SCUDDER
INVESTMENTS(SM)
[LOGO]
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BOND/TAX FREE
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Scudder Managed
Municipal Bonds
Fund #066
Annual Report
May 31, 2000
The fund seeks income exempt from regular federal income tax.
A no-load fund with no commissions to buy, sell, or exchange shares.
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Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
9 Portfolio Management Discussion
14 Glossary of Investment Terms
15 Investment Portfolio
26 Financial Statements
29 Financial Highlights
30 Notes to Financial Statements
35 Report of Independent Accountants
36 Tax Information
37 Officers and Trustees
38 Investment Products and Services
40 Scudder Solutions
2
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Scudder Managed Municipal Bonds
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ticker symbol SCMBX fund number 066
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Date of o In an environment of rising interest rates, Scudder
Inception: Managed Municipal Bonds posted a total return of -0.62%
10/14/76 for its most recent fiscal year ended May 31, 2000. The
fund continued to display strong competitive
performance, outpacing the -3.29% average performance
of the fund's peers over the same period, according to
Total Net Lipper.
Assets:
$664.4 million o For the one-, three-, and five-year periods, the fund's
total returns placed it in the top 3% of similar
municipal bond funds as tracked by Lipper Analytical
Services. Please see page 9 for additional Lipper
performance information.
o As of May 31, 2000, Scudder Managed Municipal Bonds'
30-day net annualized SEC yield was 5.19%, equivalent
to an 8.11% taxable yield for investors subject to the
36% maximum federal income tax rate.
o Scudder Managed Municipal Bonds received an overall
Morningstar Ratinga of four stars out of 1690 tax free
funds as of May 31, 2000.^1
^1 Morningstar proprietary rankings reflect historical risk-adjusted
performance as of May 31, 2000. Ratings are subject to change monthly, and
past performance does not guarantee future results. Morningstar ratings are
calculated from the fund's three- and five-year average annual returns in
excess of 90-day Treasury bills with appropriate fee adjustments, and a
risk factor that reflects fund performance below 90-day T-bill returns. The
fund received four stars for the three-year period, five stars for the
five-year period, and four stars for the ten-year period. The top 10% of
funds in a broad asset class receive 5 stars and the next 22.5% receive 4
stars. The fund was rated among 1690, 1441, and 408 funds in its broad
asset class for the three-, five-, and ten-year periods, respectively.
3
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Letter from the Fund's President
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Dear Shareholders,
Municipal bonds endured a challenging investment environment during Scudder
Managed Municipal Bonds' most recent fiscal year ended May 31, 2000. The fund
posted a -0.62% total return during the period, but outperformed the -3.29%
average return of its peers for the same period as compiled by Lipper. To match
the fund's tax-free 5.19% 30-day SEC yield on May 31, a taxable investment for
investors in the 36% tax bracket would have had to yield 8.11%. Over the period,
municipal bonds were negatively affected by significant interest rate increases
across all fixed income markets as the Federal Reserve attempted to restrain
surging U.S. economic growth and head off a major increase in inflation by
incrementally raising the Federal Funds Rate to 6.50%.
Following this period of relative underperformance compared with Treasuries, we
nevertheless believe the municipal market offers attractive return potential:
Adjusted for inflation, municipal yields are high by historical standards and
are attractive when compared to yields of comparable Treasury bonds. As of May
31, yields of 10-year AAA-rated municipal bonds were 84.40% of comparable
Treasuries. Second, recent declines in the issuance of municipal bonds should
provide strong support for bond prices.
4
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On a related note, we'd like to point out some of the advantages of owning a
municipal bond fund compared with holding individual municipal bonds. First and
foremost, municipal bond funds offer professional management: While many
investors believe that purchasing an individual bond is a relatively simple
process, knowing what price to pay for a municipal bond and what structure and
characteristics to seek can be confusing, and can make a dramatic difference in
how a bond will perform on a total return basis. Though investors understandably
value income and coupon level, they are not the only factors that determine
whether a bond will prove to be a worthwhile investment. Other important
advantages offered by municipal bond funds include portfolio diversification,
dividend reinvestment, and quarterly statements that display performance
information clearly and concisely.
Thank you for investing with Scudder. If you have any questions regarding
Scudder Managed Municipal Bonds, please call 1-800-SCUDDER, or visit Scudder's
Web site at www.scudder.com.
Sincerely,
/s/Lin Coughlin
Linda C. Coughlin
President,
Scudder Managed Municipal Bonds
5
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Performance Update
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May 31, 2000
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Scudder Managed Lehman Brothers
Municipal Bonds Municipal Bond Index*
'90 10000 10000
'91 11031 11008
'92 12112 12090
'93 13694 13537
'94 13955 13871
'95 15135 15135
'96 15830 15826
'97 17129 17139
'98 18706 18748
'99 19462 19624
'00 19342 19452
Yearly periods ended May 31
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 5/31/2000 $10,000 Cumulative Annual
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Scudder Managed Municipal Bonds
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1 year $ 9,938 -.62% -.62%
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5 year $ 12,780 27.80% 5.03%
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10 year $ 19,342 93.42% 6.82%
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Lehman Brothers Municipal Bond Index*
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1 year $ 9,912 -.88% -.88%
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5 year $ 12,853 28.53% 5.14%
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10 year $ 19,452 94.52% 6.87%
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* The unmanaged Lehman Brothers Municipal Bond Index is a market value-weighted
measure of the long-term, investment grade tax-exempt bond market consisting
of municipal bonds with a maturity of at least two years. Index returns
assume dividends are reinvested and, unlike Fund returns, do not reflect any
fees or expenses.
6
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Returns and Per Share Information
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
Yearly periods ended May 31
Scudder Managed Lehman Brothers
Municipal Bonds Municipal Bond Index*
1991 10.31 10.08
1992 9.80 9.83
1993 13.06 11.97
1994 1.91 2.47
1995 8.45 9.11
1996 4.60 4.57
1997 8.21 8.29
1998 9.20 9.39
1999 4.04 4.67
2000 -0.62 -0.88
<TABLE>
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Total
Return (%) 10.31 9.80 13.06 1.91 8.45 4.60 8.21 9.20 4.04 -.62
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Index Total
Return (%) 10.08 9.83 11.97 2.47 9.11 4.57 8.29 9.39 4.67 -.88
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Net Asset
Value($) 8.55 8.73 9.03 8.45 8.65 8.59 8.82 9.11 8.98 8.43
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Income
Dividends ($) .54 .52 .50 .46 .48 .45 .46 .46 .45 .46
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Capital Gains
Distributions($) .09 .12 .29 .31 -- -- .01 .05 .05 .04
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</TABLE>
* The unmanaged Lehman Brothers Municipal Bond Index is a market value-weighted
measure of the long-term, investment grade tax-exempt bond market consisting
of municipal bonds with a maturity of at least two years. Index returns
assume dividends are reinvested and, unlike Fund returns, do not reflect any
fees or expenses.
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.
7
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Portfolio Summary
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May 31, 2000
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Diversification
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Electric Utility Revenue 15%
Water/Sewer Revenue 11%
Hospital/Health Revenue 9%
Port/Airport Revenue 8%
Other General Obligation/
Lease 7%
Core Cities/Lease 6%
State General Obligation/
Lease 5%
Resource Recovery/
Project Revenue 5%
Transportation/Toll Revenue 4%
Miscellaneous Municipal 30%
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100%
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Diversification remains an important strategy for the Fund, allowing us to
spread risk over a large number of sectors, maturities, and geographic areas.
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Quality
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
AAA* 65%
AA 8%
A 12%
BBB 6%
Not Rated 9%
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100%
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Weighted average quality: AA+
* Includes Cash Equivalents
Overall portfolio quality remains high, with over 70% of portfolio assets rated
AAA or AA.
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Effective Maturity
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
1 < 5 years 19%
5 < 10 38%
10 < 15 24%
Greater than 15 years 19%
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100%
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Weighted average effective
maturity: 10.37 years
The Fund continues its cautious stance on the market with respect to interest
rate risk, maintaining an average maturity similar to that of its competitive
universe.
