . . . . . . . . . . . . . 5,785,000 A 5,703,605
Series B, 6.25%,11/1/10 . . . . . . . . . . . . 11,000,000 A 10,824,110
Series B, 5.5%, 11/1/15 . . . . . . . . . . . . 9,975,000 A 8,708,873
General Revenue, Series C, 5.25%, 12/1/08 . . . 2,705,000 A 2,424,735
General Revenue, Series C, 5.25%, 12/1/15 . . . 4,030,000 A 3,403,617
Nantucket, MA, General Obligation,
6.8%, 12/1/11 . . . . . . . . . . . . . . . . . 1,000,000 A 1,070,980
New England Educational Loan Marketing
Corporation, Massachusetts Student Loan
Revenue, 5.7%, 7/1/05 . . . . . . . . . . . . . 10,250,000 A 9,796,540
Sandwich, MA, General Obligation,
5.4%, 11/1/07 (c) . . . . . . . . . . . . . . . 1,290,000 AAA 1,215,941
Worcester, MA, General Obligation, 6.9%:
5/15/05 (c) . . . . . . . . . . . . . . . . . . 1,850,000 AAA 2,007,300
5/15/06 (c) . . . . . . . . . . . . . . . . . . 1,500,000 AAA 1,613,385
-----------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(Cost $314,456,926) . . . . . . . . . . . . . . 309,094,966
-----------
- --------------------------------------------------------------------------------------

TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $324,656,926) (a) . . . . . . . . . . . . 319,294,966
===========

</TABLE>

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

<PAGE>

SCUDDER MASSACHUSETTS TAX FREE FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $324,656,926. At
September 30, 1994, net unrealized depreciation for all
securities based on tax cost was $5,361,960. This consisted of
aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of
$6,567,948 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market
value of $11,929,908.

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

* Floating rate and monthly, weekly, or daily demand notes are
securities whose yields vary with a designated market index or
market rate, such as the coupon-equivalent of the Treasury bill
rate. Variable rate demand notes are securities whose yields are
periodically reset at levels that are generally comparable to
tax-exempt commercial paper. These securities are payable on
demand within seven calendar days and normally incorporate an
irrevocable letter of credit from a major bank. These notes are
carried, for purposes of calculating average weighted maturity,
at the longer of the period remaining until the next rate change
or to the extent of the demand period.

** ETM: Bonds bearing the description ETM (escrowed to maturity)
are collateralized by U.S. Treasury securities which are held in
escrow by a trustee and used to pay principal and interest on
bonds so designated.

*** Inverse floating rate notes are instruments whose yields have an
inverse relationship to benchmark interest rates. These
securities are shown at their rate as of September 30, 1994.

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

<PAGE>

FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<S> <C> <C>
SEPTEMBER 30, 1994 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
ASSETS
Investments, at market (identified cost $324,656,926)
(Note A) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 319,294,966
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386,201
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 5,199,443
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . 57,768
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . 324,938,378
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . $ 2,941,650
Distributions . . . . . . . . . . . . . . . . . . . . . . . 562,785
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . 660,868
Accrued management fee (Note C) . . . . . . . . . . . . . . 102,294
Accrued expenses (Note C) . . . . . . . . . . . . . . . . . 78,055
-------------
Total liabilities . . . . . . . . . . . . . . . . . . . . 4,345,652
-------------
Net assets, at market value . . . . . . . . . . . . . . . . . . $ 320,592,726
=============
NET ASSETS
Net assets consist of:
Unrealized depreciation on investments . . . . . . . . . . . $ (5,361,960)
Accumulated net realized gain . . . . . . . . . . . . . . . 199,209
Shares of beneficial interest . . . . . . . . . . . . . . . 247,495
Additional paid-in capital . . . . . . . . . . . . . . . . 325,507,982
-------------
Net assets, at market value . . . . . . . . . . . . . . . . . . $ 320,592,726
=============
NET ASSET VALUE, offering and redemption price
per share ($320,592,726-:-24,749,507 outstanding
shares of beneficial interest, $.01 par value, unlimited
number of shares authorized) . . . . . . . . . . . . . . . . $12.95
======
</TABLE>

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

<PAGE>

SCUDDER MASSACHUSETTS TAX FREE FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

SIX MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 10,018,949
Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . $ 273,913
Services to shareholders (Note C) . . . . . . . . . . . . 147,508
Trustees' fees (Note C) . . . . . . . . . . . . . . . . . 8,894
Custodian fees . . . . . . . . . . . . . . . . . . . . . 52,598
Reports to shareholders . . . . . . . . . . . . . . . . . 22,461
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . 6,194
Auditing . . . . . . . . . . . . . . . . . . . . . . . . 16,089
State registration . . . . . . . . . . . . . . . . . . . 5,668
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 15,797 549,122
----------------------
Net investment income . . . . . . . . . . . . . . . . . . 9,469,827
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS
Net realized gain from Investment transactions 1,390,543
Net unrealized depreciation on investments
during the period . . . . . . . . . . . . . . . . . . (6,555,194)
------------
Net loss on investments . . . . . . . . . . . . . . . . . (5,164,651)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $ 4,305,176
============
</TABLE>

