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[AARP SCUDDER LOGO]
AARP TAX FREE INCOME TRUST
IMPORTANT NEWS
FOR AARP INSURED TAX FREE GENERAL BOND FUND SHAREHOLDERS
While we encourage you to read the full text of the enclosed Proxy
Statement/Prospectus, here's a brief overview of some matters affecting your
Fund that will be the subject of a shareholder vote.
QUESTIONS AND ANSWERS
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: You are being asked to vote on a proposed combination of your Fund into
Scudder Managed Municipal Bonds. This proposal is part of a larger effort to
expand the offerings in the AARP Investment Program to include the fund
lineup of the Scudder Family of Funds. THE BOARD OF YOUR FUND RECOMMENDS
THAT YOU VOTE IN FAVOR OF THIS PROPOSAL.
Q: WHY HAS THE BOARD RECOMMENDED THAT I VOTE IN FAVOR OF THE COMBINATION?
A: The Board of your Fund is recommending that shareholders vote in favor of
this proposal for the following reasons:
- LOWER EXPENSES. The combination of the two funds is expected to result in
REDUCED expenses for shareholders of your Fund.
- GREATER PREDICTABILITY OF EXPENSES. As part of the proposal to combine
funds, a new fixed administrative fee rate arrangement would be
implemented. The arrangement protects shareholders from most ordinary
administrative expense increases for a minimum of three years.
- LARGER FUND. The combined funds will likely have the ability to effect
portfolio transactions on more favorable terms and provide Scudder Kemper
Investments, each Fund's investment manager, with greater investment
flexibility and the ability to increase diversification through the
purchase of portfolio issues.
- TAX-FREE REORGANIZATION. It is a condition of the proposed combination
that your Fund receive an opinion of tax counsel that the transaction
would be a TAX-FREE transaction.
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Q: ARE THE INVESTMENT POLICIES OF SCUDDER MANAGED MUNICIPAL BONDS SIMILAR TO
THOSE OF MY FUND?
A: The investment objectives, policies and restrictions of Scudder Managed
Municipal Bonds are similar to those of your Fund. The Funds are currently
managed by the same portfolio management teams and, notwithstanding your
Fund's higher investment in insured bonds, have similar investment styles.
The combined fund will continue to seek income exempt from regular federal
income tax through investments primarily in domestic municipal bonds.
If the Reorganization is approved, the combined fund will modify its
investment policies to also actively seek to reduce downside risk as
compared with other municipal bond mutual funds, although it will not invest
primarily in insured bonds as your Fund currently does.
Q: HOW DOES THIS AFFECT THE AARP INVESTMENT PROGRAM?
A: This consolidation of similar funds will enable Scudder to offer a broader
range of investment choices through the AARP Investment Program. Except for
the changes to your Fund outlined above, there are no plans to change the
characteristics of the AARP Investment Program:
- AARP classes will be created in the Scudder Funds for investors in the
AARP Investment Program.
- Scudder Kemper will continue its strong commitment to education, both for
AARP Investment Program shareholders and for AARP members in general.
- AARP, through its for-profit subsidiary, will continue to OVERSEE SERVICE
LEVELS AND COMMUNICATIONS to shareholders in the AARP Investment Program
and to AARP members. AARP will also continue to PROVIDE INSIGHT AND
DIRECTION as to what best represents the interests and concerns of its
membership.
- Scudder Kemper will continue to develop NEW PRODUCTS AND SERVICES with the
interests of AARP members in mind.
- Scudder Kemper will MAINTAIN SEPARATE RECORDS for AARP Investment Program
shareholders.
Q: ARE THERE OTHER PROPOSALS I WILL BE VOTING ON?
A: You are also being asked to vote on the election of Board members for your
Fund. As part of a larger effort to restructure the Scudder Family of Funds,
the Board of your Fund has voted in favor of creating a single
(continued on inside back cover)
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April 18, 2000
Dear AARP Investment Program Shareholder,
Scudder Kemper Investments, investment manager for the AARP Investment
Program, is proposing a series of changes to offer you a wider range of fund
options to meet a broader range of investment goals. The current offering of 16
AARP mutual funds will soon expand to include 43 funds, six of which will
maintain a risk-managed focus. This will be accomplished by making the entire
lineup of funds from the Scudder Family of Funds available to AARP Investment
Program shareholders. In addition, subject to shareholder approval, most AARP
Investment Program funds will be combined with Scudder Funds that have similar
investment objectives. The funds will be called Scudder Funds, indicating
Scudder Kemper's distinct role as investment manager of the funds.
The involvement and level of participation from AARP in the AARP Investment
Program from Scudder is not changing. AARP will continue to oversee the
Investment Program's service quality and communications; and AARP will continue
to provide insight and direction as to what best represents the interests and
concerns of its membership.
PLEASE READ THE ENCLOSED MATERIALS
Enclosed with this letter is a packet of materials we ask that you read and,
where applicable, fill out and return to us. The Q&A that begins on the front
cover of the proxy statement explains the proposals we're making, why we're
making them, and how they apply to your AARP Fund. The packet also contains a
proxy card and a prospectus for the fund that we are proposing to merge your
Fund into.
After careful review, the members of your Fund's Board have approved each of
the proposals explained in the Q&A and described in the proxy statement. THE
BOARD RECOMMENDS THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE
FOR ALL THE PROPOSALS. (Because many of the funds for which Scudder Kemper acts
as investment manager are holding shareholder meetings, you may receive more
than one proxy card. If so, please vote each one.)
Your vote is important to us. Once you've voted, please sign and date the
proxy card and return it in the enclosed postpaid envelope. If you prefer, you
can save time and postage cost by voting on the Internet or by telephone -- the
enclosed flyer describes how. If we do not hear from you by May 17, our proxy
solicitor may contact you. Thank you for your response and for your continued
investment in the AARP Investment Program.
Respectfully,
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/s/ Edmond D. Villani /s/ Linda C. Coughlin
Edmond D. Villani Linda C. Coughlin
Chairperson
Chief Executive Officer Board of Trustees
Scudder Kemper Investments, Inc. AARP Investment Program
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AARP INSURED TAX FREE GENERAL BOND FUND
--------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
AARP TAX FREE INCOME TRUST
Please take notice that a Special Meeting of Shareholders (the "Meeting") of
AARP Insured Tax Free General Bond Fund (the "Fund"), a series of AARP Tax Free
Income Trust (the "Trust"), will be held at the offices of Scudder Kemper
Investments, Inc., 13th Floor, Two International Place, Boston, MA 02110-4103,
on July 11, 2000, at 2:00 p.m., Eastern time, for the following purposes:
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PROPOSAL 1: To elect Trustees of the Trust;
PROPOSAL 2: To approve an Agreement and Plan of Reorganization for
the Fund whereby all or substantially all of the assets
and liabilities of the Fund would be acquired by Scudder
Managed Municipal Bonds in exchange for shares of the
AARP Class of Scudder Managed Municipal Bonds; and
PROPOSAL 3: To ratify the selection of PricewaterhouseCoopers LLP as
the independent accountants for the Fund for the Fund's
current fiscal year.
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The appointed proxies will vote in their discretion on any other business
that may properly come before the Meeting or any adjournments thereof.
Holders of record of shares of the Fund at the close of business on April
17, 2000 are entitled to vote at the Meeting and at any adjournments thereof.
In the event that the necessary quorum to transact business or the vote
required to approve any Proposal is not obtained at the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the Fund's shares present in person or by proxy at the Meeting.
The persons named as proxies will vote FOR any such adjournment those proxies
which they are entitled to vote in favor of that Proposal and will vote AGAINST
any such adjournment those proxies to be voted against that Proposal.
By order of the Board,
/s/ Kathryn L. Quirk
Kathryn L. Quirk
Secretary
April 18, 2000
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND
RETURN IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE (OR TO TAKE
ADVANTAGE OF THE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES DESCRIBED ON THE
PROXY CARD(S)). YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S) (OR YOUR VOTING
BY OTHER AVAILABLE MEANS) MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER
SOLICITATIONS. IF YOU WISH TO ATTEND THE MEETING AND VOTE YOUR SHARES IN PERSON
AT THAT TIME, YOU WILL STILL BE ABLE TO DO SO.
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TABLE OF CONTENTS
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INTRODUCTION................................................ 1
PROPOSAL 1: ELECTION OF TRUSTEES OF THE ACQUIRED TRUST...... 3
PROPOSAL 2: APPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION............................................ 15
SYNOPSIS....................................... 15
PRINCIPAL RISK FACTORS......................... 28
THE PROPOSED TRANSACTION....................... 29
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF
INDEPENDENT ACCOUNTANTS................................... 36
ADDITIONAL INFORMATION...................................... 36
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PROXY STATEMENT/PROSPECTUS
APRIL 18, 2000
RELATING TO THE ACQUISITION OF THE ASSETS OF AARP INSURED TAX FREE GENERAL BOND
FUND (THE "ACQUIRED FUND"), A SEPARATE SERIES OF AARP TAX FREE INCOME TRUST (THE
"ACQUIRED TRUST")
TWO INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-4103
(800) 253-2277
--------------------------
BY AND IN EXCHANGE FOR THE AARP CLASS OF SHARES OF BENEFICIAL INTEREST OF
SCUDDER MANAGED MUNICIPAL BONDS (THE "ACQUIRING FUND"), A SEPARATE SERIES OF
SCUDDER MUNICIPAL TRUST (THE "ACQUIRING TRUST")
TWO INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-4103
(800) 728-3337
--------------------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of the
Acquired Fund in connection with three proposals (each a "Proposal,"
collectively, the "Proposals"). Proposal 1 describes the election of Trustees,
and Proposal 3 proposes the ratification of the selection of the Acquired Fund's
accountants.
In Proposal 2, shareholders are asked to approve a proposed reorganization
in which all or substantially all of the assets of the Acquired Fund would be
acquired by the Acquiring Fund, in exchange for shares of beneficial interest of
the AARP Class of the Acquiring Fund ("AARP Shares") and the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund, as described more
fully below (the "Reorganization"). Shares of the Acquiring Fund thereby
received would then be distributed to the shareholders of the Acquired Fund in
complete liquidation of the Acquired Fund. As a result of the Reorganization,
each shareholder of the Acquired Fund would receive that number of AARP Shares
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares of the Acquired Fund
--------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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held as of the close of business on the business day preceding the closing of
the Reorganization (the "Valuation Date"). Shareholders of the Acquired Fund
will vote on an Agreement and Plan of Reorganization (the "Plan") pursuant to
which the Reorganization would be consummated. A copy of the Plan is attached
hereto as Exhibit A. The closing of the Reorganization (the "Closing") is
contingent upon shareholder approval of the Plan. The Reorganization is expected
to occur on or about July 31, 2000.
Proposals 1 and 2 relate to a restructuring program proposed by Scudder
Kemper Investments, Inc. ("Scudder Kemper" or the "Investment Manager"), and
described in more detail below.
It is being proposed to shareholders of Scudder Ohio Tax Free Fund, another
fund advised by Scudder Kemper, the investment manager for each of the Acquiring
Fund and the Acquired Fund, that the Acquiring Fund acquire the assets of that
other fund. Each of the closing of this other acquisition and the Closing is
contingent upon the other.
In the descriptions of the Proposals below, the word "fund" is sometimes
used to mean an investment company or series thereof in general, and not the
Acquired Fund whose proxy statement this is. In addition, for simplicity,
actions are described in this Proxy Statement/Prospectus as being taken by
either the Acquired Fund or the Acquiring Fund (each a "Fund" and collectively
the "Funds"), although all actions are actually taken either by the Acquired
Trust or the Acquiring Trust (together with the Acquired Trust, the "Trusts"),
on behalf of the applicable Fund.
This Proxy Statement/Prospectus sets forth concisely the information about
the Acquiring Fund that a prospective investor should know before investing and
should be retained for future reference. For a more detailed discussion of the
investment objective, policies, restrictions and risks of the Acquiring Fund,
see the Acquiring Fund's prospectus, dated October 1, 1999, as supplemented from
time to time, which is included herewith and incorporated herein by reference.
For a more detailed discussion of the investment objective, policies,
restrictions and risks of the Acquired Fund, see the Acquired Fund's prospectus,
dated February 1, 2000, as supplemented from time to time, which is incorporated
herein by reference and a copy of which may be obtained upon request and without
charge by calling or writing the Acquired Fund at the telephone number or
address set forth on the preceding page.
The Acquiring Fund's statement of additional information, dated October 1,
1999, as supplemented from time to time, is incorporated herein by reference and
may be obtained upon request and without charge by calling or writing the
Acquiring Fund at the telephone number or address set forth above.
2
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A Statement of Additional Information dated April 18, 2000, containing
additional information about the Reorganization and the parties thereto has been
filed with the Securities and Exchange Commission (the "SEC" or the
"Commission") and is incorporated by reference into this Proxy
Statement/Prospectus. A copy of the Statement of Additional Information relating
to the Reorganization is available upon request and without charge by calling or
writing the Acquiring Fund at the telephone number or address set forth above.
Shareholder inquiries regarding the Acquired Fund may be made by calling (800)
253-2277. Shareholder inquiries regarding the Acquiring Fund may be made by
calling (800) 728-3337. The information contained herein concerning the Acquired
Fund has been provided by, and is included herein in reliance upon, the Acquired
Fund. The information contained herein concerning the Acquiring Fund has been
provided by, and is included herein in reliance upon, the Acquiring Fund. The
AARP Shares will be a newly-established class of shares of the Acquiring Fund
and will be identical in all material respects to the Acquiring Fund shares
currently offered and sold, as described in the prospectus and statement of
additional information for the Acquiring Fund, dated October 1, 1999, except as
otherwise described herein.