For more complete details about the Fund's investment portfolio, see page 15. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
8
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Portfolio Management Discussion
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May 31, 2000
Dear Shareholders,
Scudder Managed Municipal Bonds achieved its objectives and distinguished itself
by ranking in the top 2% of similar funds for total return performance during
the 12 months ended May 31, 2000. The fund's most recent fiscal year comprised
one of the most difficult periods for fixed-income investments since 1994,
however, as the Federal Reserve Board Open Market Committee (FOMC) raised
short-term interest rates 175 basis points (1.75%) to 6.50%. Reflecting this
adverse environment, the fund posted a -0.62% total return for the 12 months
ended May 31, 2000. This return placed the fund fourth out of 272 peers as
compiled by Lipper Analytical Services, Inc. The fund's strong competitive
results also placed it in the top 3% of similar funds for the one-, three-, and
five-year periods as shown in the table below.
During the 12-month period, the Federal Reserve's resolve to head off inflation,
coupled with weak investor demand for municipal bond funds, led to negative
returns. Strong U.S. economic growth, the lowest unemployment rate in 30 years,
and brisk consumer spending prompted the Fed to tighten monetary policy.
For the fund, the overriding challenge was to preserve capital. We are pleased
to report that the fund's return outpaced the -3.29% return of similar municipal
bond funds during the 12 months ended May 31, 2000. In addition, Scudder Managed
Municipal Bonds received a
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Strong Competitive Results
(Average annual returns for periods ended May 31, 2000)
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Scudder Lipper
Managed Average Number of
Municipal Bonds Annual Funds Percentile
Period Return Return Rank Tracked Ranking
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1 Year -0.62% -3.29% 4 of 272 Top 2%
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3 Years 4.13% 2.93% 6 of 223 Top 3%
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5 Years 5.03% 3.99% 13 of 183 Top 2%
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10 Years 6.82% 6.22% 10 of 84 Top 12%
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Past performance does not guarantee future results.
9
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four-star (above average) rating from Morningstar as of May 31 (see page 2 for
additional information). Please turn to the Performance Update on page 5 for
more information on the fund's long-term progress, including comparisons with
the unmanaged Lehman Brothers Municipal Bond Index.
The Treasury Initiates A Buyback
Contrasting with the pressures on fixed income markets generated by FOMC
interest rate increases, in February the U.S. Treasury announced plans to buy
back some long-term debt and hold fewer debt auctions. This development
generated a welcome rally following five months of negative fixed-income
performance. The Treasury said that it plans to buy back 30-year government
bonds and reduce auctions all along the maturity spectrum.
Intermediate- and long-term bonds typically provide higher yields than
securities maturing in a year or less since they involve more interest-rate
risk. This pattern held true for both Treasuries and municipal bonds in the
autumn and winter of 1999. However, as 2000 began, the Treasury yield curve
inverted, so that by May 31, 2000, one-year Treasury bills offered higher yields
than 30-year bonds. While the municipal yield curve flattened during the period,
it did not invert. Long-term municipal bond yields reached a historically
attractive ratio -- providing nearly all of the yield of comparable-maturity
Treasuries. Long-maturity municipal bonds typically yield about 85% to 90% of a
similar-maturity Treasury.
Extending Maturity to Increase Yield
Scudder Managed Municipal Bonds' goal is to provide a high level of tax-free
income from an actively managed portfolio consisting primarily of
investment-grade municipal bonds. Over the course of the period, higher interest
rates created challenges, but also provided opportunities to reposition the
fund's portfolio to what we believe is a favorable stance over the near term.
Accordingly, our recent portfolio strategy has been to:
10
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1) purchase intermediate-term bonds. Over the period, the fund sold bonds in
the 15-year or longer range when the municipal yield curve was historically
flat, and purchased bonds in the five- to 12-year range. This portion of
the yield curve currently offers the best relative yield and total return
potential given the steepness of the curve.
2) recognize losses on certain bonds in order to offset capital gains in the
fund's portfolio and carry losses forward in the future. This strategy
provides us with additional flexibility to restructure the portfolio as
needed, reducing concern about incurring significant capital gains when
bonds are sold for a profit.
In addition, the fund has maintained its cautious stance on the market with
respect to interest rate risk, increasing its average duration only as much as
its competitive universe. As of May 31, the fund's average duration was 7.35
years. (Duration gives relative weight to both principal and interest payments
through the life of a bond and has replaced average maturity as the standard
measure of interest rate sensitivity among professional investors. Generally,
the shorter the duration, the less sensitive a portfolio will be to changes in
interest rates.)
Longer term, we continue to emphasize call protection when purchasing bonds for
the fund's portfolio. (Generally a bond is called in by its issuer so that it
can be refinanced at a lower prevailing rate.) Our call-protection strategy
provides a more reliable income stream for the fund than would exist if the
portfolio held a significant proportion of bonds that could be called in before
their stated maturities.
Lastly, the fund's overall level of portfolio quality remains high, with over
73% of the fund's portfolio rated AAA or AA, or of equivalent quality. And
diversification remains an important strategy for the fund, allowing us to
spread risk over a large number of sectors, maturities, and geographic areas. As
of May 31, the fund held securities issued in 28 states plus the District of
Columbia, Virgin Islands, and Puerto Rico. The Portfolio Summary on
11
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page 8 provides more information about the fund's holdings, including quality,
maturity, and sector representation.
Our Outlook
Given recent government statistics that suggest U.S. economic growth has begun
to moderate and the fact that the Federal Reserve raised its short-term
interest-rate target in May by 50 basis points, municipal bonds may benefit from
a more stable interest rate environment over the coming months. We believe the
municipal bond market provides attractive value, with yields of longer-maturity
municipals still close to those of Treasuries. In January 2000, the average
municipal bond yield as measured by The Bond Buyer's Revenue Bond Index, reached
6.35%, the highest level since August 1995.
We believe Scudder Managed Municipal Bonds is well positioned to benefit from
historically attractive yields on longer-term municipal bonds. A moderately
growing U.S. economy enhances municipal finances, which should continue to help
bolster municipal credit ratings. And continuing volatility in the equity and
taxable bond markets could prompt more investors to diversify their portfolios
with tax-exempt bonds.
In terms of fund strategy, we will continue to seek competitive returns by
purchasing bonds in the most attractive maturities with the best bond structure
over the coming months. And rather than attempting to make investment decisions
based on short-term market movements, we will search for the most attractively
valued bonds as we seek a high level of tax-free income for our shareholders.
Thank you for investing with Scudder.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Ashton P. Goodfield
Philip G. Condon Ashton P. Goodfield
12
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Scudder Managed Municipal Bonds:
A Team Approach to Investing
Scudder Managed Municipal Bonds is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom plays an important
role in the fund's management process. Team members work together to develop
investment strategies and select securities for the fund's portfolio. They are
supported by the Adviser's large staff of economists, research analysts,
traders, and other investment specialists who work in offices across the United
States and abroad. The Adviser believes that a team approach benefits fund
investors by bringing together many disciplines and leveraging the firm's
extensive resources.
Co-lead portfolio managers Philip G. Condon and Ashton P. Goodfield have
responsibility for the fund's day-to-day management and investment strategies.
Mr. Condon, who joined the Adviser in 1983 and the team in 1998, has 22 years of
investment industry experience.
Ms. Goodfield, who joined the Adviser in 1986 and the team in 1998, has 14 years
of investment industry experience.
13
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Glossary of Investment Terms
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Bond An interest-bearing security issued by the federal, state,
or local government or a corporation that obligates the
issuer to pay the bondholder a specified amount of interest
for a stated period -- usually a number of years -- and to
repay the face amount of the bond at its maturity date.
General A municipal bond backed by the "full faith and credit"
Obligation (including the taxing and further borrowing power) of the
Bond city, state, or agency that issues the bond. A general
obligation bond is repaid with the issuer's general revenue
and borrowings.
Inflation An overall increase in the prices of goods and services, as
happens when business and consumer spending increases
relative to the supply of goods available in the marketplace
-- in other words, when too much money is chasing too few
goods. High inflation has a negative impact on the prices of
fixed-income securities.
Municipal Bond An interest-bearing debt security issued by a state or local
government entity.
Net Asset The price per share of a mutual fund based on the sum of the
Value (NAV) market value of all the securities owned by the fund, plus
other assets less liabilities, divided by the number of
outstanding shares.
Taxable The level of yield a fully taxable instrument would have to
Equivalent provide to equal that of a tax-free municipal bond on an
Yield after-tax basis. The standard yield reference for bond
30-Day SEC funds, based on a formula prescribed by the SEC. This
Yield annualized yield calculation reflects the 30-day average of
the income earnings of every holding in a given fund's
portfolio, net of expenses, assuming each is held to
maturity.