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

<PAGE>

FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED
1994 MARCH 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1994
<S> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . $ 9,469,827 $ 19,719,344
Net realized gain from investment
transactions . . . . . . . . . . . . . . . . . . 1,390,543 336,644
Net unrealized depreciation on
investment transactions during the period . . . (6,555,194) (11,311,943)
------------ ------------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . 4,305,176 8,744,045
------------ ------------
Distributions to shareholders:
From net investment income ($.39 and $.81 per
share, respectively) . . . . . . . . . . . . . . (9,469,827) (19,719,344)
------------ ------------
From net realized gains from investment
transactions ($.01 and $.08 per share,
respectively) . . . . . . . . . . . . . . . . . (348,202) (1,957,503)
------------ ------------
In excess of net realized gains ($.04 per share) . -- (843,132)
------------ ------------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . . . 39,539,564 175,855,379
Net asset value of shares issued to
shareholders in reinvestment
of distributions . . . . . . . . . . . . . . . . 6,058,473 13,132,687
Cost of shares redeemed . . . . . . . . . . . . . . (51,559,001) (110,597,306)
------------ ------------
Net increase (decrease) in net assets from
Fund share transactions . . . . . . . . . . . . (5,960,964) 78,390,760
----------- ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . (11,473,817) 64,614,826
Net assets at beginning of period . . . . . . . . . 332,066,543 267,451,717
------------ ------------
NET ASSETS AT END OF PERIOD . . . . . . . . . . . . $320,592,726 $332,066,543
============ ============

OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . . . . 25,223,573 19,651,437
------------ ------------
Shares sold . . . . . . . . . . . . . . . . . . . . 2,994,721 12,578,423
Shares issued to shareholders in
reinvestment of distributions . . . . . . . . . 460,198 942,371
Shares redeemed . . . . . . . . . . . . . . . . . . (3,928,985) (7,948,658)
------------ ------------
Net increase (decrease) in Fund shares . . . . . . . (474,066) 5,572,136
------------ ------------
Shares outstanding at end of period . . . . . . . . 24,749,507 25,223,573
------------ ------------
</TABLE>

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

<PAGE>

SCUDDER MASSACHUSETTS TAX FREE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.

</TABLE>

<PAGE>

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

A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Scudder Massachusetts Tax Free Fund (the "Fund") is a non-diversified series of
Scudder State Tax Free Trust (the "Trust"). The Trust is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. There are
currently six series in the Trust. The policies described below are followed
consistently by the Fund in the preparation of its financial statements in
conformity with generally accepted accounting principles.

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

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

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

<PAGE>

SCUDDER MASSACHUSETTS TAX FREE FUND
- --------------------------------------------------------------------------------
principles. These differences primarily relate to investments in futures
contracts. As a result, net investment income (loss) and net realized gain
(loss) on investment transactions for a reporting period may differ
significantly from distributions during such period. Accordingly, the Fund may
periodically make reclassifications among certain of its capital accounts
without impacting the net asset value of the Fund.

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 security transactions are accounted for on a trade date
basis. Distributions of net gains to shareholders are recorded on the
ex-dividend date. Interest income is accrued pro rata to maturity.

B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
During the six months ended September 30, 1994, purchases and sales of
municipal securities (excluding short-term investments) aggregated $13,484,131
and $25,999,232, respectively.

C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Fund's Investment Advisory 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 approximately 0.60% of the Fund's average daily net
assets, computed and accrued daily and payable monthly. For the period April 1,
1994 to July 31, 1994, the Adviser agreed to maintain the total annualized
expenses of the Fund at 0.25% of average daily net assets of the Fund.
Effective August 1, 1994, the Adviser agreed to maintain the annualized
expenses at 0.50% of average daily net assets of the Fund until December 31,
1994. For the six months ended September 30, 1994, the management fee not
imposed amounted to $708,790 and the fee imposed aggregated $273,913.

Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the
Adviser, is the transfer, dividend-paying and shareholder service agent for
the Fund. For the six months ended September 30, 1994, the amount charged to
the Fund by SSC aggregated $107,726, of which $17,638 is unpaid at September
30, 1994.

The Trust pays each Trustee not affiliated with the Adviser $12,000 annually,
divided equally among the series of the Trust, plus specified amounts for
attended board and committee meetings. For the six months ended September 30,
1994, Trustees' fees charged to the Fund aggregated $8,894.
<PAGE>

OFFICERS AND TRUSTEES

David S. Lee*
President and Trustee

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

Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director

Peter B. Freeman
Trustee; Corporate Director and Trustee

Dudley H. Ladd*
Trustee

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

Juris Padegs*
Trustee

Daniel Pierce*
Trustee

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

Donald C. Carleton*
Vice President

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

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

Coleen Downs Dinneen*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.

INVESTMENT PRODUCTS AND SERVICES

The Scudder Family of Funds

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

Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++

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

HOW TO CONTACT SCUDDER

Account Service and Information

For existing account service and transactions

SCUDDER SERVICE CORPORATION
1-800-225-5163

For account updates, prices, yields, exchanges and redemptions

SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890

Investment Information

To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions

SCUDDER INVESTOR INFORMATION
1-800-225-2470

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

SCUDDER GROUP RETIREMENT SERVICES
1-800-323-6105

Please address all correspondence to

THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291

Or stop by a Scudder Funds Center

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

Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale

For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts
which utilizes certain portfolios of Scudder Fund, Inc.* ($100,000
minimum), call: 1-800-541-7703.

For information on Scudder Institutional Funds,* funds designed to meet the
broad investment management and service needs of banks and other
institutions, call: 1-800-854-8525.

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

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

Celebrating 75 Years of Serving Investors

This year marks the 75th anniversary of the founding of Scudder,
Stevens & Clark, investment adviser for the Scudder Funds. Established in
1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark, Scudder was
the first independent investment counsel firm in the United States. Since
its birth, Scudder's pioneering spirit and commitment to professional
long-term investment management have helped shape the investment industry.
In 1928, we introduced the nation's first no-load mutual fund. Today we
offer 36 pure no load(tm) funds, including the first international mutual
fund offered to U.S. investors.