The Acquiring Fund and the Acquired Fund are diversified series of shares of
beneficial interest of, respectively, the Acquiring Trust and the Acquired
Trust. The Acquiring Trust and the Acquired Trust are open-end management
investment companies organized as Massachusetts business trusts.
The Board of Trustees (except as otherwise noted, "Trustees" refers to the
Trustees of the Acquired Trust and "Board" refers to the Board of Trustees of
the Acquired Trust) is soliciting proxies from shareholders of the Acquired
Fund, on behalf of the Acquired Fund, for the Special Meeting of Shareholders to
be held on July 11, 2000, at Scudder Kemper's offices, 13th Floor, Two
International Place, Boston, MA 02110-4103, at 2:00 p.m. (Eastern time), or at
such later time made necessary by adjournment (the "Meeting"). This Proxy
Statement/Prospectus, the Notice of Special Meeting and the proxy card(s) are
first being mailed to shareholders on or about April 18, 2000 or as soon as
practicable thereafter.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE NOMINEES
LISTED IN PROPOSAL 1, AND FOR PROPOSALS 2 AND 3.
PROPOSAL 1: ELECTION OF TRUSTEES OF THE ACQUIRED TRUST
At the Meeting, shareholders will be asked to elect nine individuals to
constitute the Board of Trustees of the Acquired Trust. These individuals were
nominated after a careful and deliberate selection process by the present Board
of Trustees of the Acquired Trust. The nominees for election, who are listed
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below, include seven persons who currently serve as Independent Trustees (as
defined below) of the Acquired Trust or the Acquiring Trust or as independent
trustees or directors of other no-load funds advised by Scudder Kemper and who
have no affiliation with Scudder Kemper or the American Association of Retired
Persons ("AARP"). The nominees listed below are also being nominated for
election as Trustees of the Acquiring Trust and as trustees or directors of all
of the other AARP Funds (as defined below) and open-end, directly-distributed,
no-load Scudder Funds.
Currently, five different boards of trustees or directors are responsible
for overseeing different groups of no-load funds advised by Scudder Kemper. As
part of a broader restructuring effort described below under Proposal 2, Scudder
Kemper has recommended, and the Board of Trustees has agreed, that shareholder
interests can more effectively be represented by a single board with
responsibility for overseeing substantially all of the Scudder no-load funds.
Creation of a single, consolidated board should also provide certain
administrative efficiencies and potential future cost savings for both the Funds
and Scudder Kemper.
Election of each of the listed nominees for Trustee on the Board of the
Acquired Trust requires the affirmative vote of a plurality of the votes cast at
the Meeting, in person or by proxy. The persons named as proxies on the enclosed
proxy card(s) will vote for the election of the nominees named below unless
authority to vote for any or all of the nominees is withheld in the proxy. Each
Trustee so elected will serve as a Trustee of the Acquired Trust until the next
meeting of shareholders, if any, called for the purpose of electing Trustees and
until the election and qualification of a successor or until such Trustee sooner
dies, resigns or is removed as provided in the governing documents of the
Acquired Trust. Each of the nominees has indicated that he or she is willing to
serve as a Trustee. If any or all of the nominees should become unavailable for
election due to events not now known or anticipated, the persons named as
proxies will vote for such other nominee or nominees as the current Trustees may
recommend. The following paragraphs and table set forth information concerning
the nominees and the Trustees not standing for re-election. Each nominee's or
Trustee's age is in parentheses after his or her name. Unless otherwise noted,
(i) each of the nominees and Trustees has engaged in the principal occupation(s)
noted in the following paragraphs and table for at least the most recent five
years, although not necessarily in the same capacity, and (ii) the address of
each nominee is c/o Scudder Kemper Investments, Inc., Two International Place,
Boston, MA 02110-4103.
4
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NOMINEES FOR ELECTION AS TRUSTEES:
HENRY P. BECTON, JR. (56)
Henry P. Becton, Jr. is president of the WGBH Educational Foundation, producer
and distributor of public broadcasting programming and educational and
interactive software. He graduated from Yale University in 1965, where he was
elected to Phi Beta Kappa. He received his J.D. degree CUM LAUDE from Harvard
Law School in 1968. Mr. Becton is a member of the PBS Board of Directors, a
Trustee of American Public Television, the New England Aquarium, the Boston
Museum of Science, Concord Academy, and the Massachusetts Corporation for
Educational Telecommunications, an Overseer of the Boston Museum of Fine Arts,
and a member of the Board of Governors of the Banff International Television
Festival Foundation. He is also a Director of Becton Dickinson and Company and
A.H. Belo Company, a Trustee of the Committee for Economic Development, and a
member of the Board of Visitors of the Dimock Community Health Center, the
Dean's Council of Harvard University's Graduate School of Education, and the
Massachusetts Bar. Mr. Becton has served as a trustee or director of various
mutual funds advised by Scudder Kemper since 1990.
LINDA C. COUGHLIN (48)*
Linda C. Coughlin, a Managing Director of Scudder Kemper, is head of Scudder
Kemper's U.S. Retail Mutual Funds Business. Ms. Coughlin joined Scudder Kemper
in 1986 and was a member of the firm's Board of Directors. She currently
oversees the marketing, service and operations of Scudder Kemper retail
businesses in the United States, which include the Scudder, Kemper, AARP, and
closed-end fund families, and the direct and intermediary channels. She also
serves as Chairperson of the AARP Investment Program from Scudder and as a
Trustee of the Program's mutual funds. Ms. Coughlin is also a member of the
Mutual Funds Management Group. Previously, she served as a regional Marketing
Director in the retail banking division of Citibank and at the American Express
Company as Director of Consumer Marketing for the mutual fund group.
Ms. Coughlin received a B.A. degree in economics SUMMA CUM LAUDE from Fordham
University. Ms. Coughlin is a Trustee of the Acquired Trust and has served on
the boards of various funds advised by Scudder Kemper, including the AARP
Investment Program Funds, since 1996.
DAWN-MARIE DRISCOLL (53)
Dawn-Marie Driscoll is an Executive Fellow and Advisory Board member of the
Center for Business Ethics at Bentley College, one of the nation's leading
institutes devoted to the study and practice of business ethics. Ms. Driscoll is
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also president of Driscoll Associates, a consulting firm. She is a member of the
Board of Governors of the Investment Company Institute and serves as Chairman of
the Directors Services Committee. Ms. Driscoll was recently named 1999 "Fund
Trustee of the Year" by Fund Directions, a publication of Institutional
Investor, Inc. She has been a director, trustee and overseer of many civic and
business institutions, including The Massachusetts Bay United Way and Regis
College. Ms. Driscoll was formerly a law partner at Palmer & Dodge in Boston and
served for over a decade as Vice President of Corporate Affairs and General
Counsel of Filene's, the Boston-based department store chain. Ms. Driscoll
received a B.A. from Regis College, a J.D. from Suffolk University Law School, a
D.H.L. (honorary) from Suffolk University and a D.C.S. (honorary) from Bentley
College Graduate School of Business. Ms. Driscoll has served as a trustee or
director of various mutual funds advised by Scudder Kemper since 1987.
EDGAR R. FIEDLER (70)
Edgar R. Fiedler is Senior Fellow and Economic Counsellor at The Conference
Board. He served as the Board's Vice President, Economic Research from 1975 to
1986 and as Vice President and Economic Counsellor from 1986 to 1996.
Mr. Fiedler's business experience includes positions at Eastman Kodak in
Rochester (1956-59), Doubleday and Company in New York City (1959-60), and
Bankers Trust Company in New York City (1960-69). He also served as Assistant
Secretary of the Treasury for Economic Policy from 1971 to 1975. Mr. Fiedler
graduated from the University of Wisconsin in 1951. He received his M.B.A. from
the University of Michigan and his doctorate from New York University. During
the 1980's, Mr. Fiedler was an Adjunct Professor of Economics at the Columbia
University Graduate School of Business. From 1990 to 1991, he was the Stephen
Edward Scarff Distinguished Professor at Lawrence University in Wisconsin.
Mr. Fiedler is a Director of The Stanley Works, Harris Insight Funds, Brazil
Fund, and PEG Capital Management, Inc. He is a Trustee of the Acquired Trust and
has served as a board member of various mutual funds advised by Scudder Kemper,
including the AARP Investment Program Funds, since 1984.
KEITH R. FOX (46)
Keith R. Fox is the managing partner of the Exeter Group of Funds, a series of
private equity funds with offices in New York and Boston, which he founded in
1986. The Exeter Group invests in a wide range of private equity situations,
including venture capital, expansion financings, recapitalizations and
management buyouts. Prior to forming Exeter, Mr. Fox was a director and vice
president of BT Capital Corporation, a subsidiary of Bankers Trust New York
6
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Corporation organized as a small business investment company and based in New
York City. Mr. Fox graduated from Oxford University in 1976, and in 1981
received an M.B.A. degree from the Harvard Business School. Mr. Fox is also a
qualified accountant. He is a board member and former Chairman of the National
Association of Small Business Investment Companies, and a director of Golden
State Vintners, K-Communications, Progressive Holding Corporation and Facts On
File, as well as a former director of over twenty companies. Mr. Fox has served
as a trustee or director of various mutual funds advised by Scudder Kemper since
1996.
JOAN EDELMAN SPERO (55)
Joan E. Spero is the president of the Doris Duke Charitable Foundation, a
position to which she was named in January 1997. From 1993 to 1997, Ms. Spero
served as Undersecretary of State for Economic, Business and Agricultural
Affairs under President Clinton. From 1981 to 1993, she was an executive at the
American Express Company, where her last position was executive vice president
for Corporate Affairs and Communications. Ms. Spero served as U.N. Ambassador to
the United Nations Economic and Social Council under President Carter from 1980
to 1981. She was an assistant professor at Columbia University from 1973 to
1979. She graduated Phi Beta Kappa from the University of Wisconsin and holds a
master's degree in international affairs and a doctorate in political science
from Columbia University. Ms. Spero is a member of the Council on Foreign
Relations and the Council of American Ambassadors. She also serves as a trustee
of the Wisconsin Alumni Research Foundation, The Brookings Institution and
Columbia University and is a Director of First Data Corporation. Ms. Spero has
served as a trustee or director of various mutual funds advised by Scudder
Kemper since 1998.
JEAN GLEASON STROMBERG (56)
Ms. Stromberg acts as a consultant on regulatory matters. From 1996 to 1997,
Ms. Stromberg represented the U.S. General Accounting Office before Congress and
elsewhere on issues involving banking, securities, securities markets, and
government-sponsored enterprises. Prior to that, Ms. Stromberg was a corporate
and securities law partner at the Washington, D.C. law office of Fulbright and
Jaworski, a national law firm. She served as Associate Director of the SEC's
Division of Investment Management from 1977 to 1979 and prior to that was
Special Counsel for the Division of Corporation Finance from 1972 to 1977.
Ms. Stromberg graduated Phi Beta Kappa from Wellesley College and received her
law degree from Harvard Law School. From 1988 to 1991 and 1993 to 1996, she was
a Trustee of the American Bar Retirement Association, the funding vehicle for
American Bar Association-sponsored retirement plans.
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Ms. Stromberg serves on the Wellesley College Business Leadership Council and
the Council for Mutual Fund Director Education at Northwestern University Law
School and was a panelist at the SEC's Investment Company Director's Roundtable.
Ms. Stromberg is a Trustee of the Acquired Trust and has served as a board
member of the AARP Investment Program Funds since 1997.
JEAN C. TEMPEL (56)
Jean C. Tempel is a venture partner for Internet Capital Group, a strategic
network of Internet partnership companies whose principal offices are in Wayne,
Pennsylvania. Ms. Tempel concentrates on investment opportunities in the Boston
area. She spent 25 years in technology/operations executive management at
various New England banks, building custody operations and real time
financial/securities processing systems, most recently as Chief Operations
Officer at The Boston Company. From 1991 until 1993 she was president/COO of
Safeguard Scientifics, a Pennsylvania technology venture company. In that role
she was a founding investor, director and vice chairman of Cambridge Technology
Partners. She is a director of XLVision, Inc., Marathon Technologies, Inc.,
Aberdeen Group and Sonesta Hotels International, and is a Trustee of
Northeastern University, Connecticut College, and The Commonwealth Institute.
She received a B.A. from Connecticut College, an M.S. from Rensselaer
Polytechnic Institute of New York, and attended Harvard Business School's
Advanced Management Program. Ms. Tempel has served as a trustee or director of
various mutual funds advised by Scudder Kemper since 1994.
STEVEN ZALEZNICK (45)*
Steven Zaleznick is President and CEO of AARP Services, Inc., a wholly-owned and
independently-operated subsidiary of AARP which manages a range of products and
services offered to AARP members, provides marketing services to AARP and its
member service providers and establishes an electronic commerce presence for
AARP members. Mr. Zaleznick previously served as AARP's general counsel for nine
years. He was responsible for the legal affairs of AARP, which included tax and
legal matters affecting non-profit organizations, contract negotiations,
publication review and public policy litigation. In 1979, he joined AARP as a
legislation representative responsible for issues involving taxes, pensions, age
discrimination, and other national issues affecting older Americans.
Mr. Zaleznick is President of the Board of Cradle of Hope Adoption Center in
Washington, D.C. He is a former treasurer and currently a board member of the
National Senior Citizens Law Center. Mr. Zaleznick received his B.A. in
economics from Brown University. He received his J.D. degree from Georgetown
University Law Center and is a member of the District of Columbia Bar
Association.