Total Return The most common yardstick to measure the performance of a
fund. Total return -- annualized or compound -- is based on
a combination of share price changes plus income and capital
gain distributions, if any, expressed as a percentage gain
or loss in value.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
14
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<TABLE>
<CAPTION>
Investment Portfolio as of May 31, 2000
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Principal
Amount ($) Value ($)
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Short-Term Municipal Investments 0.8%
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<S> <C> <C>
Alaska
Valdez, AK, Marine Terminal Revenue, Exxon Pipeline
Company Project, Daily Demand Note, Series 1993 B,
4.3%, 12/1/2033* ...................................... 2,100,000 2,100,000
Arizona
Maricopa County, AZ, Pollution Control Revenue, Arizona
Public Service Co., Daily Demand Note, 4.3%,
5/1/2029* ............................................. 3,600,000 3,600,000
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Total Short-Term Municipal Investments (Cost $5,700,000) 5,700,000
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Long-Term Municipal Investments 99.2%
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Alaska
North Slope Borough, AK, General Obligation:
Series 1994 B, Zero Coupon, 6/30/2004 (b) (e) ......... 15,000,000 12,028,650
Series 1994 B, Zero Coupon, 6/30/2005 (b) (e) ......... 18,200,000 13,778,856
Series 1995 A, Zero Coupon, 6/30/2006 (b) ............. 7,000,000 4,999,470
Arizona
Maricopa County, AZ, School District #28, General
Obligation, Series 1993 B, Zero Coupon, 1/1/2006 (b) .. 4,905,000 3,630,926
California
California General Obligation:
Series 1989, 6.25%, 10/1/2007 (b) ..................... 4,000,000 4,323,880
Series 1990, 6.25%, 4/1/2008 (b) ...................... 5,000,000 5,400,600
Series 1991, 6.6%, 2/1/2009 (b) (e) ................... 15,600,000 17,267,328
California Housing Finance Agency, Multi-Unit Rental
Housing Revenue, Series 1992 A, 7.7%, 8/1/2010 ........ 1,000,000 1,062,470
California Pollution Control Financing Authority, Solid
Waste Disposal Revenue, Canadian Fibre of Riverside PJ,
AMT, Series 1997 A, 9%, 7/1/2019 (e) .................. 12,000,000 12,404,280
California Statewide Community Development Authority,
Certificate of Participation, Lutheran Homes, 5.5%,
11/15/2008 ............................................ 2,250,000 2,297,183
Foothill Eastern Transportation Corridor Agency, CA,
Toll Road Revenue:
Series 1995 A, Step-up Coupon, 0% to 1/1/2005,
7.05% to 1/1/2009 ................................. 5,000,000 4,140,200
Series 1995 A, Step-up Coupon, 0% to 1/1/2005,
7.1% to 1/1/2011 .................................. 4,000,000 3,386,760
The accompanying notes are an integral part of the financial statements.
15
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Principal
Amount ($) Value ($)
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Series 1995 A, Step-up Coupon, 0% to 1/1/2005,
7.1% to 1/1/2012 ................................. 4,000,000 3,396,680
Series 1995 A, Step-up Coupon, 0% to 1/1/2005,
7.15% to 1/1/2014 ................................ 6,250,000 5,317,875
Series 1995 A, Zero Coupon, 1/1/2015 ............... 11,000,000 4,785,110
Los Angeles County, CA, Certificate of Participation,
Disney Parking Project:
Series 1993, Zero Coupon, 9/1/2007 ................. 4,030,000 2,705,984
Series 1993, Zero Coupon, 9/1/2009 ................. 5,425,000 3,222,776
Roseville, CA, Unified High School District, General
Obligation:
Series 1995 B, Zero Coupon, 8/1/2010 (b) ........... 1,830,000 1,068,830
Series 1995 B, Zero Coupon, 8/1/2015 (b) ........... 1,000,000 418,290
San Joaquin, CA:
Certificate of Participation, Series 1993, 5.5%,
11/15/2013 (b) ..................................... 3,895,000 3,946,687
Transportation Corridor Agency, Toll Road Revenue,
Series 1997 A, Zero Coupon, 1/15/2012 (b) .......... 2,000,000 1,056,160
Colorado
Colorado Housing Finance Authority Revenue:
Series 1992, 8.1%, 10/1/2005 ......................... 2,030,000 2,169,014
Series 1992, 8.15%, 10/1/2006 ........................ 2,145,000 2,294,206
Series 1992, 8.25%, 10/1/2010 ........................ 1,940,000 2,079,137
Series 1992, 8.25%, 10/1/2011 ........................ 1,680,000 1,800,490
Series 1992, 8.25%, 10/1/2012 ........................ 1,945,000 2,084,495
Denver, CO, Urban Renewal Authority, Tax Increment
Revenue, Pavilions-Convention, AMT, Series 1989, 7.5%,
9/1/2004 ............................................. 945,000 983,726
Multi-Family Mortgage:
Series 1992 A, 8.15%, 10/1/2007 ...................... 2,320,000 2,481,379
Series 1992 A, 8.2%, 10/1/2008 ....................... 2,510,000 2,687,306
Series 1992 A, 8.2%, 10/1/2009 ....................... 2,725,000 2,917,494
District of Columbia
District of Columbia, Certificate of Participation:
Series 1993, 6.875%, 1/1/2003 (b) .................... 1,380,000 1,395,125
Series 1993, 7.3%, 1/1/2013 .......................... 1,000,000 1,038,480
District of Columbia, General Obligation:
Inverse Floating Rate Note, Series 1999 B, 4.89%,
6/1/2010*** ........................................ 12,500,000 12,386,000
Series 1989 B, Zero Coupon, 6/1/2003 (b) ............. 2,000,000 1,707,540
Series 1993 B2, 5.5%, 6/1/2008 (b) ................... 3,225,000 3,231,192
District of Columbia, Water and Sewer Authority, Public
Utility Revenue, Series 1998, 5.5%, 10/1/2023 (b) .... 5,000,000 4,693,750
The accompanying notes are an integral part of the financial statements.
16
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Principal
Amount ($) Value ($)
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Georgia
Atlanta, GA, Airport Revenue, General Obligation:
AMT, Series C, 6%, 1/1/2011 (b) (d) ...................... 7,375,000 7,508,488
AMT, Series C, 6.125%, 1/1/2012 (b) (d) .................. 7,735,000 7,918,552
Burke County, GA, Development Authority, Pollution
Control Revenue, Votgle Project, Series 1992,
Prerefunded 1/1/2003 at 103, 7.7%, 1/1/2006 (b) (c) ...... 5,000,000 5,448,700
Georgia Municipal Electric Authority, Power Revenue:
Series 1991 V, 6.5%, 1/1/2012 (b) ........................ 5,000,000 5,423,850
Series 1997 X, 6.5%, 1/1/2012 (b) ........................ 3,500,000 3,796,695
Hawaii
Hawaii State Airport Systems Revenue, 6.5%,
7/1/2013 (b) ............................................. 6,680,000 7,069,177
Illinois
Central Lake County, IL, Joint Action Water Agency,
Zero Coupon, Series 1991, 5/1/2004 (b) ................... 2,445,000 1,980,695
Chicago, IL, General Obligation:
Board of Education, Series 1992 A, 6.25%,
1/1/2015 (b) ........................................... 2,725,000 2,874,684
Emergency Telephone Systems, Series 1993, 5.6%,
1/1/2009 (b) ........................................... 7,200,000 7,332,120
Chicago, IL, Motor Fuel Tax Revenue, Series 1993, 5.375%,
1/1/2014 (b) ............................................. 5,000,000 4,838,350
Chicago, IL, O'Hare International Airport, Special Facilities
Revenue, United Airlines Project, Series 1999 A, 5.35%,
9/1/2016 ................................................. 4,500,000 3,751,065
Chicago, IL, Public Building Commission:
Series 1990 A, ETM, Zero Coupon, 1/1/2008 (b)** .......... 4,000,000 2,633,200
Series 1993 A, 5.25%, 12/1/2008 (b) ...................... 2,655,000 2,619,264
Chicago, IL, Wastewater Transmission Revenue,
Series 1993, 5.375%, 1/1/2013 (b) ........................ 3,215,000 3,116,300
DuPage County, IL, Industrial Development Revenue,
Weyerhaeuser Company Project, Series 1983, 8.65%,
11/1/2008 ................................................ 3,600,000 3,640,608
Hoffman Estates, IL, Tax Increment Revenue, Series 1991,
Zero Coupon, 5/15/2006 ................................... 8,500,000 6,075,035
Illinois Development Finance Authority:
Adventist Health Systems, 5.5%, 11/15/2029 ............... 5,475,000 4,186,897
Commonwealth Edison, Series 1994, 5.85%,
1/15/2014 (b) .......................................... 5,000,000 5,067,150
Illinois Educational Facilities Authority, Loyola University,
Series 1991 A, ETM, Zero Coupon, 7/1/2005 (b)** .......... 3,100,000 2,359,782
Illinois Health Facilities Authority, Centegra Health System,
Series 1998, 5.2%, 9/1/2012 .............................. 1,000,000 877,090
The accompanying notes are an integral part of the financial statements.
17
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Principal
Amount ($) Value ($)
------------------------------------------------------------------------------------
Illinois State Sales Tax Revenue:
6%, 6/15/2010 ........................................ 3,500,000 3,644,480
6.125%, 6/15/2012 .................................... 2,000,000 2,081,300
Series 1992 P, 6.5%, 6/15/2013 ....................... 2,100,000 2,259,369
Illinois State University Retirement System, Series 1990,
Zero Coupon, 10/1/2005 (b) ........................... 7,000,000 5,241,110
Northern Illinois University, Board of Regents:
Series 1992, Zero Coupon, 4/1/2005 (b) ............... 1,865,000 1,434,782
Series 1992, Zero Coupon, 10/1/2005 (b) .............. 1,865,000 1,396,381
Series 1992, Zero Coupon, 4/1/2006 (b) ............... 1,865,000 1,354,400
Series 1992, Zero Coupon, 10/1/2006 (b) .............. 1,865,000 1,317,753
Series 1992, Zero Coupon, 4/1/2007 (b) ............... 1,865,000 1,277,021
Series 1992, Zero Coupon, 10/1/2007 (b) .............. 1,865,000 1,242,109
Oak Lawn, IL, Water and Sewer Revenue:
Series 1992 A, Zero Coupon, 10/1/2003 (b) ............ 1,295,000 1,077,246
Series 1992 A, Zero Coupon, 10/1/2004 (b) ............ 1,295,000 1,016,795
Series 1992 A, Zero Coupon, 10/1/2005 (b) ............ 1,295,000 959,103
Series 1992 A, Zero Coupon, 10/1/2006 (b) ............ 1,295,000 903,806
Rosemont, IL, General Obligation:
Series 1990, Zero Coupon, 12/1/2004 (b) .............. 6,000,000 4,710,480
Series 1990, Zero Coupon, 12/1/2005 (b) .............. 7,060,000 5,238,449
Will County, IL, School District #201-U, General
Obligation, Series 1991, ETM, Zero Coupon,
12/15/2006 (b)** ..................................... 3,725,000 2,614,093
Winnebago County, IL, School District #122:
Series 1992, 6.55%, 6/1/2009 (b) ................... 1,675,000 1,804,695
Series 1992, 6.55%, 6/1/2010 (b) ................... 1,825,000 1,977,023
Indiana
Indiana Health Facilities Finance Authority, Hospital
Revenue:
Series 1990 A, 6%, 7/1/2003 (b) .................... 230,000 235,101
Series 1990 A, 6%, 7/1/2004 (b) .................... 240,000 246,259
Series 1990 A, 6%, 7/1/2005 (b) .................... 255,000 262,507
Series 1990 A, 6%, 7/1/2006 (b) .................... 270,000 278,432
Series 1990 A, 6%, 7/1/2007 (b) .................... 285,000 294,431
Series 1990 A, 6%, 7/1/2009 (b) .................... 165,000 170,351
Series 1990 A, 6%, 7/1/2010 (b) .................... 175,000 179,650
Series 1990 A, 6%, 7/1/2011 (b) .................... 185,000 190,422
Series 1990 A, 6%, 7/1/2012 (b) .................... 190,000 195,254
Series 1990 A, 6%, 7/1/2013 (b) .................... 200,000 204,912
Series 1990 A, 6%, 7/1/2014 (b) .................... 215,000 219,711
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Principal
Amount ($) Value ($)
-------------------------------------------------------------------------------------
Series 1990 A, 6%, 7/1/2015 (b) ..................... 225,000 229,016
Series 1990 A, 6%, 7/1/2016 (b) ..................... 235,000 238,873
Series 1990 A, 6%, 7/1/2017 (b) ..................... 250,000 253,460
Series 1990 A, 6%, 7/1/2018 (b) ..................... 265,000 267,613
Tax Exempt Custodian Receipts Refund:
Series 1997 A, 6%, 7/1/2002 (b) ................... 215,000 218,810
Series 1997 A, 6%, 7/1/2008 (b) ................... 160,000 165,261
Indiana Municipal Power Agency, Power Supply System:
Series 1993 B, 6%, 1/1/2012 (b) ....................... 1,750,000 1,816,535
Series 1993 B, 5.5%, 1/1/2016 (b) ..................... 8,960,000 8,730,982
Indiana Transportation Finance Authority, Highway
Revenue, Series 1993 A, 5.75%, 6/1/2012 (b) ........... 5,000,000 5,095,550
Kentucky
Louisville & Jefferson County, KY, Metropolitan Sewer
District & Drain System, Series A, 5%, 5/15/2019 (b) .. 2,500,000 2,201,100
Louisiana
Bastrop, LA, Industrial Development Board, Pollution
Control Revenue, International Paper Co. Project,
Series 1992, 6.9%, 3/1/2007 ........................... 10,250,000 10,615,823
New Orleans, LA, General Obligation, Series 1991, Zero
Coupon, 9/1/2005 (b) .................................. 2,500,000 1,886,100
Maryland
Maryland Economic Development Corporation, Chesapeake
Bay Conference, Series 1999 B, 7.75%, 12/1/2031 ....... 7,000,000 6,797,420
Maryland Health & Educational Facilities Authority, 6.75%,
7/1/2030 .............................................. 1,000,000 985,990
Northeast Maryland Waste Disposal Authority, Southwest
Resource Recovery System:
Series 1993, 7.2%, 1/1/2006 (b) ..................... 3,440,000 3,708,767
Series 1993, 7.2%, 1/1/2007 (b) ..................... 3,390,000 3,654,861
Massachusetts
Massachusetts Bay Transportation Authority, Series 1992 B,
6.2%, 3/1/2016 ........................................ 2,500,000 2,636,000
Massachusetts College Building Authority Project:
Series 1994 A, 7.5%, 5/1/2010 ......................... 4,110,000 4,752,064
Series 1994 A, 7.5%, 5/1/2014 ......................... 5,500,000 6,470,695
Massachusetts Health & Educational Facilities Authority,
Massachusetts General Hospital, Series 1992 F, 6.25%,
7/1/2012 (b) .......................................... 1,000,000 1,064,600
Massachusetts State Development Finance Agency
Revenue, Health Care Facilities, Series 1999 A, 7.1%,
7/1/2032 .............................................. 2,000,000 1,816,280
Massachusetts State Water Pollution Abatement Trust,
Series 5, 5.375%, 8/1/2027 ............................ 5,000,000 4,560,850
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------------
Massachusetts Water Resource Authority:
General Revenue, Series C, 6%, 12/1/2011 .............. 10,000,000 10,430,600
Series 1992 A, 6.5%, 7/15/2009 ........................ 2,625,000 2,828,674
Series 1992 A, 6.5%, 7/15/2019 ........................ 13,445,000 14,490,214
Michigan
Detroit, MI, General Obligation:
City School District, Series B, 5%, 5/1/2017 (b) ...... 2,895,000 2,592,675
Series B, 6%, 4/1/2015 (b) ............................ 2,705,000 2,764,564
Detroit, MI, Sewage Disposal System Revenue, Series A,
Zero Coupon, 7/1/2015 (b) ............................. 8,710,000 3,555,161
Wayne State University, MI, University Revenues, 5.25%,
11/15/2019 ............................................ 4,000,000 3,658,160
Montana
Montana State Board of Housing, Family Housing
Authority, Series 1984 A, Zero Coupon, 6/1/2010 ....... 5,000 1,661
Nevada
Nevada State Housing Division, Single Family Mortgage
Revenue, Series 1993 R, 5.95%, 10/1/2011 .............. 2,445,000 2,448,814
New Hampshire
New Hampshire State Housing Finance Authority, Single
Family Revenue, AMT, Series 1998 C, 5.9%, 7/1/2019 .... 1,125,000 1,125,698
New York
Long Island Power Authority, NY, Electric Systems Revenue,
Series 1998 A, 5%, 12/1/2018 (b) ...................... 5,000,000 4,435,600