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TRUSTEES NOT STANDING FOR RE-ELECTION:
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PRESENT OFFICE WITH THE TRUST;
PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME (AGE) AND DIRECTORSHIPS
- ---------- -----------------------------------
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Horace B. Deets (61)*................ Vice Chairperson and Trustee;
Executive Director, AARP
(1989-Present). Mr. Deets serves on
the boards of an additional 4
trusts whose funds are advised by
Scudder Kemper.
Carole Lewis Anderson (55)........... Trustee; Principal, Suburban
Capital Markets, Inc.
(1995-Present). Ms. Anderson serves
on the boards of an additional 4
trusts whose funds are advised by
Scudder Kemper.
Adelaide Attard (69)................. Trustee; Member, NYC Department of
Aging Advisory Council
(1995-Present). Ms. Attard serves
on the boards of an additional 4
trusts whose funds are advised by
Scudder Kemper.
Robert N. Butler, M.D. (73).......... Trustee; CEO and President,
International Longevity Center and
Professor of Geriatrics and Adult
Development; Chairman, Henry L.
Schwartz Department of Geriatrics
and Adult Development, Mount Sinai
Medical Center (1982-present).
Dr. Butler serves on the boards of
an additional 4 trusts whose funds
are advised by Scudder Kemper.
Lt. Gen. Eugene P. Forrester (74).... Trustee; Lt. General (Retired),
U.S. Army; International Trade
Counselor (1983 -present);
Consultant. Lt. Gen. Forrester
serves on the boards of an
additional 4 trusts whose funds are
advised by Scudder Kemper.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE TRUST;
PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME (AGE) AND DIRECTORSHIPS
- ---------- -----------------------------------
<S> <C>
George L. Maddox, Jr. (74)........... Trustee; Professor Emeritus and
Director, Long Term Care Resources
Program, Duke University Medical
Center; Professor Emeritus of
Sociology, Departments of Sociology
and Psychiatry, Duke University.
Mr. Maddox serves on the boards of
an additional 4 trusts whose funds
are advised by Scudder Kemper.
Robert J. Myers (87)................. Trustee; Actuarial Consultant
(1983-present). Mr. Myers serves on
the boards of an additional 4
trusts whose funds are advised by
Scudder Kemper.
James H. Schulz (63)................. Trustee; Professor of Economics and
Kirstein Professor of Aging Policy,
Policy Center on Aging, Florence
Heller School, Brandeis University.
Mr. Schulz serves on the boards of
an additional 4 trusts whose funds
are advised by Scudder Kemper.
Gordon Shillinglaw (74).............. Trustee; Professor Emeritus of
Accounting, Columbia University
Graduate School of Business.
Mr. Shillinglaw serves on the
boards of an additional 4 trusts
whose funds are advised by Scudder
Kemper.
</TABLE>
- ------------------------
* Nominee or Trustee considered by the Acquired Trust and its counsel to be an
"interested person" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Acquired Trust, the Investment Manager or
AARP because of his or her employment by the Investment Manager or AARP, and,
in some cases, holding offices with the Acquired Trust.
Appendix 1 hereto sets forth the number of shares of each series of the
Acquired Trust owned directly or beneficially by the Trustees of the Acquired
Trust and by the nominees for election.
10
<PAGE>
RESPONSIBILITIES OF THE BOARD -- BOARD AND COMMITTEE MEETINGS
A fund's board is responsible for the general oversight of fund business.
The board that is proposed for shareholder voting at this Meeting is comprised
of two individuals who are considered "interested" Trustees, and seven
individuals who have no affiliation with Scudder Kemper or AARP and who are
called "independent" Trustees (the "Independent Trustees"). The SEC has recently
proposed a rule that would require a majority of the board members of a fund to
be "independent" if the fund were to take advantage of certain exemptive rules
under the 1940 Act. On the proposed Board of Trustees, if approved by
shareholders, nearly 78% will be Independent Trustees. The Independent Trustees
have been nominated solely by the current Independent Trustees of the Acquired
Trust, a practice also favored by the SEC. The Independent Trustees have primary
responsibility for assuring that the Acquired Fund is managed in the best
interests of its shareholders.
The Trustees meet several times during the year to review the investment
performance of each fund of the Acquired Trust and other operational matters,
including policies and procedures designed to assure compliance with regulatory
and other requirements. Furthermore, the Independent Trustees review the fees
paid to the Investment Manager and its affiliates for investment advisory
services and other administrative and shareholder services. The Trustees have
adopted several policies and practices which help ensure their effectiveness and
independence in reviewing fees and representing shareholders. Many of these are
similar to those suggested in the Investment Company Institute's 1999 Report of
the Advisory Group on Best Practices for Fund Directors (the "Advisory Group
Report"). For example, the Independent Trustees select independent legal counsel
to work with them in reviewing fees, advisory and other contracts and overseeing
fund matters. The Trustees are also assisted in this regard by the funds'
independent public accountants and other independent experts retained from time
to time for this purpose. The Independent Trustees regularly meet privately with
their counsel and other advisors. In addition, the Independent Trustees from
time to time have appointed task forces and subcommittees from their members to
focus on particular matters.
The Board of the Acquired Trust has an Audit Committee and a Committee on
Independent Trustees, the responsibilities of which are described below. In
addition, the Acquired Trust has an Executive Committee, a Shareholder Service
Committee and a Valuation Committee.
AUDIT COMMITTEE
The Audit Committee reviews with management and the independent public
accountants for each series of the Acquired Trust, among other things,
11
<PAGE>
the scope of the audit and the internal controls of each series of the Acquired
Trust and its agents, reviews and approves in advance the type of services to be
rendered by independent accountants, recommends the selection of independent
accountants for each series of the Acquired Trust to the Board, reviews the
independence of such firm and, in general, considers and reports to the Board on
matters regarding the accounting and financial reporting practices of each
series of the Acquired Trust.
As suggested by the Advisory Group Report, the Acquired Trust's Audit
Committee is comprised of only Independent Trustees (all of whom serve on the
committee), meets privately with the independent accountants of each series of
the Acquired Trust, will receive annual representations from the accountants as
to their independence, and has a written charter that delineates the committee's
duties and powers.
COMMITTEE ON INDEPENDENT TRUSTEES
The Board of Trustees of the Acquired Trust has a Committee on Independent
Trustees, comprised of all of the Independent Trustees, charged with the duty of
making all nominations of Independent Trustees, establishing Trustees'
compensation policies and reviewing matters relating to the Independent
Trustees.
ATTENDANCE
The full Board of Trustees of the Acquired Trust met five times, the Audit
Committee met two times and the Committee on Independent Trustees met five times
during calendar year 1999. Each then current Trustee attended 100% of the total
meetings of the Board and each above named committee on which he or she served
as a regular member that were held during that period, except Horace B. Deets,
Robert J. Myers, James H. Schulz and Robert N. Butler, who attended 90%, 92%,
92% and 83%, respectively, of those meetings. In addition to these Board and
committee meetings, the Trustees of the Acquired Trust attended various other
meetings on behalf of the Acquired Trust during the year, including meetings
with their independent legal counsel and informational meetings.
12
<PAGE>
OFFICERS
The following persons are officers of the Acquired Trust:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH THE TRUST; PRINCIPAL YEAR FIRST BECAME
NAME (AGE) OCCUPATION OR EMPLOYMENT(1) AN OFFICER(2)
- ---------- ---------------------------------------- -----------------
<S> <C> <C>
Linda C. Coughlin (48)....... Trustee and President; Managing Director
of Scudder Kemper 2000
William F. Glavin, Jr. (41).. Vice President; Managing Director of
Scudder Kemper 1997
Ann M. McCreary (43)......... Vice President; Managing Director of
Scudder Kemper 1998
James E. Masur (39).......... Vice President; Senior Vice President of
Scudder Kemper 1999
John Millette (37)........... Vice President and Assistant Secretary;
Vice President of Scudder Kemper 1999
James W. Pasman (48)......... Vice President; Senior Vice President of
Scudder Kemper 1996
Kathryn L. Quirk (47)........ Vice President and Secretary; Managing
Director of Scudder Kemper 1997
John R. Hebble (41).......... Treasurer; Senior Vice President of
Scudder Kemper 1997
</TABLE>
- ------------------------
(1) Unless otherwise stated, all of the officers have been associated with their
respective companies for more than five years, although not necessarily in
the same capacity.
(2) The President, Treasurer and Secretary each holds office until his or her
successor has been duly elected and qualified, and all other officers hold
offices in accordance with the By-laws of the Acquired Trust.
COMPENSATION OF TRUSTEES AND OFFICERS
The Acquired Trust pays each Independent Trustee an annual Trustee's fee
plus specified amounts for Board and committee meetings attended and reimburses
expenses related to the business of any series of the Acquired Trust. As of
April 1, 1999, each Independent Trustee receives an aggregate annual Trustee's
fee of $12,000 for service on the boards of trustees of the funds offered
13
<PAGE>
through the AARP Investment Program (the "AARP Funds"). (Prior to April 1, 1999,
the annual Trustee's fee was $10,000.) Each Independent Trustee also receives
fees of $175 per fund for attending each meeting of the Board and between $80
and $150 per fund (depending on meeting type) for attending each committee
meeting, or meeting held for the purpose of considering arrangements between the
Acquired Trust and Scudder Kemper, or any of its affiliates. The
newly-constituted Board may determine to change its compensation structure.
The current compensation package for the Independent Trustees of the
Acquired Trust has not included any provisions for pensions or other retirement
benefits. A one-time benefit, however, will be provided to those Independent
Trustees who are not standing for re-election in an amount equal to twice a
Trustee's calendar year 1999 compensation from the AARP Funds. Inasmuch as
Scudder Kemper will also benefit from the administrative efficiencies of a
consolidated board, Scudder Kemper has agreed to bear one-half of the cost of
any such benefit.
Scudder Kemper supervises the Acquired Trust's investments, pays the
compensation and certain expenses of its personnel who serve as Trustees and
officers of the Acquired Trust and receives a management fee for its services.
Several of the Acquired Trust's officers and Trustees are also officers,
directors, employees or stockholders of Scudder Kemper and participate in the
fees paid to that firm, although the Acquired Trust makes no direct payments to
them other than for reimbursement of travel expenses in connection with their
attendance at certain Board and committee meetings.
The following Compensation Table provides in tabular form the following
data:
COLUMN (1) All Trustees who receive compensation from the Acquired Trust.
COLUMN (2) Aggregate compensation received by each Trustee of the Acquired
Trust during calendar year 1999.
COLUMN (3) Total compensation received by each Trustee from funds managed by
Scudder Kemper (collectively, the "Fund Complex") during calendar year 1999.
14
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND COMPLEX
TRUSTEES (NUMBER OF SERIES) PAID TO TRUSTEE
- -------- ------------------ ---------------------
<S> <C> <C>
Carole Lewis Anderson........................ $5,078 (2 series) $40,935 (16 funds)
Adelaide Attard.............................. $4,758 (2 series) $38,375 (16 funds)
Robert N. Butler............................. $4,318 (2 series) $34,855 (16 funds)
Edgar R. Fiedler............................. $3,998 (2 series) $73,230 (29 funds)*
Eugene P. Forrester.......................... $5,078 (2 series) $40,935 (16 funds)
George L. Maddox, Jr......................... $5,078 (2 series) $40,935 (16 funds)
Robert J. Myers.............................. $4,758 (2 series) $38,200 (16 funds)
James H. Schulz.............................. $4,598 (2 series) $37,095 (16 funds)
Gordon Shillinglaw........................... $5,043 (2 series) $44,280 (16 funds)
Jean Gleason Stromberg....................... $5,078 (2 series) $40,935 (16 funds)
</TABLE>
- ------------------------
* Mr. Fiedler's total compensation includes $9,900 accrued, but not received,
through a deferred compensation program for serving on the Board of Directors
of Scudder Fund, Inc.
THE BOARD OF TRUSTEES OF AARP TAX FREE INCOME TRUST RECOMMENDS THAT THE
SHAREHOLDERS OF AARP INSURED TAX FREE GENERAL BOND FUND VOTE FOR EACH NOMINEE.
PROPOSAL 2: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
I. SYNOPSIS
The following is a summary of certain information contained in this Proxy
Statement/Prospectus relating to the Reorganization. This summary is qualified
by reference to the more complete information contained elsewhere in this Proxy
Statement/Prospectus, the prospectuses and statements of additional information
of the Funds, and the Plan. Shareholders should read this entire Proxy
Statement/Prospectus carefully.
INTRODUCTION
The Board of the Acquired Trust, including all of the Independent Trustees,
approved the Plan at a meeting held on February 7, 2000. Subject to its approval
by the shareholders of the Acquired Fund, the Plan provides for
15
<PAGE>
(a) the transfer of all or substantially all of the assets and all of the
liabilities of the Acquired Fund to the Acquiring Fund in exchange for AARP
Shares; (b) the distribution of such shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund; and (c) the abolition of the
Acquired Fund as a series of the Acquired Trust. As a result of the
Reorganization, each shareholder of the Acquired Fund will become a shareholder
of the AARP Shares and will hold, immediately after the Reorganization, AARP
Shares having an aggregate net asset value equal to the aggregate net asset
value of such shareholder's shares of the Acquired Fund on the Valuation Date.