Metropolitan Transportation Authority of New York, Transit
Facilities:
Series 1991, 7%, 7/1/2002 ........................... 1,595,000 1,648,991
Series 1993 O, 5.75%, 7/1/2013 (b) .................. 6,775,000 6,849,186
New York City, NY, General Obligation:
Series 1989 D, 7%, 8/1/2002 ........................... 655,000 662,087
Series 1989 D, 7%, 8/1/2002 (b) ....................... 165,000 166,813
Series 1992 A, 6.375%, 8/1/2004 ....................... 5,000,000 5,168,950
Series 1992 H, 7%, 2/1/2005 ........................... 480,000 499,507
Series 1992 H, Prerefunded 2/1/2002 at 101.50, 7%,
2/1/2005 (b) (c) .................................... 5,000 5,238
Series 1995 B, 6%, 8/15/2004 .......................... 3,425,000 3,511,413
Series 1995 E, 6.5%, 2/15/2005 ........................ 7,000,000 7,315,490
Series 1996 G, 6.75%, 2/1/2009 ........................ 2,000,000 2,158,880
New York State Dormitory Authority:
City University System, Consolidated Revenue Lease,
Series 1993 F, 5.375%, 7/1/2007 ..................... 2,000,000 1,978,480
State University Educational Facilities, Series 1999,
5.25%, 5/15/2017 (b) ................................ 3,500,000 3,254,615
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Principal
Amount ($) Value ($)
------------------------------------------------------------------------------------
New York State Dormitory Authority Revenue, State
University Educational Facilities:
Series 1993 A, 5.5%, 5/15/2019 ...................... 1,500,000 1,445,280
Series 1993 A, 5.25%, 5/15/2021 ..................... 2,000,000 1,842,500
Onondaga County, NY, Industrial Development Agency,
Solid Waste Disposal Facility, Solvay Paperboard LLC,
AMT, Series 1998, 7%, 11/1/2030 ....................... 3,500,000 3,376,240
Port Authority of New York & New Jersey, Special
Obligation, AMT, Series 1996, 7%, 10/1/2007 ........... 2,000,000 2,056,760
North Carolina
North Carolina Municipal Power Agency #1, Catawba
Electric Revenue, Series 1993, 5.25%, 1/1/2009 (b) .... 8,500,000 8,344,365
Oregon
Chemeketa, OR, Community College District, Series 1998,
5.5%, 6/1/2015 (b) .................................... 2,600,000 2,576,444
Pennsylvania
Allegheny County, PA, Airport Revenue, Pittsburgh
International Airport, Series 1997 A, AMT, 5.75%,
1/1/2013 (b) .......................................... 1,500,000 1,498,590
Armstrong County, PA, Hospital Authority, Hospital
Revenue, St. Francis Medical Center Project,
Series A, 6.25%, 6/1/2013 ............................. 1,000,000 1,026,240
Berks County, PA, Municipal Authority Hospital Revenue,
Reading Hospital & Medical Center Project, Series 1993,
5.7%, 10/1/2014 (b) ................................... 1,000,000 995,070
Bethlehem, PA, Water Revenue, Series 1992, Prerefunded
11/15/2001 at 100, 6.25%, 11/15/2011 (b) (c) .......... 1,000,000 1,019,770
Bucks County, PA, Water and Sewer Authority Revenue,
Series 1977, ETM, 6.375%, 12/1/2008** ................. 425,000 440,895
Delaware County, PA, Authority Health Care Revenue:
Delaware County Memorial Hospital, Series 1995,
5.5%, 8/15/2013 (b) ............................... 1,750,000 1,698,725
Mercy Health Corporation of Southeastern
Pennsylvania, Series 1993 B, Prerefunded,
11/15/2005 at 100, 6%, 11/15/2007 (c) ............. 1,500,000 1,545,555
Delaware County, PA, Authority Revenue,
White Horse Village, Series 1996 A, 6.6%, 7/1/2006 .... 1,000,000 974,030
Erie County, PA, Industrial Development Authority,
Pollution Control Revenue, International Paper,
Series 1997 A, 5.3%, 4/1/2012 ......................... 1,000,000 939,110
Erie County, PA, Prison Authority, Commonwealth Lease
Revenue, Series 1991, Prerefunded 11/1/2001 at 100,
6.25%, 11/1/2011 (b) (c) .............................. 1,000,000 1,018,940
Indiana County, PA, Industrial Development Authority,
Pollution Control Revenue, Pennsylvania Electric
Company Project, Series 1995, 5.35%, 11/1/2010 (b) .... 1,000,000 993,020
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Principal
Amount ($) Value ($)
------------------------------------------------------------------------------------
Latrobe, PA, Industrial Development Authority, College
Revenue, St. Vincent College Project, Series 1998,
5.375%, 5/1/2013 ....................................... 1,000,000 911,590
Montgomery County, PA, Redevelopment Authority,
Multi-Family Housing Revenue, KBF Associates
L.P. Project, Series 1993 A, 6.375%, 7/1/2012 .......... 1,500,000 1,465,995
Pennsylvania Convention Center Authority Revenue,
Series 1989 A, ETM, 6%, 9/1/2019 (b)** ................. 2,200,000 2,235,024
Pennsylvania Housing Finance Agency, Single Family
Mortgage Revenue:
Series 1991, 7.15%, 4/1/2015 ......................... 865,000 891,659
Series 1992, 6.85%, 10/1/2009 ........................ 840,000 863,167
Pennsylvania Intergovernmental Cooperative Authority,
Special Tax Revenue, City of Philadelphia, Series 1992,
Prerefunded 6/15/2002 at 100, 6.8%, 6/15/2012 (c) ...... 1,000,000 1,035,430
Pennsylvania State General Obligation, Series 1992, 6.25%,
7/1/2010 ............................................... 1,000,000 1,065,370
Philadelphia, PA, Authority for Industrial Development
Revenue:
Commercial Development Doubletree, Series 1997 A,
6.5%, 10/1/2027 .................................... 1,000,000 939,700
Health Care Facilities Revenue, Baptist Home of
Philadelphia, Series 1998 A, 5.5%, 11/15/2018 ...... 1,000,000 785,100
Philadelphia, PA, General Obligation, School District,
Series 1995 A, 6.25%, 9/1/2009 ......................... 1,000,000 1,059,650
Philadelphia, PA, Hospitals and Higher Education Facilities
Authority, Hospital Revenue, Children's Seashore
House, Series 1992 A, 7%, 8/15/2012 .................... 1,000,000 1,039,490
Philadelphia, PA, Regional Port Authority Lease Revenue,
Series 1993, 6.2%, 9/1/2013 ............................ 2,000,000 2,043,240
Philadelphia, PA, Water & Wastewater Revenue:
Series 1993, 5.625%, 6/15/2009 (b) ..................... 2,000,000 2,028,940
Series 1995, 6.25%, 8/1/2010 (b) ....................... 1,000,000 1,061,720
Pittsburgh, PA, General Obligation, Series 1993 A, 5.5%,
9/1/2014 (b) ........................................... 1,500,000 1,472,280
Pittsburgh, PA, Water and Sewer System Revenue,
Series 1986, ETM, 7.25%, 9/1/2014 (b)** ................ 150,000 167,937
Somerset County, PA, General Authority, Commonwealth
Lease Revenue, University Revenue, Series 1991,
Prerefunded 10/15/2001 at 100, 6.25%,
10/15/2011 (b) (c) ..................................... 1,000,000 1,018,860
Union County, PA, Higher Educational Facilities Financing
Authority, University Revenue, Bucknell University,
Series 1992, 6.2%, 4/1/2007 (b) ........................ 1,000,000 1,026,750
University Area, PA, Sewer Revenue, Series 1993, 5.25%,
11/1/2014 (b) .......................................... 1,750,000 1,689,870
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Principal
Amount ($) Value ($)
----------------------------------------------------------------------------------------
Puerto Rico
Puerto Rico Public Building Authority, Government Facilities
Revenue, Series 1995 A, 6.25%, 7/1/2013 (b) ............. 1,000,000 1,077,010
Rhode Island
Rhode Island Convention Center Authority, Series 1993 B,
5%, 5/15/2020 (b) ....................................... 2,750,000 2,394,920
South Carolina
Piedmont, SC, Municipal Power Agency, Electric Revenue,
Series 1991, 6.75%, 1/1/2019 (b) ........................ 3,525,000 3,881,342
South Carolina Jobs and Economic Development Authority,
Hospital Facilities Revenue, Palmetto Health Alliance,
Series A, 7.375%, 12/15/2021 ............................ 1,500,000 1,436,925
Texas
Austin, TX, Bergstrom Landhost Enterprises Inc., Airport
Hotel, Series 1999 A, 6.75%, 4/1/2027 ................... 4,000,000 3,573,400
Austin, TX, Independent School District, General
Obligation, Series 1998, 5%, 8/1/2015 ................... 2,000,000 1,847,480
Dallas-Fort Worth, TX, Airport Revenue:
American Airlines, AMT, Series 1990, 7.5%,
11/1/2025 ............................................. 14,250,000 14,423,565
Series 1992 A, 7.8%, 11/1/2007 (b) ...................... 2,390,000 2,645,061
Series 1992 A, 7.375%, 11/1/2009 (b) .................... 4,500,000 4,904,910
Harris County, TX:
Health Facilities, Texas Medical Center Project,
Series 1996, 6.25%, 5/15/2010 (b) ..................... 3,000,000 3,142,500
Toll Road Authority, Series 1992 A,
Zero Coupon, 8/15/2004 (b) ............................ 4,050,000 3,234,290
Toll Road Subordinate Lien, 6%, 8/1/2010 (b) (d) ........ 18,415,000 19,005,383
Houston, TX, Independent School District, 5%,
2/15/2019 ............................................... 5,000,000 4,401,050
Houston, TX, Water and Sewer System Authority:
Series 1991 C, Zero Coupon, 12/1/2005 (b) ............... 15,000,000 11,147,850
Series 1991 C, Zero Coupon, 12/1/2007 (b) ............... 3,400,000 2,250,188
North Texas, Tollway Authority, Dallas North Tollway
System Revenue, Series 1997 A, 5%, 1/1/2020 (b) ......... 2,165,000 1,897,081
San Antonio, TX, Airport Systems Revenue, Series 1991,
7%, 7/1/2002 (b) ........................................ 1,695,000 1,758,817
San Antonio, TX, Electric and Gas Revenue:
Series 1989 A, Zero Coupon, 2/1/2005 (b) ................ 7,000,000 5,441,590
Series 1991 B, ETM, Zero Coupon, 2/1/2005 (b)** ......... 5,000,000 3,886,850
Texas Water Development Board Revenue, Series 1999 B,
5.25%, 7/15/2017 ........................................ 5,000,000 4,647,250
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------------
Travis County, TX, Health Facilities Development Corp. ...
Authority, Ascension Health Credit:
Series 1999 A, 5.75%, 11/15/2011 (b) ................ 3,440,000 3,458,679
Series 1999 A, 6.25%, 11/15/2015 (b) ................ 2,780,000 2,855,032
Series 1999 A, 6.25%, 11/15/2016 (b) ................ 13,770,000 14,076,933
Utah
Intermountain Power Agency, UT, Power Supply Revenue,
Series 1993, 5.55%, 7/1/2011 .......................... 3,000,000 2,931,930
Salt Lake City, UT, Hospital Revenue, IHC Hospitals Inc.,
Inversed Inflow, Series 1992, 6.15%, 2/15/2012*** ..... 1,500,000 1,546,065
Virgin Islands
Virgin Islands, Public Finance Authority Revenue,
Series 1992 A, Prerefunded 10/1/2002 at 102, 7.25%,
10/1/2018 (c) ......................................... 1,500,000 1,610,730
Virginia
Fairfax County, VA, Economic Development Authority
Revenue, Retirement Community-Greenspring,
Series 1999 A, 7.25%, 10/1/2019 ....................... 2,000,000 1,923,520
Virginia Beach, VA, Development Authority, General
Hospital Project, Series 1993, 5.125%, 2/15/2018 (b) .. 3,000,000 2,731,050
Washington
Washington State Health Care Facilities Authority,
Empire Health Services-- Spokane, Series 1993, 5.8%,
11/1/2008 (b) ......................................... 4,865,000 4,952,181
Washington State Public Power Supply System:
Nuclear Project #1:
Series 1990 B, 7.25%, 7/1/2009 (b) .................. 12,350,000 13,594,263
Series 1991 A, Zero Coupon, 7/1/2007 (b) ............ 8,570,000 5,787,321
Nuclear Project #2:
Series 1990 A, 7.25%, 7/1/2006 ...................... 7,000,000 7,619,220
Series 1994 A, 6%, 7/1/2007 (b) ..................... 7,000,000 7,248,290
Nuclear Project #3:
Series 1989 A, Zero Coupon, 7/1/2006 (b) ............ 1,380,000 988,535
Series 1989 B, Zero Coupon, 7/1/2006 (b) ............ 5,555,000 3,979,213
Series 1990 B, Zero Coupon, 7/1/2002 (b) ............ 11,925,000 10,693,744
Series 1990 B, 7.375%, 7/1/2004 (b) ................. 750,000 766,058
Wisconsin
Green Bay, WI, Industrial Development Revenue,
Weyerhaeuser Company Project, Series 1981 A,
9%, 9/1/2006 .......................................... 1,700,000 1,712,784
Wisconsin State Health & Educational Facilities Authority,
Aurora Health Care Inc.:
Series 1999 A, 5.6%, 2/15/2029 ...................... 4,000,000 3,119,360
Series 1999 B, 5.625%, 2/15/2029 .................... 2,500,000 1,957,925
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
Principal
Amount ($) Value ($)
----------------------------------------------------------------------------------------
Wyoming
Wyoming Community Development Authority, Single
Family Mortgage Revenue, Series 1993 A, 5.85%,
6/1/2013 .............................................. 3,000,000 2,968,290
----------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $662,455,335) 684,963,468
----------------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $668,155,335) (a) 690,663,468
----------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $668,155,335. At May 31, 2000,
net unrealized appreciation for all securities based on tax cost was
$22,508,133. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$28,853,928 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $6,345,795.
(b) Bond is insured by one of these companies: AMBAC, Capital Guaranty, FGIC,
FSA or MBIA/BIG.
(c) Prerefunded: Bonds which are prerefunded are collateralized by U.S.
Treasury securities which are held in escrow and are used to pay principal
and interest on tax-exempt issues and to retire the bonds in full at the
earliest refunding date.
(d) When-issued or forward delivery securities (See Note A in Notes to
Financial Statements).
(e) At May 31, 2000, these securities, in part or in whole, have been
segregated to cover when-issued 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 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 may change based
on the change in the relationship between long-term and short-term interest
rates and which exhibit added interest rate sensitivity compared to other
bonds with a similar maturity. These securities are shown at their rates as
of May 31, 2000.