Scudder Kemper is the investment manager of both Funds. If the
Reorganization is completed, the Acquired Fund's shareholders will continue to
enjoy many of the same shareholder privileges as they currently enjoy, such as
the ability to buy, exchange and sell shares without paying a sales commission,
access to professional service representatives, and automatic dividend
reinvestment. See "Purchase, Redemption and Exchange Information."
BACKGROUND OF THE REORGANIZATION
The Reorganization is part of a broader restructuring program proposed by
Scudder Kemper to respond to changing industry conditions and investor needs.
Scudder Kemper seeks to offer the full lineup of the Scudder Family of no-load
funds to members of the AARP Investment Program. The expanded offering should
position the AARP Investment Program to meet the increasingly diverse needs of
current and prospective AARP members.
Scudder Kemper and AARP have advised the Board that they believe that the
proposed changes in the AARP Investment Program from Scudder are in the
interests of shareholders of the AARP Funds and AARP members. The Program would
comprise the shares of the AARP Class of each of forty-three no-load funds,
compared with the current sixteen, and would retain its separate identity, with
separate statements and generally lower minimum investments for participating
shareholders; six core funds(1) would continue to have a risk managed strategy;
education will remain a focus of Scudder Kemper; and AARP will continue to be
involved with the Program and is proposed to have board representation.
- ------------------------
(1) The six core funds would be Scudder GNMA Fund (currently known as AARP
GNMA and U.S. Treasury Fund), Scudder Capital Growth Fund (currently known
as AARP Capital Growth Fund), Scudder Small Company Stock Fund (currently
known as AARP Small Company Stock Fund), Scudder Managed Municipal Bonds,
Scudder Global Fund and Scudder Growth and Income Fund.
16
<PAGE>
As part of this initiative, Scudder Kemper has sought ways to restructure
and streamline the management and operations of the funds it advises. Scudder
Kemper believes, and has advised the boards, that the consolidation of certain
funds advised by it would benefit fund shareholders. Scudder Kemper has,
therefore, proposed the consolidation of a number of no-load funds advised by it
that Scudder Kemper believes have similar or compatible investment objectives
and policies. In many cases, the proposed consolidations are designed to
eliminate the substantial overlap in current offerings by the Scudder Funds and
the AARP Funds, all of which are advised by Scudder Kemper. Consolidation plans
are proposed for other funds that have not gathered enough assets to operate
efficiently and, in turn, have relatively high expense ratios. Scudder Kemper
believes that these consolidations may help to enhance investment performance of
funds and increase efficiency of operations. The Reorganization is also expected
to result in lower operating expenses for Acquired Fund shareholders, as
described in "Comparison of Expenses" below.
There are currently five different boards for the no-load funds advised by
Scudder Kemper. Scudder Kemper believes, and has proposed to the boards, that
creating a single board responsible for the AARP Funds and for the open-end,
directly-distributed, no-load Scudder Funds would increase efficiency and
benefit fund shareholders. (See Proposal 1 above.)
As part of this restructuring effort, Scudder Kemper has also proposed the
adoption of an administrative fee for most of the no-load funds advised by
Scudder Kemper. Under this fee structure, in exchange for payment by a fund of
an administrative fee, Scudder Kemper would agree to provide or pay for
substantially all services that the fund normally requires for its operations,
other than those provided under the fund's investment management agreement and
certain other expenses. Such an administrative fee would enable investors to
determine with greater certainty the expense level that a fund will experience,
and, for the term of the administrative agreement, would transfer substantially
all of the risk of increased costs to Scudder Kemper. Scudder Kemper has
proposed that the Acquiring Fund implement such an administrative fee upon the
Closing, as described in "Administrative Fee" below.
The fund consolidations, the adoption of an administrative fee and the
creation of a single board are expected to have a positive impact on Scudder
Kemper, as well. These changes are likely to result in reduced costs (and the
potential for increased profitability) for Scudder Kemper in advising or
servicing funds.
17
<PAGE>
REASONS FOR THE PROPOSED REORGANIZATION; BOARD APPROVAL
Since receiving Scudder Kemper's proposals on September 22, 1999, the
Independent Trustees have conducted a thorough review of all aspects of the
proposed restructuring program. They have been assisted in this regard by their
independent counsel and by independent consultants with special expertise in
financial and mutual fund industry matters. In the course of discussions with
representatives of Scudder Kemper, the Independent Trustees have requested, and
Scudder Kemper has accepted, numerous changes designed to protect and enhance
the interests of shareholders. See "The Proposed Transaction - Board Approval of
the Proposed Transaction" below.
The Trustees believe that the Reorganization may provide shareholders of the
Acquired Fund with the following benefits:
- LOWER EXPENSES. If the Reorganization is approved, Acquired Fund
shareholders are expected to benefit from lower total Fund operating
expenses. Please refer to "Comparison of Expenses" below.
- GREATER PREDICTABILITY OF EXPENSES. On or prior to the Closing, the
Acquiring Fund and Scudder Kemper will enter into an administrative
services agreement pursuant to which Scudder Kemper will provide or pay
others to provide substantially all of the administrative services
required by the Acquiring Fund, and will pay most Acquiring Fund expenses,
in return for payment by the Acquiring Fund of a single administrative fee
rate. This agreement, which has an initial three year term, will protect
the Acquiring Fund's shareholders from increases in the Acquiring Fund's
expense ratio attributed to any increases in the costs of providing these
services.
- SIMILAR INVESTMENT OBJECTIVES AND POLICIES. The combined fund will
continue to seek income exempt from regular federal income tax through
investments primarily in domestic municipal bonds. Although the combined
fund will not have the Acquired Fund's current policy of investing in
insured bonds, if the Reorganization is approved, the combined fund will
modify its investment policies to also actively seek to reduce downside
risk as compared with other municipal bond funds, a policy consistent with
the risk-managed aspect of the Acquired Fund's policies. The Funds are
currently managed by the same portfolio management teams and,
notwithstanding the Acquired Fund's higher allocation of insured bonds,
have similar investment styles.
- INVESTMENT IN A LARGER FUND. Scudder Kemper has advised the Trustees that
the Acquired Fund's shareholders will benefit from an investment in a
larger fund which will likely have the ability to effect
18
<PAGE>
portfolio transactions on more favorable terms and provide Scudder Kemper
with greater investment flexibility and the ability to select a larger
number of portfolio securities for the combined fund, with the attendant
ability to spread investment risks among a larger number of portfolio
securities.
- TAX-FREE REORGANIZATION. It is a condition of the Reorganization that each
Fund receive an opinion of tax counsel that the transaction would be a
TAX-FREE transaction.
For these reasons, as more fully described below under "The Proposed
Transaction - Board Approval of the Proposed Transaction," the Trustees of the
Acquired Trust, including the Independent Trustees, have concluded that:
- the Reorganization is in the best interests of the Acquired Fund and its
shareholders; and
- the interests of the existing shareholders of the Acquired Fund will not
be diluted as a result of the Reorganization.
ACCORDINGLY, THE TRUSTEES RECOMMEND APPROVAL OF THE PLAN EFFECTING THE
REORGANIZATION. If the Plan is not approved, the Acquired Fund will continue in
existence unless other action is taken by the Trustees.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS OF THE FUNDS
The investment objectives, policies and restrictions of the Acquired Fund
and the Acquiring Fund (and, consequently, the risks of investing in either
Fund) are very similar. Some differences do exist. The investment objective of
the Acquiring Fund is to seek income exempt from regular federal income tax. The
investment objective of the Acquired Fund is to produce a high level of income
that is free from federal income taxes while actively seeking to reduce downside
risk as compared with other insured tax-free bond mutual funds. There can be no
assurance that either Fund will achieve its investment objective. Both Funds
have the same portfolio managers and are managed in a substantially similar
manner, except that the Acquired Fund seeks to reduce downside risk by
maintaining a duration that is generally shorter than comparable mutual funds
and adjusting its duration in response to market conditions.
The Acquiring Fund must invest 80% of its net assets in securities of
municipalities across the United States and in other securities whose income is
free from regular federal income tax. Under normal market conditions, the
Acquiring Fund expects to invest 100% of its portfolio in federally tax-exempt
municipal securities. The Acquiring Fund, while it may invest in short, medium-,
or long-term securities, has invested primarily in medium- and long-term
municipal bonds in recent years. The Acquired Fund normally invests at least 80%
of
19
<PAGE>
its net assets in high quality, tax-exempt municipal securities. It includes
short-and medium-term bonds in its portfolio. The Acquired Fund also may invest
up to 20% of its assets in U.S. government securities.
One important difference between the Funds is that while at least 65% of the
total assets held by the Acquired Fund must be fully insured as to the principal
amount and interest by nationally recognized private insurers, the Acquiring
Fund has no such requirement. Insurance guarantees the timely payment of
principal and interest in the event of default, but does not protect against a
decrease in value. Insurance also involves a cost to the Acquired Fund which
will reduce yield.
The Acquiring Fund normally invests at least 65% of its net assets in
securities rated within the top three rating categories by Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Services, a division of
the McGraw-Hill Companies, Inc. ("S&P"), or if unrated, of equivalent quality as
determined by the Investment Manager. The Acquiring Fund may invest up to 10% of
its assets in debt securities rated lower than Baa by Moody's or BBB by S&P, but
will not purchase bonds rated below B. The Acquired Fund, except with respect to
futures and options, only purchases securities rated within the top three rating
categories by Moody's and S&P, independent of any applicable insurance credit
enhancement.
Each Fund normally prefers to invest in securities that cannot be called in
before maturity. The Acquired Fund may make only limited use (in terms of type
of transaction and amount) of derivatives, futures and options. The Acquiring
Fund, while limited to 5% of assets committed to such transactions entered into
for non-hedging purposes, may make more use (in terms of type of transaction and
amount) of such transactions. Each Fund also has different limits regarding the
percentage of assets that may be invested in private activity bonds, which the
Acquired Fund currently does not intend to purchase.
Each Fund may invest up to 20% of its assets in securities whose investment
income is taxable or is subject to the Alternative Minimum Tax. The Acquired
Fund has no current intention to purchase such securities.
The Acquired Fund does not invest in securities issued by tobacco-producing
companies, and has a stated goal of educating shareholders on investment topics
affecting their lives. Upon the Closing, the Acquiring Fund will modify its
policies to also seek to reduce downside risk as compared with other tax-free
income funds by maintaining a duration that is generally shorter than comparable
mutual funds and adjusting its duration in response to market conditions. In
addition, the Acquiring Fund will adopt the policy of excluding investment in
securities issued by tobacco-producing companies.
20
<PAGE>
The Acquiring Fund's investment restrictions are identical to the Acquired
Fund's investment restrictions, as such restrictions are set forth under
"Investment Restrictions" in each Fund's statement of additional information,
except that the Funds use different language to characterize the types of
instruments in which 80% of each Fund's assets must be invested. The Acquiring
Fund must have 80% of its net assets invested in "municipal securities" during
periods of normal market conditions, while the Acquired fund must have 80% of
its net assets invested in "securities that are exempt from Federal income tax"
during periods of normal market conditions. Investment restrictions of each Fund
that are fundamental policies may not be changed without the approval of Fund
shareholders. Investors should refer to the respective statements of additional
information of the Funds for a fuller description of each Fund's investment
policies and restrictions.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Acquiring Fund, i.e., the ratio of the
lesser of annual sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator securities with
maturities at the time of acquisition of one year or less), for the fiscal year
ended December 31, 1998 and for the five months ended May 31, 1999 (i.e., prior
to the creation of AARP Shares) was 8.6% and 13.8% (annualized), respectively.
The portfolio turnover rate for the Acquired Fund for the fiscal year ended
September 30, 1999 was 7.9%.
PERFORMANCE
The following table shows how each Fund's returns over different periods
average out. For context, the table also includes a broad-based market index
(which, unlike the Funds, does not have any fees or expenses). The performances
of both Funds and the index vary over time. All figures assume reinvestment of
dividends and distributions.
21
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDING DECEMBER 31, 1999
<TABLE>
<CAPTION>
ACQUIRING FUND* ACQUIRED FUND BENCHMARK INDEX**
--------------- ------------- -----------------
<S> <C> <C> <C>
Past year................ (1.96)% (2.00)% (2.06)%
Past 5 years............. 6.78% 6.27% 6.91%
Past 10 years............ 6.80% 6.38% 6.89%
</TABLE>
- ------------------------
* AARP Shares were not offered during the periods covered. Performance shown is
for shares of the Acquiring Fund existing during the periods covered.
** Each Fund's benchmark index is the Lehman Brothers Municipal Bond Index, an
unmanaged, market value-weighted measure of 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 are calculated monthly.
There may be differences in the Funds' yields. For information regarding
each Fund's current 30-day yield, please call (800) 253-2277 with respect to the
Acquired Fund and (800) 728-3337 for the Acquiring Fund.
For management's discussion of the Acquiring Fund's performance for the
fiscal year ended May 31, 1999 (prior to the creation of AARP Shares), see
Exhibit B attached hereto.
INVESTMENT MANAGER; FEES AND EXPENSES
Each Fund retains the investment management firm of Scudder Kemper, pursuant
to separate contracts, to manage its daily investment and business affairs,
subject to the policies established by the Fund's Trustees. Shareholders pay no
direct charges or fees for investment management or other services. Scudder
Kemper is a Delaware corporation located at Two International Place, Boston,
Massachusetts 02110-4103.
The Investment Manager receives a fee for its services pursuant to its
investment management agreement with the Acquiring Fund. For these services, the
Acquiring Fund pays the Investment Manager a fee at an annual rate of 0.55% of
the first $200 million of average daily net assets, 0.50% of the next $500
million and 0.475% on average daily net assets in excess of $700 million. The
fee is graduated so that increases in the Acquiring Fund's net assets may result
in a lower annual fee rate and decreases in its net assets may result in a
higher annual fee rate. As of May 31, 1999, the Acquiring Fund had total net
assets of $713,401,169. For the fiscal year ended December 31, 1998 and for the
five
22
<PAGE>
months ended May 31, 1999, the Acquiring Fund paid the Investment Manager a fee
of 0.51% and 0.51% (annualized), respectively, of average daily net assets.
Scudder Kemper has proposed a new investment management agreement for the
Acquiring Fund. The proposed new investment management agreement includes a new
fee rate, which is, at all asset levels, effectively the same as or lower than
the current rate applicable to the Acquiring Fund. The proposed new fee rate is
0.49% of the first $2 billion of average daily net assets, 0.465% on the next $1
billion, and 0.44% on average daily net assets in excess of $3 billion. Each of
the effectiveness of the new investment management agreement for the Acquiring
Fund and the Closing is contingent upon the other.
The Investment Manager receives a fee pursuant to an investment management
agreement as compensation for its services on behalf of the Acquired Fund.
Pursuant to the Acquired Fund's investment management agreement, the fee payable
to Scudder Kemper is calculated using a formula based in part on the combined
net assets of all AARP Funds, except for the two series of AARP Managed
Investment Portfolios Trust. The Acquired Fund currently pays the Investment
Manager a fee at an annual rate of 0.47% of average daily net assets. The fee
for the Acquiring Fund is calculated in a different manner than is currently
used for the Acquired Fund. Unlike the fee for the Acquired Fund, the Acquiring
Fund's fee will not go up or down based on the net assets of other funds managed
by the Investment Manager, but it will go up or down based on the net assets of
the Acquiring Fund. As of September 30, 1999, the Acquired Fund had total net
assets of $1,591,979,569. For the fiscal year ended September 30, 1999, the
Acquired Fund paid the Investment Manager a fee of 0.47% of average daily net
assets. There is currently an arrangement between Scudder Kemper and AARP
Financial Services Corporation ("AFSC") pursuant to which Scudder Kemper
currently pays AFSC a monthly fee based on the net assets of AARP Funds.
ADMINISTRATIVE FEE
On or prior to the Closing, the Acquiring Fund will have entered into an
administrative services agreement with Scudder Kemper (the "Administration
Agreement"), pursuant to which Scudder Kemper will provide or pay others to
provide substantially all of the administrative services required by the
Acquiring Fund (other than those provided by Scudder Kemper under its investment
management agreement with the Fund, as described above) in exchange for the
payment by the Acquiring Fund of an administrative services fee (the
"Administrative Fee") of 0.15% of average daily net assets. One effect of this
arrangement is to make the Acquiring Fund's future expense ratio more
predictable.
23
<PAGE>
The details of this arrangement (including expenses that are not covered) are
set out below.
Various third-party service providers (the "Service Providers"), some of
which are affiliated with Scudder Kemper, provide certain services to the
Acquiring Fund pursuant to separate agreements with the Fund, subject to
oversight and approval by the Acquiring Trust's trustees. Scudder Fund
Accounting Corporation, a subsidiary of Scudder Kemper, computes net asset value
for the Acquiring Fund and maintains its accounting records. Scudder Service
Corporation, also a subsidiary of Scudder Kemper, is the transfer, shareholder
servicing and dividend-paying agent for the shares of the Acquiring Fund.
Scudder Trust Company, an affiliate of Scudder Kemper, provides subaccounting
and recordkeeping services for shareholder accounts in certain retirement and
employee benefit plans. As custodian, State Street Bank and Trust Company holds
the portfolio securities of the Acquiring Fund, pursuant to a custodian
agreement. PricewaterhouseCoopers LLP audits the financial statements of the
Acquiring Fund and provides other audit, tax, and related services. Willkie
Farr & Gallagher acts as general counsel for the Acquiring Fund. In addition to
the fees it pays under its current investment management agreement with Scudder
Kemper, the Acquiring Fund pays the fees and expenses associated with these
service arrangements, as well as the Acquiring Fund's insurance, registration,
printing, postage and other costs.
Once the Administration Agreement becomes effective, each Service Provider
will continue to provide the services that it currently provides to the
Acquiring Fund, as described above, under the current arrangements, except that
Scudder Kemper will pay these entities for the provision of their services to
the Acquiring Fund and will pay most other Fund expenses, including insurance,
registration, printing and postage fees. In return, the Acquiring Fund will pay
Scudder Kemper the Administrative Fee.
The proposed Administration Agreement will have an initial term of three
years, subject to earlier termination by the Acquiring Trust's trustees. The fee
payable by the Acquiring Fund to Scudder Kemper pursuant to the Administration
Agreement would be reduced by the amount of any credit received from the
Acquiring Fund's custodian for cash balances.
Certain expenses of the Acquiring Fund would not be borne by Scudder Kemper
under the Administration Agreement, such as taxes, brokerage, interest and
extraordinary expenses, and the fees and expenses of the Independent Trustees
(including the fees and expenses of their independent counsel). In addition, the
Acquiring Fund would continue to pay the fees required by its investment
management agreement with Scudder Kemper.
24
<PAGE>
COMPARISON OF EXPENSES
The tables and examples below are designed to assist you in understanding
the various costs and expenses that you will bear directly or indirectly as an
investor in the AARP Shares, and comparing these with the expenses of the
Acquired Fund. AS INDICATED BELOW, IT IS EXPECTED THAT THE TOTAL EXPENSE RATIO
OF THE ACQUIRING FUND FOLLOWING THE REORGANIZATION WILL BE LOWER THAN THE
CURRENT EXPENSE RATIO OF THE ACQUIRED FUND. Unless otherwise noted, the
information is based on each Fund's expenses (and average daily net assets)
during the twelve months ended October 31, 1999 and on a pro forma basis as of
that date and for the period then ended, giving effect to the Reorganization.
Information in the tables and examples relating to the Acquiring Fund relates to
the Acquiring Fund as a whole prior to the creation of the AARP Shares. Pro
Forma information in the tables and examples relates to the AARP Shares and the
S Class of shares of the Acquiring Fund. (Please see "Description of the
Securities to be Issued" below.)
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA*
FUND FUND (COMBINED)
--------- -------- ----------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)............. None None None
Maximum deferred sales charge (load) (as a
percentage of purchase price or redemption
proceeds)....................................... None None None
Maximum deferred sales charge (load) imposed on
reinvested dividends............................ None None None
Redemption fee (as a percentage of amount
redeemed, if applicable)(+)..................... None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA(*@)
FUND FUND (COMBINED)
--------- -------- -------------
<S> <C> <C> <C>
Management fees................................... 0.51% 0.47% 0.49%
Distribution and/or service (12b-1) fees.......... None None None
Other expenses.................................... 0.16% 0.21% 0.15%
Total annual Fund operating expenses.............. 0.67% 0.68% 0.64%
</TABLE>
- ------------------------
(+) There is a $5 wire service fee for receiving redemption proceeds via wire.
25
<PAGE>
* Pro Forma expenses reflect the implementation of the Administrative Fee and
of a new investment management fee for the Acquiring Fund to be effective
upon the Reorganization.
(@) It is being proposed to shareholders of Scudder Ohio Tax Free Fund, another
fund advised by Scudder Kemper, that the Acquiring Fund acquire the assets
of that other fund. Each of the closing of this other acquisition and the
Closing is contingent upon the other. Pro Forma expenses reflect the
acquisition by the Acquiring Fund of both this other fund and the Acquired
Fund.
In evaluating the Reorganization, the Independent Trustees focused their
consideration on the Acquiring Fund's and the Acquired Fund's estimated expense
ratios calculated utilizing Fund net assets at December 31, 1999 (rather than
average daily net assets for a full year, as used in the table above), the
number of shareholder accounts at that date, and other relevant factors. This
calculation resulted in an estimated total annual expense ratio of 0.64% for the
Acquiring Fund and 0.71% for the Acquired Fund.
EXAMPLES (UNAUDITED)
Based on the costs above, the following examples are intended to help you
compare the cost of investing in the Funds with the cost of investing in other
mutual funds. The examples assume that you invest $10,000 in each Fund for the
time periods indicated and then redeem all of your shares at the end of those
periods. The examples also assume that your investment has a 5% return each
year, you reinvested all dividends and distributions, and each Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be as follows:
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA
YEAR FUND FUND (COMBINED)(*@)
- ---- --------- -------- --------------
<S> <C> <C> <C>
1ST................................... $ 68 $ 69 $ 65
3RD................................... $214 $218 $205
5TH................................... $373 $379 $357
10TH.................................. $835 $847 $798
</TABLE>
- ------------------------
* Pro Forma expenses reflect the implementation of the Administrative Fee and
of a new investment management fee for the Acquiring Fund to be effective
upon the Reorganization.
(@) It is being proposed to shareholders of Scudder Ohio Tax Free Fund, another
fund advised by Scudder Kemper, that the Acquiring Fund acquire the assets
of that other fund. Each of the closing of this other acquisition
26
<PAGE>
and the Closing is contingent upon the other. Pro Forma expenses reflect the
acquisition by the Acquiring Fund of both this other fund and the Acquired
Fund.
FINANCIAL HIGHLIGHTS
The financial highlights table for the Acquiring Fund prior to the creation
of the AARP Shares, which is intended to help you understand the Acquiring
Fund's financial performance for the past five years, is included in the
Acquiring Fund's prospectus dated October 1, 1999, which is included herewith
and incorporated herein by reference.
DISTRIBUTION OF SHARES
Scudder Investor Services, Inc. ("SIS"), Two International Place, Boston,
Massachusetts 02110, a subsidiary of the Investment Manager, is the principal
underwriter of each Fund. SIS charges no direct fees in connection with the
distribution of shares of the Funds. Following the Reorganization, Acquiring
Fund shareholders will continue to be able to purchase shares of the funds in
the Scudder Family of Funds on a no-load basis.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
The purchase, redemption and exchange procedures and privileges of the
Acquired Fund are identical to those that will be in place for the AARP Shares,
except for the range of funds available under the exchange privilege and the
minimum balance requirements.
Acquired Fund shareholders may currently exchange Acquired Fund shares only
into AARP Funds, while holders of AARP Shares will be able to exchange AARP
Shares into shares of any fund within the Scudder Family of Funds on a no-load
basis. The minimum balance for non-retirement accounts investing in the AARP
Shares will be $1,000, which is lower than the minimum balance for
non-retirement accounts investing in the Acquired Fund. The minimum balance for
Individual Retirement Accounts ("IRAs") investing in AARP Shares will be $500,
as compared to $250 for the Acquired Fund. However, Acquired Fund IRA
shareholders receiving AARP Shares as a result of the Reorganization will only
be required to meet the Acquired Fund's $250 minimum balance requirement for
IRAs.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each of the Funds intends to declare dividends from its net investment
income daily and distribute them monthly. Each Fund intends to distribute net
27
<PAGE>
realized capital gains after utilization of capital loss carryforwards, if any,
in November or December of each year. An additional distribution may be made if
necessary. Dividends and distributions of each Fund will be invested in
additional shares of the Fund at net asset value and credited to the
shareholder's account on the payment date or, at the shareholder's election,
paid in cash.
If the Plan is approved by the Acquired Fund's shareholders, the Acquired
Fund will pay its shareholders a distribution of all undistributed net
investment income and undistributed realized net capital gains immediately prior
to the Closing.
TAX CONSEQUENCES
As a condition to the Reorganization, the Acquiring Fund and the Acquired
Fund will have received an opinion of Willkie Farr & Gallagher in connection
with the Reorganization, to the effect that, based upon certain facts,
assumptions and representations, the Reorganization will constitute a tax-free
reorganization within the meaning of section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"). If the Reorganization constitutes a
tax-free reorganization, no gain or loss will be recognized by the Acquired Fund
or its shareholders as a direct result of the Reorganization. See "The Proposed
Transaction -- Federal Income Tax Consequences."
II. PRINCIPAL RISK FACTORS
Because of their similar investment objectives, policies and strategies, the
types of principal risks presented by the Acquiring Fund are similar to those
presented by the Acquired Fund. The main risks applicable to each Fund include,
among others, management risk (i.e., securities selection by the Investment
Manager), risk associated with interest rates, and risk associated with credit
quality, but an investment in the Acquiring Fund generally will be subject to a
higher level of credit risk. As stated earlier, at least 65% of the total assets
held by the Acquired Fund must be fully insured as to the principal amount and
interest by nationally recognized private insurers. Generally, insured bonds
receive a higher credit rating than uninsured bonds; therefore, the greater the
percentage of insured holdings, generally the higher the Fund's credit quality
and the less its exposure to credit quality risk. The credit quality of a bond
has an impact on its price. In most cases, the higher the credit quality of a
bond, the lower its yield will be; consequently, the price of an insured bond
may be higher.
For a further discussion of the investment techniques and risk factors
applicable to the Funds, see "Investment Objectives, Policies and Restrictions
of the Funds" above, and the prospectuses and statements of additional
information for the Funds, which are incorporated by reference herein.
28
<PAGE>
III. THE PROPOSED TRANSACTION
DESCRIPTION OF THE PLAN
As stated above, the Plan provides for the transfer of all or substantially
all of the assets of the Acquired Fund to the Acquiring Fund in exchange for
that number of full and fractional AARP Shares having an aggregate net asset
value equal to the aggregate net asset value of the Acquired Fund as of the
close of business on the Valuation Date. The Acquiring Fund will assume all of
the liabilities of the Acquired Fund. The Acquired Fund will distribute the AARP
Shares received in the exchange to the shareholders of the Acquired Fund in
complete liquidation of the Acquired Fund. The Acquired Fund will be abolished
as a series of the Acquired Trust.