AMT: Alternative minimum tax
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of May 31, 2000
-----------------------------------------------------------------------------------------
Assets
-----------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $668,155,335) ................ $ 690,663,468
Cash ................................................................... 3,494,901
Receivable for investments sold ........................................ 2,205,621
Interest receivable .................................................... 8,958,866
Receivable for Fund shares sold ........................................ 1,343,779
Due from Adviser ....................................................... 29,804
Other assets ........................................................... 10,228
-------------
Total assets ........................................................... 706,706,667
Liabilities
-----------------------------------------------------------------------------------------
Payable for investments purchased ...................................... 5,707,006
Payable for when-issued and forward delivery securities ................ 34,612,282
Dividends payable ...................................................... 1,356,141
Payable for Fund shares redeemed ....................................... 131,978
Accrued management fee ................................................. 250,455
Accrued reorganization costs ........................................... 22,853
Accrued Trustees' fees and expenses .................................... 59,607
Other accrued expenses and payables .................................... 140,352
-------------
Total liabilities ...................................................... 42,280,674
-----------------------------------------------------------------------------------------
Net assets, at value $ 664,425,993
-----------------------------------------------------------------------------------------
Net Assets
-----------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments .............. 22,508,133
Accumulated net realized gain (loss) ................................... (9,027,772)
Paid-in capital ........................................................ 650,945,632
-----------------------------------------------------------------------------------------
Net assets, at value $ 664,425,993
-----------------------------------------------------------------------------------------
Net Asset Value
-----------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($664,425,993 /
78,824,566 outstanding shares of beneficial interest, $.01 par value, -------------
unlimited number of shares authorized) .............................. $ 8.43
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations for the year ended May 31, 2000
--------------------------------------------------------------------------------
Investment Income
--------------------------------------------------------------------------------
Income:
Interest ....................................................... $ 40,850,673
------------
Expenses:
Management fee ................................................. 3,550,506
Services to shareholders ....................................... 521,045
Custodian and accounting fees .................................. 115,696
Auditing ....................................................... 59,741
Legal .......................................................... 27,152
Trustees' fees and expenses .................................... 99,748
Reports to shareholders ........................................ 50,364
Registration fees .............................................. 23,947
Reorganization ................................................. 25,202
Other .......................................................... 71,699
------------
Total expenses, before expense reductions ...................... 4,545,100
Expense reductions ............................................. (54,169)
------------
Total expenses, after expense reductions ....................... 4,490,931
--------------------------------------------------------------------------------
Net investment income 36,359,742
--------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
--------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... (3,621,258)
Futures ........................................................ 566,139
------------
(3,055,119)
------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (36,838,789)
Futures ........................................................ 9,675
------------
(36,829,114)
--------------------------------------------------------------------------------
Net gain (loss) on investment transactions (39,884,233)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (3,524,491)
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Statements of Changes in Net Assets
------------------------------------------------------------------------------------
Five Months Year Ended
Increase (Decrease) in Net Year Ended May Ended May 31, December 31,
Assets 31, 2000 1999 1998
------------------------------------------------------------------------------------
Operations:
<S> <C> <C> <C>
Net investment income ........... $ 36,359,742 $ 14,842,386 $ 36,413,691
Net realized gain (loss) on
investment transactions ...... (3,055,119) 3,094,358 4,072,633
Net unrealized appreciation
(depreciation) on investment
transactions during the
period ....................... (36,829,114) (19,073,544) 4,067,938
------------- ------------- -------------
Net increase (decrease) in net
assets resulting from
operations ................... (3,524,491) (1,136,800) 44,554,262
------------- ------------- -------------
Distributions to shareholders
from:
Net investment income ........... (36,359,742) (14,842,386) (36,413,691)
------------- ------------- -------------
Net realized gains .............. (2,933,309) -- (3,996,751)
------------- ------------- -------------
Fund share transactions:
Proceeds from shares sold ....... 79,038,469 37,202,992 83,789,509
Net assets of shares issued in
tax-free reorganization ...... 71,413,890 -- --
Reinvestment of distributions ... 22,444,604 7,966,563 21,988,411
Cost of shares redeemed ......... (179,054,597) (52,816,744) (101,202,201)
------------- ------------- -------------
Net increase (decrease) in net
assets from Fund share
transactions ................. (6,157,634) (7,647,189) 4,575,719
------------- ------------- -------------
Increase (decrease) in net assets (48,975,176) (23,626,375) 8,719,539
Net assets at beginning of period 713,401,169 737,027,544 728,308,005
------------- ------------- -------------
Net assets at end of period ..... $ 664,425,993 $ 713,401,169 $ 737,027,544
------------- ------------- -------------
Other Information
------------------------------------------------------------------------------------
Shares outstanding at beginning
of period .................... 79,451,883 80,293,360 79,790,697
------------- ------------- -------------
Shares sold ..................... 9,355,852 4,073,627 9,148,915
Shares issued in tax-free
reorganization ............... 8,189,666 -- --
Shares issued to shareholders in
reinvestment of distributions 2,609,423 874,504 2,402,379
Shares redeemed ................. (20,782,258) (5,789,608) (11,048,631)
------------- ------------- -------------
Net increase (decrease) in Fund
shares ....................... (627,317) (841,477) 502,663
Shares outstanding at end of ------------- ------------- -------------
period ....................... 78,824,566 79,451,883 80,293,360
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
------------------------------------------------------------------------------------
2000(a) 1999(b) 1998(c) 1997(c) 1996(c) 1995(c)
------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 8.98 $ 9.18 $ 9.13 $ 8.84 $ 8.94 $ 8.07
-------------------------------------------------
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from investment operations:
------------------------------------------------------------------------------------
Net investment income .46 .19 .45 .46 .45 .48
------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions (.51) (.20) .10 .34 (.10) .87
-------------------------------------------------
------------------------------------------------------------------------------------
Total from investment operations
------------------------------------------------------------------------------------
Less distributions from: (.05) (.01) .55 .80 .35 1.35
------------------------------------------------------------------------------------
Net investment income (.46) (.19) (.45) (.46) (.45) (.48)
------------------------------------------------------------------------------------
Net realized gains on investment
transactions (.04) -- (.05) (.05) -- --
-------------------------------------------------
------------------------------------------------------------------------------------
Total distributions (.50) (.19) (.50) (.51) (.45) (.48)
------------------------------------------------------------------------------------
Net asset value, end of period $ 8.43 $ 8.98 $ 9.18 $ 9.13 $ 8.84 $ 8.94
-------------------------------------------------
------------------------------------------------------------------------------------
Total Return (%) (.62) (.17)** 6.23 9.29 4.15 17.12
------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 664 713 737 728 737 775
------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) .66(d) .64* .62 .64 .63 .63
------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) .65(d) .64* .62 .64 .63 .63
------------------------------------------------------------------------------------
Ratio of net investment income (%) 5.27 4.92* 4.96 5.12 5.20 5.59
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47 14* 9 10 12 18
------------------------------------------------------------------------------------
</TABLE>
(a) For the year ended May 31, 2000.
(b) For the five months ended May 31, 1999. On August 10, 1998 the Board of
Trustees of the Trust changed the fiscal year end of the Fund from December
31 to May 31.
(c) Years ended December 31.
(d) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were .65% and
.64%, respectively.
* Annualized
** Not annualized
29
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
A. Significant Accounting Policies
Scudder Managed Municipal Bonds (the "Fund") is a diversified series of Scudder
Municipal Trust (the "Trust") which is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company organized as a Massachusetts business trust. On August 10, 1998, the
Fund changed its fiscal year end for financial reporting and federal income tax
purposes to May 31 from December 31.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the use of
management estimates. The policies described below are followed consistently by
the Fund in the preparation of its financial statements.
Security Valuation. Portfolio debt securities purchased with an original
maturity greater than sixty days are valued by pricing agents approved by the
officers of the Trust, whose 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. Money market instruments purchased with an
original maturity of sixty days or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of a financial
instrument at a specified price on a specific date (settlement date). During the
period, the Fund purchased interest rate futures as a temporary substitute for
purchasing selected investments. In addition, the Fund also sold interest rate
futures as a temporary substitute for selling selected investments.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund dependent upon
the daily fluctuations in the value of the underlying security and are recorded
for financial reporting purposes as unrealized gains or losses by the Fund. When
entering into a closing transaction, the Fund will realize a gain or loss equal
to the difference between the value of the futures contract to sell
30
<PAGE>
and the futures contract to buy. Futures contracts are valued at the most recent
settlement price.
Certain risks may arise upon entering into futures contracts, including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with the changes in the value of
the securities or currencies hedged. When utilizing futures contracts to hedge,
the Fund gives up the opportunity to profit from favorable price movements in
the hedged positions during the term of the contract.
When Issued/Delayed Delivery Securities. The Fund may purchase securities with
delivery or payment to occur at a later date beyond the normal settlement
period. At the time the Fund enters into a commitment to purchase a security,
the transaction is recorded and the value of the security is reflected in the
net asset value. The value of the security may vary with market fluctuations. No
interest accrues to the Fund until payment takes place. At the time the Fund
enters into this type of transaction it is required to segregate cash or other
liquid assets at least equal to the amount of the commitment.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable and tax-exempt income
to its shareholders. Accordingly, the Fund paid no federal income taxes and no
federal income tax provision was required.
At May 31, 2000, the Fund had a net tax basis capital loss carryforward of
approximately $3,700,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until May 31,
2008, the expiration date, whichever occurs first.
In addition, the Fund inherited approximately $900,000 of capital losses from
its merger (see Note E) with Scudder Pennsylvania Tax Free Fund, which can be
used to offset gains in future years, or until May 31, 2007, the expiration
date, subject to certain limitations imposed by Section 382 of the Internal
Revenue Code.
In addition, from November 1, 1999 through May 31, 2000, the Fund incurred
approximately $1,600,000 of net realized capital losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat them as
arising in the fiscal year ending May 31, 2001.