Upon completion of the Reorganization, each shareholder of the Acquired Fund
will own that number of full and fractional AARP Shares having an aggregate net
asset value equal to the aggregate net asset value of such shareholder's shares
held in the Acquired Fund immediately as of the close of business on the
Valuation Date. Such shares will be held in an account with the Acquiring Trust
identical in all material respects to the account currently maintained by the
Acquired Trust for such shareholder, except as noted above. In the interest of
economy and convenience, AARP Shares issued to the Acquired Fund's shareholders
will be in uncertificated form.
Until the Closing, shareholders of the Acquired Fund will continue to be
able to redeem their shares at the net asset value next determined after receipt
by the Acquired Fund's transfer agent of a redemption request in proper form.
Redemption and purchase requests received by the transfer agent after the
Closing will be treated as requests received for the redemption or purchase of
AARP Shares received by the shareholder in connection with the Reorganization.
The obligations of each Trust on behalf of the Acquired Fund and the
Acquiring Fund, respectively, under the Plan are subject to various conditions,
as stated therein. Among other things, the Plan requires that all filings be
made with, and all authority be received from, the SEC and state securities
commissions as may be necessary in the opinion of counsel to permit the parties
to carry out the transactions contemplated by the Plan. The Acquired Fund and
the Acquiring Fund are in the process of making the necessary filings. To
provide against unforeseen events, the Plan may be terminated or amended at any
time prior to the Closing by action of the Trustees of either Trust,
notwithstanding the approval of the Plan by the shareholders of the Acquired
Fund. However, no amendment may be made that materially adversely affects the
interests of the shareholders of the Acquired Fund without obtaining the
approval of the
29
<PAGE>
Acquired Fund's shareholders. The Acquired Fund and the Acquiring Fund may at
any time waive compliance with certain of the covenants and conditions contained
in the Plan. For a complete description of the terms and conditions of the
Reorganization, see the Plan at Exhibit A.
Each Fund will pay its own allocable share of expenses associated with the
Reorganization, except that Scudder Kemper will bear any such expenses in excess
of $25,202 for the Acquiring Fund and $748,040 for the Acquired Fund
(approximately $0.0003 and $0.0086 per share, respectively, based on
December 31, 1999 net assets for each Fund). As investors in a Fund, Fund
shareholders indirectly bear a portion of these expenses.
BOARD APPROVAL OF THE PROPOSED TRANSACTION
Scudder Kemper first proposed the Reorganization to the Independent Trustees
of the Acquired Fund at a meeting held on September 22, 1999. The Reorganization
was presented to the Trustees and considered by them as part of a broader
initiative by Scudder Kemper to restructure many of the mutual funds advised by
it that are currently offered to retail investors (see "Synopsis -- Background
of the Reorganization" above). This initiative includes four major components:
(i) The combination of funds with similar investment objectives and
policies, including in particular the combination of the AARP Funds with
similar Scudder Funds currently offered to the general public;
(ii) The liquidation of certain small funds which have not achieved
market acceptance and which are unlikely to reach an efficient operating
size;
(iii) The implementation of an administration agreement for each fund,
covering, for a single fee rate, substantially all services required for the
operation of the fund (other than those provided under the fund's investment
management agreement) and most expenses; and
(iv) The consolidation of the separate boards currently responsible for
overseeing several groups of no-load funds managed by Scudder Kemper into a
single board.
The Independent Trustees of the Acquired Fund reviewed the potential
implications of these proposals for the Acquired Fund as well as the various
other funds for which they serve as trustees or directors. They were assisted in
this review by their independent legal counsel and by independent consultants
with special expertise in financial and mutual fund industry matters. Following
the September 22 meeting, the Independent Trustees met in person or by
30
<PAGE>
telephone on a number of occasions (including committee meetings) to review and
discuss these proposals, both among themselves and with representatives of
Scudder Kemper. On a number of occasions, these meetings included
representatives of the independent trustees or directors of other funds affected
by these proposals. In the course of their review, the Independent Trustees
requested and received substantial additional information and suggested numerous
changes to Scudder Kemper's proposals, many of which were accepted.
Following the conclusion of this process, the Independent Trustees of the
Acquired Fund, the independent trustees/directors of other funds involved and
Scudder Kemper reached general agreement on the elements of a restructuring plan
as it affects shareholders of various funds and, where required, agreed to
submit elements of the plan for approval to shareholders of those funds.
On February 7, 2000, the Board of the Acquired Fund, including the
Independent Trustees of the Acquired Fund, approved the terms of the
Reorganization and certain related proposals. The Independent Trustees have also
agreed to recommend that the Reorganization be approved by the Acquired Fund's
shareholders.
In determining to recommend that the shareholders of the Acquired Fund
approve the Reorganization, the Board considered, among other factors: (a) the
fees and expense ratios of the Funds, including comparisons between the expenses
of the Acquired Fund and the estimated operating expenses of the Acquiring Fund,
and between the estimated operating expenses of the Acquiring Fund and other
mutual funds with similar investment objectives; (b) the terms and conditions of
the Reorganization and whether the Reorganization would result in the dilution
of shareholder interests; (c) the compatibility of the Acquired Fund's and the
Acquiring Fund's investment objectives, policies, restrictions and portfolios;
(d) the agreement by Scudder Kemper to provide services to the Acquiring Fund
for a fixed fee rate under the Administration Agreement with an initial three
year term; (e) the service features available to shareholders of the Acquired
Fund and the Acquiring Fund; (f) the costs to be borne by the Acquired Fund, the
Acquiring Fund and Scudder Kemper as a result of the Reorganization; (g)
prospects for the Acquiring Fund to attract additional assets; (h) the tax
consequences of the Reorganization on the Acquired Fund, the Acquiring Fund and
their respective shareholders; and (i) the investment performance of the
Acquired Fund and the Acquiring Fund.
The Trustees also gave extensive consideration to possible economies of
scale that might be realized by Scudder Kemper in connection with the
Reorganization, as well as the other fund combinations included in Scudder
Kemper's restructuring proposal. The Trustees concluded that these economies
were
31
<PAGE>
appropriately reflected in the fee and expense arrangements of the Acquiring
Fund, as proposed to be revised upon completion of the Reorganization. In
particular, the Trustees considered the benefits to shareholders resulting from
locking in the rate of the Acquiring Fund's Administrative Fee for an initial
three-year period. Because the Acquiring Fund will pay only its stated
Administrative Fee rate for such services and expenses regardless of changes in
actual costs, the Acquiring Fund's shareholders will be protected from increases
in the Acquiring Fund's expense ratio attributable to increases in such actual
costs. The Board also considered the protection this would afford shareholders
if the Acquiring Fund's net assets declined as a result of market fluctuations
or net redemptions.
The Trustees also considered the impact of the Reorganization on the total
expenses to be borne by shareholders of the Acquired Fund. As noted above under
"Comparison of Expenses," the pro forma expense ratio (reflecting the
Administrative Fee) for the combined Fund following the Reorganization is lower
than the current expense ratio for the Acquired Fund. The Board also considered
that the Reorganization would permit the shareholders of the Acquired Fund to
pursue similar investment goals in a larger fund. In this regard, Scudder Kemper
advised the Trustees of the Acquired Fund that the Acquired Fund's shareholders
will benefit from being in a larger fund which will likely have the ability to
effect portfolio transactions on more favorable terms and provide Scudder Kemper
with greater investment flexibility and the ability to select a larger number of
portfolio securities for the combined Fund, with the ability to spread
investment risks among a larger number of portfolio securities.
Finally, the Trustees concluded that the shareholders of the Acquired Fund
would be better served by having their interests represented by a single board
of trustees or directors with responsibility for overseeing substantially all of
the funds to be marketed as a "family of funds" through Scudder's no-load
distribution channels. Accordingly, the Trustees agreed to recommend the
election of a new consolidated board comprised of representatives of each of the
various boards currently serving as trustees or directors of these funds.
Based on all of the foregoing, the Board concluded that the Acquired Fund's
participation in the Reorganization would be in the best interests of the
Acquired Fund and would not dilute the interests of the Acquired Fund's
shareholders. THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES,
RECOMMENDS THAT SHAREHOLDERS OF THE ACQUIRED FUND APPROVE THE REORGANIZATION.
32
<PAGE>
DESCRIPTION OF THE SECURITIES TO BE ISSUED
The Acquiring Fund is a series of the Acquiring Trust, a Massachusetts
business trust established under a Declaration of Trust dated September 24,
1976, as amended. The Acquiring Trust's authorized capital consists of an
unlimited number of shares of beneficial interest, par value $0.01 per share.
The Trustees of the Acquiring Trust are authorized to divide the Acquiring
Trust's shares into separate series. The Acquiring Fund is one of two series of
the Acquiring Trust that the Board has created to date. The Trustees of the
Acquiring Trust are also authorized to further divide the shares of the series
of the Acquiring Trust into classes. The Trustees of the Acquiring Trust have
authorized the division of the Acquiring Fund into two classes, S Class and AARP
Class. It is anticipated that this division will occur prior to the Closing and
that shares of the Acquiring Fund existing at that time will be redesignated as
S Class shares of the Acquiring Fund. If AARP Shares are not created prior to
the Closing, then the Reorganization will not be consummated. Although
shareholders of different classes of a series have an interest in the same
portfolio of assets, shareholders of different classes may bear different
expenses in connection with different methods of distribution and certain other
matters.
Each share of each class of the Acquiring Fund represents an interest in the
Acquiring Fund that is equal to and proportionate with each other share of that
class of the Acquiring Fund. Acquiring Fund shareholders are entitled to one
vote per share held on matters on which they are entitled to vote. In the areas
of shareholder voting and the powers and conduct of the Trustees, there are no
material differences between the rights of shareholders of the Acquired Fund and
the rights of shareholders of the Acquiring Fund.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by the Acquired Trust, on
behalf of the Acquired Fund, and the Acquiring Trust, on behalf of the Acquiring
Fund, of an opinion from Willkie Farr & Gallagher, substantially to the effect
that, based upon certain facts, assumptions and representations of the parties,
for federal income tax purposes: (i) the transfer to the Acquiring Fund of all
or substantially all of the assets of the Acquired Fund in exchange solely for
AARP Shares and the assumption by the Acquiring Fund of all of the liabilities
of the Acquired Fund, followed by the distribution of such shares to the
Acquired Fund's shareholders in exchange for their shares of the Acquired Fund
in complete liquidation of the Acquired Fund, will constitute a "reorganization"
within the meaning of Section 368(a)(1) of the Code, and the Acquiring Fund and
the Acquired Fund will each be "a party to a reorganization" within the meaning
of Section 368(b) of the Code; (ii) no gain or loss will be
33
<PAGE>
recognized by the Acquired Fund upon the transfer of all or substantially all of
its assets to the Acquiring Fund in exchange solely for AARP Shares and the
assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund
or upon the distribution of the AARP Shares to the Acquired Fund shareholders in
exchange for their shares of the Acquired Fund; (iii) the basis of the assets of
the Acquired Fund in the hands of the Acquiring Fund will be the same as the
basis of such assets of the Acquired Fund immediately prior to the transfer;
(iv) the holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which such assets were held by the
Acquired Fund; (v) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for AARP Shares and
the assumption by the Acquiring Fund of all of the liabilities of the Acquired
Fund; (vi) no gain or loss will be recognized by the shareholders of the
Acquired Fund upon the receipt of the AARP Shares solely in exchange for their
shares of the Acquired Fund as part of the transaction; (vii) the basis of the
AARP Shares received by the shareholders of the Acquired Fund will be the same
as the basis of the shares of the Acquired Fund exchanged therefor; and (viii)
the holding period of AARP Shares received by the shareholders of the Acquired
Fund will include the holding period during which the shares of the Acquired
Fund exchanged therefor were held, provided that at the time of the exchange the
shares of the Acquired Fund were held as capital assets in the hands of the
shareholders of the Acquired Fund.
After the Closing, the Acquiring Fund may dispose of certain securities
received by it from the Acquired Fund in connection with the Reorganization,
which may result in transaction costs and capital gains.
While the Acquired Trust is not aware of any adverse state or local tax
consequences of the proposed Reorganization, it has not requested any ruling or
opinion with respect to such consequences and shareholders may wish to consult
their own tax adviser with respect to such matters.
34
<PAGE>
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of each
Fund and Scudder Ohio Tax Free Fund(@) as of October 31, 1999 (i.e., prior to
the creation of AARP Shares), and, on a pro forma basis, as of that date, giving
effect to the Reorganization:
<TABLE>
<CAPTION>
SCUDDER OHIO
ACQUIRING ACQUIRED TAX FREE PRO FORMA PRO FORMA
FUND FUND FUND ADJUSTMENTS COMBINED(1)
------------ -------------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
S Class.............. $706,598,558 $91,883,566 ($ 40,584)(3) $ 798,441,540
AARP Shares.......... $1,556,333,468 ($ 748,040)(4) $1,555,585,428
--------------
Total Net Assets..... $2,354,026,968(2)
==============
SHARES OUTSTANDING
S Class.............. 82,235,127 7,220,299 3,474,484 92,929,910
AARP Shares.......... 89,098,171 91,994,428 181,092,599
NET ASSET VALUE PER
SHARE
S Class.............. $ 8.59 $ 12.73 $ 8.59
AARP Shares.......... $ 17.47 $ 8.59
</TABLE>
- ------------------------------
(@) It is being proposed to shareholders of Scudder Ohio Tax Free Fund, another
fund advised by Scudder Kemper, that the Acquiring Fund acquire the assets
of that other fund. Each of the closing of this other acquisition and the
Closing is contingent upon the other. Pro Forma capitalization reflects the
acquisition by the Acquiring Fund of both this other fund and the Acquired
Fund.