31
<PAGE>
Distribution of Income and Gains. All of the net investment income of the Fund
is declared as a daily dividend and is distributed to shareholders monthly. Net
realized gains from investment transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not distributed, and, therefore,
will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from accounting principles generally accepted in the United
States. 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.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on an accrual
basis. Realized gains and losses from investment transactions are recorded on an
identified cost basis. All premiums and original issue discounts are
amortized/accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
During the year ended May 31, 2000, purchases and sales of municipal securities
(excluding short-term investments) aggregated $332,167,796 and $319,033,604,
respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies
and restrictions. The Adviser determines the securities, instruments and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 0.55% on the first
$200,000,000 of the Fund's average daily net assets, 0.50% on the next
$500,000,000 of such net assets and 0.475% on such net assets in excess of
$700,000,000, computed and accrued daily and
32
<PAGE>
payable monthly. For the year ended May 31, 2000, the fee pursuant to this
Agreement amounted to $3,550,506, which was equivalent to an annual effective
rate of 0.52% of the Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. During the
year ended May 31, 2000, the amount charged to the Fund by SSC aggregated
$333,002, of which $26,653 is unpaid at May 31, 2000.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended May
31, 2000, the amount charged to the Fund by SFAC aggregated $103,967, of which
$7,740 is unpaid at May 31, 2000.
The Fund pays each Trustee not affiliated with the Adviser an annual retainer,
divided equally among the series of the Trust, plus specified amounts for
attended board and committee meetings. For the year ended May 31, 2000,
Trustees' fees and expenses aggregated $40,141. In addition, a one-time fee of
$59,607 was accrued for payment to those Trustees not affiliated with the
Adviser who are not standing for re-election, under the reorganization discussed
in Note G. Inasmuch as the Adviser will also benefit from administrative
efficiencies of a consolidated Board, the Adviser has agreed to bear $29,804 of
such costs.
D. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. During the year ended May 31, 2000, the
Fund's custodian and transfer agent fees were reduced by $3,436 and $20,929,
respectively, under these arrangements.
E. Acquisition of Assets
On September 17, 1999, the Fund acquired all the net assets of Scudder
Pennsylvania Tax Free Fund pursuant to a plan of reorganization approved by
shareholders on September 2, 1999. The acquisition was accomplished by a
tax-free exchange of 8,189,666 shares of the Fund (valued at $71,413,890) for
5,497,182 shares of Scudder Pennsylvania Tax Free Fund outstanding on September
17, 1999. Scudder Pennsylvania Tax Free Fund's net assets at that date
($71,413,890), including $1,222,223 of unrealized appreciation, were combined
with those of the Fund. The aggregate nets assets of the Fund
33
<PAGE>
immediately before the acquisition were $670,341,144. The combined net assets of
the Fund immediately following the acquisition were $741,755,034.
F. Line of Credit
The Fund and several other Scudder Funds (the "Participants") share in a $1
billion revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated, pro rata based upon net assets, among each of the
Participants. Interest is calculated based on the market rates at the time of
the borrowing. The Fund may borrow up to a maximum of 33 percent of its net
assets under the agreement.
G. Reorganization
In early 2000, Scudder Kemper initiated a restructuring program for most of its
Scudder no-load open-end funds in response to changing industry conditions and
investor needs. The program proposes to streamline the management and operations
of most of the no-load open-end funds Scudder Kemper advises principally through
the liquidation of several small funds, mergers of certain funds with similar
investment objectives, the creation of one Board of Directors/Trustees and the
adoption of an administrative fee covering the provision of most of the services
currently paid for by the affected funds. Costs incurred in connection with this
restructuring initiative are being borne jointly by Scudder Kemper and certain
of the affected funds. These costs, including printing, shareholder meeting
expenses and professional fees, are presented as reorganization expenses in the
Statement of Operations of the Fund.
34
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of Scudder Municipal Trust and the Shareholders of Scudder
Managed Municipal Bonds:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Managed Municipal Bonds
(the "Fund") at May 31, 2000, the results of its operations, the changes in its
net assets, and the financial highlights for the periods indicated therein, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at May 31, 2000 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
July 20, 2000
35
<PAGE>
Tax Information
--------------------------------------------------------------------------------
The Fund paid distributions of $0.036 per share from net long-term capital gains
during its year ended May 31, 2000, of which 100% represents 20% rate gains.
Of the dividends paid from net investment income for the taxable year ended May
31, 2000, 100% are designated as exempt interest dividends for federal income
tax purposes.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
36
<PAGE>
Officers and Trustees
--------------------------------------------------------------------------------
Linda C. Coughlin* Philip G. Condon*
o President and Trustee o Vice President
Henry P. Becton, Jr. Ashton P. Goodfield*
o Trustee; President and General o Vice President
Manager, WGBH Educational Foundation
Ann M. McCreary*
Dawn-Marie Driscoll o Vice President
o Trustee; Executive Fellow, Center
for Business Ethics, Bentley John Millette*
College; President, Driscoll o Vice President and Secretary
Associates
John R. Hebble*
Peter B. Freeman o Treasurer
o Trustee; Corporate Director
and Trustee Caroline Pearson*
o Assistant Secretary
George M. Lovejoy, Jr.
o Trustee; President and Director, *Scudder Kemper Investments, Inc.
Fifty Associates; Chairman
Emeritus, Meredith and Grew, Inc.
Wesley W. Marple, Jr.
o Trustee; Professor of Business
Administration, Northeastern
University, College of Business
Administration
Kathryn L. Quirk*
o Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
o Trustee; Managing Director,
First Light Capital
37
<PAGE>
Investment Products and Services
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
The Scudder Family of Funds+++
--------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series -- Scudder Value Fund***
Prime Reserve Shares* Scudder Small Company Value Fund
Premium Shares* Scudder Micro Cap Fund
Managed Shares*
Scudder Tax Free Money Fund+ Growth
Scudder Classic Growth Fund***
Tax Free+ Scudder Large Company Growth Fund***
Scudder Limited Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Medium Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder 21st Century Growth Fund***
Scudder High Yield Tax Free Fund***
Scudder California Tax Free Fund** Global Equity
Scudder Massachusetts Limited Term Worldwide
Tax Free Fund** Scudder Global Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder Global Discovery Fund***
U.S. Income Scudder Emerging Markets Growth Fund
Scudder Short Term Bond Fund Scudder Gold Fund
Scudder GNMA Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.***
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Health Care Fund
Asset Allocation Scudder Technology Fund
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio Preferred Series
Scudder Pathway Growth Portfolio Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund***
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
</TABLE>
38
<PAGE>
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
--------------------------------------------------------------------------------
Retirement Programs and Education Accounts
--------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Closed-End Funds#
-----------------------------------------------------------------------------------------
<S> <C>
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
+++ Funds within categories are listed in order from expected least
risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange.
+ A portion of the income from the tax-free funds may be subject to
federal, state, and local taxes.
* A class of shares of the fund.
** Not available in all states.
*** Only the Class S Shares of the fund are part of the Scudder Family
of Funds.
++ Only the International Shares of the fund are part of the Scudder
Family of Funds.
+++ +++ A no-load variable annuity contract provided by Charter National
Life Insurance Company and its affiliate, offered by Scudder
Kemper Investment's insurance agencies, 1-800-225-2470.
+++ +++ +++ A no-load variable annuity contract issued by Glenbrook Life and
Annuity Company and underwritten by Allstate Financial Services,
Inc., sold by Scudder Kemper Investment's insurance agencies,
1-800-225-2470.
# These funds, advised by Scudder Kemper Investments, Inc., are
traded on the New York Stock Exchange and, in some cases, on
various other stock exchanges.
39
<PAGE>
Scudder Solutions
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average" --
buy more shares when the fund's price is lower and fewer
when it's higher, which can reduce your average purchase
price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government checks
-- invested in up to four Scudder funds at one time.
* Dollar cost averaging involves continuous investment in
securities regardless of price fluctuations and does not
assure a profit or protect against loss in declining
markets. Investors should consider their ability to
continue such a plan through periods of low price
levels.
Around-the- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.scudder.com
Personal Investment Organizer: Offering account information
and transactions, interactive worksheets, prospectuses and
applications for all Scudder funds, plus your current asset
allocation, whenever your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
40
<PAGE>
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal each distribution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
41
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
INVESTMENTS(SM)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of [LOGO] Zurich Financial Services Group