(1) Assumes the Reorganization had been consummated on October 31, 1999, and is
for information purposes only. No assurance can be given as to how many
shares of the Acquiring Fund will be received by the shareholders of the
Acquired Fund and Scudder Ohio Tax Free Fund on the date the Reorganization
takes place, and the foregoing should not be relied upon to reflect the
number of shares of the Acquiring Fund that actually will be received on or
after such date.
(2) Pro forma combined net assets do not reflect expense reductions that would
result from the implementation of the Administrative Fee and of a new
investment management fee for the Acquiring Fund.
(3) Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $25,202 and $15,382 to be borne by the Acquiring Fund and
Scudder Ohio Tax Free Fund, respectively.
(4) Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $748,040 to be borne by the Acquired Fund.
THE BOARD OF TRUSTEES OF AARP TAX FREE INCOME TRUST RECOMMENDS THAT THE
SHAREHOLDERS OF AARP INSURED TAX FREE GENERAL BOND FUND VOTE IN FAVOR OF THIS
PROPOSAL 2.
35
<PAGE>
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT
ACCOUNTANTS
The Board of the Acquired Trust, including a majority of the Independent
Trustees, has selected PricewaterhouseCoopers LLP to act as independent
accountants of the Acquired Fund for the Acquired Fund's current fiscal year.
One or more representatives of PricewaterhouseCoopers LLP are expected to be
present at the Meeting and will have an opportunity to make a statement if they
so desire. Such representatives are expected to be available to respond to
appropriate questions posed by shareholders or management.
THE BOARD OF TRUSTEES OF AARP TAX FREE INCOME TRUST RECOMMENDS THAT THE
SHAREHOLDERS OF AARP INSURED TAX FREE GENERAL BOND FUND VOTE IN FAVOR OF THIS
PROPOSAL 3.
ADDITIONAL INFORMATION
INFORMATION ABOUT THE FUNDS
Additional information about the Trusts, the Funds and the Reorganization
has been filed with the SEC and may be obtained without charge by writing to
Scudder Investor Services, Inc., Two International Place, Boston, MA 02110-4103,
or by calling 1-800-225-2470.
The Trusts are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act, and in accordance therewith,
file reports, proxy material and other information about each of the Funds with
the Commission. Such reports, proxy material and other information filed by the
Acquiring Trust, and those filed by the Acquired Trust, can be inspected and
copied at the Public Reference Room maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following SEC Regional Offices:
Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, NY 10048;
Southeast Regional Office, 1401 Brickell Avenue, Suite 200, Miami, FL 33131;
Midwest Regional Office, Citicorp Center, 500 W. Madison Street, Chicago, IL,
60661-2511; Central Regional Office, 1801 California Street, Suite 4800, Denver,
CO 80202-2648; and Pacific Regional Office, 5670 Wilshire Boulevard, 11th Floor,
Los Angeles, CA 90036-3648. Copies of such material can also be obtained from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The SEC maintains an Internet World
Wide Web site (at http://www.sec.gov) which contains the statements of
additional information for the Acquiring Trust and the Acquired Trust, materials
that are incorporated
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<PAGE>
by reference into the prospectuses and statements of additional information, and
other information about the Acquiring Trust, the Acquired Trust and the Funds.
INTERESTS OF CERTAIN PERSONS
The Investment Manager has a financial interest in the Reorganization,
arising from the fact that its fee under its investment management agreement
with the Acquiring Fund will increase as the amount of the Acquiring Fund's
assets increases. The amount of those assets will increase by virtue of the
Reorganization. See "Synopsis -- Investment Manager; Fees and Expenses."
GENERAL
PROXY SOLICITATION. Proxy solicitation costs will be considered
Reorganization expenses and will be allocated accordingly. In addition to
solicitation by mail, certain officers and representatives of the Acquired
Trust, officers and employees of Scudder Kemper and certain financial services
firms and their representatives, who will receive no extra compensation for
their services, may solicit proxies by telephone, telegram or personally.
Any Acquired Fund shareholder giving a proxy has the power to revoke it by
mail (addressed to the Secretary at the principal executive office of the
Acquired Fund, c/o Scudder Kemper Investments, Inc., at the address for the
Acquired Fund shown at the beginning of this Proxy Statement/Prospectus) or in
person at the Meeting, by executing a superseding proxy or by submitting a
notice of revocation to the Acquired Fund. All properly executed proxies
received in time for the Meeting will be voted as specified in the proxy or, if
no specification is made, in favor of each Proposal.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of one-third of the shares of the Acquired Trust (for a trust-wide vote)
or the Acquired Fund (for a fund-wide vote) entitled to be cast shall be
necessary and sufficient to constitute a quorum for the transaction of business.
In the event that the necessary quorum to transact business or the vote required
to approve any Proposal is not obtained at the Meeting, the persons named as
proxies may propose one or more adjournments of the Meeting in accordance with
applicable law to permit further solicitation of proxies with respect to that
Proposal. Any such adjournment as to a matter will require the affirmative vote
of the holders of a majority of the Acquired Trust's (for a trust-wide vote) or
the Acquired Fund's (for a fund-wide vote) shares present in person or by proxy
at the Meeting. The persons named as proxies will vote in favor of any such
adjournment those proxies which they are entitled to vote in favor of that
Proposal and will vote against any such adjournment those proxies to be voted
37
<PAGE>
against that Proposal. For purposes of determining the presence of a quorum for
transacting business at the Meeting, abstentions and broker "non-votes" will be
treated as shares that are present but which have not been voted. Broker
non-votes are proxies received by the Acquired Fund from brokers or nominees
when the broker or nominee has neither received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on a
particular matter. Accordingly, shareholders are urged to forward their voting
instructions promptly.
Approval of Proposal 1 requires the affirmative vote of a plurality of the
shares of the Acquired Trust voting at the Meeting. Approval of Proposal 2
requires the affirmative vote of the holders of a majority of the Acquired
Fund's shares outstanding and entitled to vote thereon. Approval of Proposal 3
requires the affirmative vote of a majority of the shares of the Acquired Fund
voting at the Meeting. Abstentions and broker non-votes will not be counted in
favor of, but will have no other effect on, Proposal 1, and will have the effect
of a "no" vote on Proposals 2 and 3.
Holders of record of the shares of the Acquired Fund at the close of
business on April 17, 2000 will be entitled to one vote per share on all
business of the Meeting. As of March 20, 2000, there were 84,349,849 shares of
the Acquired Fund outstanding.
As of January 31, 2000, the officers and Trustees of the Acquiring Trust as
a group owned beneficially less than 1% of the outstanding shares of the
Acquiring Fund. To the best of the applicable Trust's knowledge, as of January
31, 2000, no person owned beneficially more than 5% of either Fund's outstanding
shares or the shares of any other series of the Acquired Trust, except that
certain accounts for which Scudder Kemper acts as investment adviser owned
9,435,112 shares in the aggregate, or 11.77% of the outstanding shares, of the
Acquiring Fund on January 31, 2000. Scudder Kemper may be deemed to be the
beneficial owner of such shares, but disclaims any beneficial ownership in such
shares.
Shareholder Communications Corporation ("SCC") has been engaged to assist in
the solicitation of proxies, at an estimated cost of $27,111. As the Meeting
date approaches, certain shareholders of the Acquired Fund may receive a
telephone call from a representative of SCC if their votes have not yet been
received. Authorization to permit SCC to execute proxies may be obtained by
telephonic or electronically transmitted instructions from shareholders of the
Acquired Fund. Proxies that are obtained telephonically will be recorded in
accordance with the procedures set forth below. The Trustees believe that these
procedures are reasonably designed to ensure that both the identity of the
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<PAGE>
shareholder casting the vote and the voting instructions of the shareholder are
accurately determined.
In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask for each shareholder's full name, address, social security or
employer identification number, title (if the shareholder is authorized to act
on behalf of an entity, such as a corporation), and the number of shares owned,
and to confirm that the shareholder has received the proxy materials in the
mail. If the information solicited agrees with the information provided to SCC,
then the SCC representative has the responsibility to explain the process, read
the Proposals on the proxy card(s), and ask for the shareholder's instructions
on the Proposals. Although the SCC representative is permitted to answer
questions about the process, he or she is not permitted to recommend to the
shareholder how to vote, other than to read any recommendation set forth in the
proxy statement. SCC will record the shareholder's instructions on the card.
Within 72 hours, the shareholder will be sent a letter or mailgram to confirm
his or her vote and asking the shareholder to call SCC immediately if his or her
instructions are not correctly reflected in the confirmation.
If a shareholder wishes to participate in the Meeting, but does not wish to
give a proxy by telephone or electronically, the shareholder may still submit
the proxy card(s) originally sent with the proxy statement or attend in person.
Should shareholders require additional information regarding the proxy or
replacement proxy card(s), they may contact SCC toll-free at 1-800-605-1203. Any
proxy given by a shareholder is revocable until voted at the Meeting.
Shareholders may also provide their voting instructions through telephone
touch-tone voting or Internet voting. These options require shareholders to
input a control number which is located on each voting instruction card. After
inputting this number, shareholders will be prompted to provide their voting
instructions on the Proposals. Shareholders will have an opportunity to review
their voting instructions and make any necessary changes before submitting their
voting instructions and terminating their telephone call or Internet link.
Shareholders who vote on the Internet, in addition to confirming their voting
instructions prior to submission, will also receive an e-mail confirming their
instructions.
SHAREHOLDER PROPOSALS FOR SUBSEQUENT MEETINGS. Shareholders wishing to
submit proposals for inclusion in a proxy statement for a shareholder meeting
subsequent to the Meeting, if any, should send their written proposals to the
Secretary of the Acquired Trust, c/o Scudder Kemper Investments, Inc., Two
International Place, Boston, Massachusetts 02110, within a reasonable time
before the solicitation of proxies for such meeting. The timely submission of a
proposal does not guarantee its inclusion.
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<PAGE>
OTHER MATTERS TO COME BEFORE THE MEETING. No Trustee is aware of any
matters that will be presented for action at the Meeting other than the matters
set forth herein. Should any other matters requiring a vote of shareholders
arise, the proxy in the accompanying form will confer upon the person or persons
entitled to vote the shares represented by such proxy the discretionary
authority to vote the shares as to any such other matters in accordance with
their best judgment in the interest of the Acquired Trust and/or the Acquired
Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) (OR TAKE
ADVANTAGE OF AVAILABLE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Board,
/s/ Kathryn L. Quirk
Kathryn L. Quirk
Secretary
40
<PAGE>
INDEX OF EXHIBITS AND APPENDIX
<TABLE>
<S> <C>
EXHIBIT A: Agreement and Plan of Reorganization
EXHIBIT B: Management's Discussion of Acquiring Fund's
Performance
APPENDIX 1: Trustee and Nominee Shareholdings
</TABLE>
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this day of , 2000, by and between Scudder Municipal Trust (the
"Acquiring Trust"), a Massachusetts business trust, on behalf of Scudder Managed
Municipal Bonds (the "Acquiring Fund"), a separate series of the Acquiring
Trust, and AARP Tax Free Income Trust (the "Acquired Trust" and, together with
the Acquiring Trust, each a "Trust" and collectively the "Trusts"), a
Massachusetts business trust, on behalf of AARP Insured Tax Free General Bond
Fund (the "Acquired Fund" and, together with the Acquiring Fund, each a "Fund"
and collectively the "Funds"), a separate series of the Acquired Trust. The
principal place of business of each Trust is Two International Place, Boston,
Massachusetts 02110-4103
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization")
will consist of the transfer of all or substantially all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for voting shares of
beneficial interest of the AARP Class of shares ($.01 par value per share) of
the Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund and the
distribution of the Acquiring Fund Shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES
AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer to the Acquiring Fund all or substantially all of the Acquired
Fund's assets as set forth in section 1.2, and the Acquiring Fund agrees in
exchange therefor (i) to deliver to the Acquired Fund that number of full and
fractional Acquiring Fund Shares determined by dividing the value of the
Acquired Fund's net assets, computed in the manner and as of the time and date
set forth in section 2.1, by the net asset value of one Acquiring Fund Share,
computed in the
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manner and as of the time and date set forth in section 2.2; and (ii) to assume
all of the liabilities of the Acquired Fund. Such transactions shall take place
at the closing provided for in section 3.1 (the "Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(the "Assets") shall consist of all assets, including, without limitation, all
cash, cash equivalents, securities, commodities and futures interests and
dividends or interest or other receivables that are owned by the Acquired Fund
and any deferred or prepaid expenses shown on the unaudited statement of assets
and liabilities of the Acquired Fund prepared as of the effective time of the
Closing in accordance with generally accepted accounting principles ("GAAP")
applied consistently with those of the Acquired Fund's most recent audited
balance sheet. The Assets shall constitute at least 90% of the fair market value
of the net assets, and at least 70% of the fair market value of the gross
assets, held by Acquired Fund immediately before the Closing (excluding for
these purposes assets used to pay the dividends and other distributions paid
pursuant to section 1.4).
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in
section 3.1.
1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of Assets provided for in section 1.1,
the Acquired Fund will distribute to the Acquired Fund's shareholders of record
(the "Acquired Fund Shareholders"), determined as of the Valuation Time (as
defined in section 2.1), on a pro rata basis, the Acquiring Fund Shares received
by the Acquired Fund pursuant to section 1.1 and will completely liquidate. Such
distribution and liquidation will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on the
books of the Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund Shareholders. The aggregate net
asset value of Acquiring Fund Shares to be so credited to Acquired Fund
Shareholders shall be equal to the aggregate net asset value of the Acquired
Fund shares owned by such shareholders as of the Valuation Time. All issued and
outstanding shares of the Acquired Fund will simultaneously be cancelled on the
books of the Acquired Fund, although share certificates representing interests
in shares of the Acquired Fund will represent a number of Acquiring Fund Shares
after the Closing Date as determined in accordance with
A-2
<PAGE>
section 2.3. The Acquiring Fund will not issue certificates representing
Acquiring Fund Shares in connection with such exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, shall be
available to the Acquiring Fund from and after the Closing Date and shall be
turned over to the Acquiring Fund as soon as practicable following the Closing
Date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. (the "NYSE") on the business day
immediately preceding the Closing Date, as defined in Section 3.1 (the
"Valuation Time") after the declaration and payment of any dividends and/or
other distributions on that date, using the valuation procedures set forth in
the Acquiring Fund's Declaration of Trust, as amended, and then-current
prospectus or statement of additional information.
2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share computed as of the Valuation Time using the valuation procedures
referred to in section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of the Acquired Fund
determined in accordance with section 2.1 by the net asset value of an Acquiring
Fund Share determined in accordance with section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall
A-3
<PAGE>
be subject to confirmation by each Fund's respective independent accountants
upon the reasonable request of the other Fund.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this Agreement shall be
July 31, 2000, or such later date as the parties may agree in writing (the
"Closing Date"). All acts taking place at the Closing shall be deemed to take
place simultaneously as of 9:00 a.m., Eastern time, on the Closing Date, unless
otherwise agreed to by the parties. The Closing shall be held at the offices of
Dechert Price & Rhoads, Ten Post Office Square -- South, Boston, MA 02109, or at
such other place and time as the parties may agree.
3.2. The Acquired Fund shall deliver to Acquiring Fund on the Closing Date a
schedule of Assets.
3.3. State Street Bank and Trust Company ("State Street"), custodian for the
Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets shall have been delivered in proper form to
State Street, custodian for the Acquiring Fund, prior to or on the Closing Date
and (b) all necessary taxes in connection with the delivery of the Assets,
including all applicable federal and state stock transfer stamps, if any, have
been paid or provision for payment has been made. The Acquired Fund's portfolio
securities represented by a certificate or other written instrument shall be
presented by the custodian for the Acquired Fund to the custodian for the
Acquiring Fund for examination no later than five business days preceding the
Closing Date and transferred and delivered by the Acquired Fund as of the
Closing Date by the Acquired Fund for the account of Acquiring Fund duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof. The Acquired Fund's portfolio securities and instruments
deposited with a securities depository, as defined in Rule 17f-4 under the 1940
Act, shall be delivered as of the Closing Date by book entry in accordance with
the customary practices of such depositories and the custodian for the Acquiring
Fund. The cash to be transferred by the Acquired Fund shall be delivered by wire
transfer of federal funds on the Closing Date.
3.4. Scudder Service Corp. (the "Transfer Agent"), on behalf of the Acquired
Fund, shall deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of the Acquired Fund
Shareholders and the number and percentage ownership (to three decimal places)
of outstanding Acquired Fund shares owned by each such shareholder immediately
prior to the Closing. The Acquiring Fund shall issue and deliver a confirmation
evidencing the Acquiring Fund Shares to be credited on the Closing Date to the
Acquired Fund or provide evidence satisfactory to the
A-4
<PAGE>
Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired
Fund's account on the books of the Acquiring Fund. At the Closing, each party
shall deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request to effect the transactions contemplated by this
Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the NYSE
or another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund shall be closed to trading or trading thereupon shall be
restricted, or (b) trading or the reporting of trading on such Exchange or
elsewhere shall be disrupted so that, in the judgment of the Board members of
either party to this Agreement, accurate appraisal of the value of the net
assets with respect to the Acquiring Fund Shares or the Acquired Fund shares is
impracticable, the Closing Date shall be postponed until the first business day
after the day when trading shall have been fully resumed and reporting shall
have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Trust, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) The Acquired Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power
under the Acquired Trust's Declaration of Trust, as amended, to own all of
its properties and assets and to carry on its business as it is now being
conducted;
(b) The Acquired Trust is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund
of the transactions contemplated herein, except such as have been obtained
under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940
Act and such as may be required by state securities laws;
(d) Other than with respect to contracts entered into in connection with
the portfolio management of the Acquired Fund which shall terminate on or
prior to the Closing Date, the Acquired Trust is not, and the execution,
delivery and performance of this Agreement by the Acquired Trust will not
result, in violation of Massachusetts law or of the Acquired
A-5
<PAGE>
Trust's Declaration of Trust, as amended, or By-Laws, or of any material
agreement, indenture, instrument, contract, lease or other undertaking known
to counsel to which the Acquired Fund is a party or by which it is bound,
and the execution, delivery and performance of this Agreement by the
Acquired Fund will not result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Acquired Fund is a party or
by which it is bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquired Fund or any properties or assets
held by it. The Acquired Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and adversely
affect its business and is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, Operations, and Changes in
Net Assets, the Financial Highlights, and the Investment Portfolio of the
Acquired Fund at and for the fiscal year ended September 30, 1999, have been
audited by PricewaterhouseCoopers LLP, independent accountants, and are in
accordance with GAAP consistently applied, and such statements (a copy of
each of which has been furnished to the Acquiring Fund) present fairly, in
all material respects, the financial position of the Acquired Fund as of
such date in accordance with GAAP, and there are no known contingent
liabilities of the Acquired Fund required to be reflected on a balance sheet
(including the notes thereto) in accordance with GAAP as of such date not
disclosed therein;
(g) Since September 30, 1999, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquired Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquiring Fund. For purposes of
this subsection (g), a decline in net asset value per share of the Acquired
Fund due to declines in market values of securities in the Acquired Fund's
portfolio, the discharge of Acquired Fund liabilities, or the redemption of
Acquired Fund shares by Acquired Fund Shareholders shall not constitute a
material adverse change;
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<PAGE>
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and are
or will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquired Fund's knowledge, no such return
is currently under audit and no assessment has been asserted with respect to
such returns;
(i) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company
and has elected to be treated as such, has been eligible to and has computed
its federal income tax under Section 852 of the Code, and will have
distributed all of its investment company taxable income and net capital
gain (as defined in the Code) that has accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and state securities laws, (ii) are, and on the Closing Date will
be, duly and validly issued and outstanding, fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquired Fund Shareholders,
under certain circumstances, could be held personally liable for obligations
of the Acquired Fund), and (iii) will be held at the time of the Closing by
the persons and in the amounts set forth in the records of the Transfer
Agent, as provided in section 3.4. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring Fund
pursuant to section 1.2 and full right, power, and authority to sell,
assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the
Acquiring Fund has received notice at or prior to the Closing, and upon
delivery and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the 1933
Act and
A-7
<PAGE>
the 1940 Act, except those restrictions as to which the Acquiring Fund has
received notice and necessary documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Board members of the Acquired Trust, and, subject to the
approval of the Acquired Fund Shareholders, this Agreement constitutes a
valid and binding obligation of the Acquired Trust, on behalf of the
Acquired Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of Securities
Dealers, Inc. (the "NASD")), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(n) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially
misleading; provided, however, that the representations and warranties in
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been furnished
by the Acquiring Fund for use therein.
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4.2. The Acquiring Trust, on behalf of the Acquiring Fund, represents and
warrants to the Acquired Fund as follows:
(a) The Acquiring Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power
under the Acquiring Trust's Declaration of Trust, as amended, to own all of
its properties and assets and to carry on its business as it is now being
conducted;
(b) The Acquiring Trust is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required by state securities laws;
(d) The Acquiring Trust is not, and the execution, delivery and
performance of this Agreement by the Acquiring Trust will not result, in
violation of Massachusetts law or of the Acquiring Trust's Declaration of
Trust, as amended, or By-Laws, or of any material agreement, indenture,
instrument, contract, lease or other undertaking known to counsel to which
the Acquiring Fund is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Acquiring Fund will not
result in the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Acquiring Fund is a party or by which it is
bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any properties or assets
held by it. The Acquiring Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and adversely
affect its business and is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, Operations, and Changes in
Net Assets, the Financial Highlights, and the Investment Portfolio of the
Acquiring Fund at and for the fiscal year ended May 31, 1999,
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have been audited by PricewaterhouseCoopers LLP, independent accountants,
and are in accordance with GAAP consistently applied, and such statements (a
copy of each of which has been furnished to the Acquired Fund) present
fairly, in all material respects, the financial position of the Acquiring
Fund as of such date in accordance with GAAP, and there are no known
contingent liabilities of the Acquiring Fund required to be reflected on a
balance sheet (including the notes thereto) in accordance with GAAP as of
such date not disclosed therein;
(g) Since May 31, 1999, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred except as otherwise disclosed
to and accepted in writing by the Acquired Fund. For purposes of this
subsection (g), a decline in net asset value per share of the Acquiring Fund
due to declines in market values of securities in the Acquiring Fund's
portfolio, the discharge of Acquiring Fund liabilities, or the redemption of
Acquiring Fund shares by Acquiring Fund shareholders shall not constitute a
material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquiring Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and are
or will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquiring Fund's knowledge, no such return
is currently under audit and no assessment has been asserted with respect to
such returns;
(i) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has been
eligible to and has computed its federal income tax under Section 852 of the
Code, and will do so for the taxable year including the Closing Date;
(j) All issued and outstanding shares of the Acquiring Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws and (ii) are, and on
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable (recognizing that, under Massachusetts law,
Acquiring Fund Shareholders, under certain circumstances, could be held
personally liable
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for the obligations of the Acquiring Fund). The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquiring Fund shares, nor is there outstanding any
security convertible into any of the Acquiring Fund shares;
(k) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund Shareholders, pursuant to the
terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued and
outstanding Acquiring Fund Shares, and will be fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquiring Fund Shareholders,
under certain circumstances, could be held personally liable for the
obligations of the Acquiring Fund);
(l) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired
Fund has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Board members of the Acquiring Trust and this Agreement will
constitute a valid and binding obligation of the Acquiring Trust, on behalf
of the Acquiring Fund, enforceable in accordance with its terms, subject, as
to enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the NASD), which may be necessary in
connection with the transactions contemplated hereby, shall be accurate and
complete in all material respects and shall comply in all material respects
with federal securities and other laws and regulations applicable thereto;
(o) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
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(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading; provided, however, that the representations and
warranties in this section shall not apply to statements in or omissions
from the Proxy Statement and the Registration Statement made in reliance
upon and in conformity with information that was furnished or should have
been furnished by the Acquired Fund for use therein; and
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state securities laws as may be necessary in order to continue
its operations after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each covenants to operate its
business in the ordinary course between the date hereof and the Closing Date, it
being understood that (a) such ordinary course of business will include (i) the
declaration and payment of customary dividends and other distributions and (ii)
such changes as are contemplated by the Funds' normal operations; and (b) each
Fund shall retain exclusive control of the composition of its portfolio until
the Closing Date.
5.2. Upon reasonable notice, the Acquiring Fund's officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. The Acquired Fund covenants to call a meeting of the Acquired Fund
Shareholders entitled to vote thereon to consider and act upon this Agreement
and to take all other reasonable action necessary to obtain approval of the
transactions contemplated herein. Such meeting shall be scheduled for no later
than July 11, 2000.
5.4. The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
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5.5. The Acquired Fund covenants that it will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Acquired Fund shares and will provide the
Acquiring Fund with a list of affiliates of the Acquired Fund.
5.6. Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all actions, and do or cause
to be done, all things reasonably necessary, proper, and/or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.7. Each Fund covenants to prepare in compliance with the 1933 Act, the
1934 Act and the 1940 Act the Registration Statement on Form N-14 (the
"Registration Statement") in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. The Acquired Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the Proxy Statement referred to
in section 4.1(o), all to be included in the Registration Statement, in
compliance in all material respects with the 1933 Act, the 1934 Act and the 1940
Act.
5.8. The Acquired Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquiring Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action as the Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Fund's title to and possession of all the assets and otherwise to
carry out the intent and purpose of this Agreement.
5.9. The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and such
of the state securities laws as it deems appropriate in order to continue its
operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund may take such
actions it reasonably deems advisable after the Closing Date as circumstances
change.
5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause to
be executed and delivered all such assignments, assumption agreements, releases,
and other instruments, and will take or cause to be taken such further action,
as the Acquired Fund may reasonably deem necessary or desirable in order to (i)
vest and confirm to the Acquired Fund title to and possession of all
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Acquiring Fund Shares to be transferred to the Acquired Fund pursuant to this
Agreement and (ii) assume the liabilities from the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired Fund
shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.12. The Acquiring Fund and the Acquired Fund shall each use its reasonable
best efforts to fulfill or obtain the fulfillment of the conditions precedent to
effect the transactions contemplated by this Agreement as promptly as
practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of the Acquiring Trust, on behalf of
the Acquiring Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than the Acquired Fund, its adviser or any of their affiliates) against the
Acquiring Fund or its investment adviser(s), Board members or officers arising
out of this Agreement and (ii) no facts known to the Acquiring Fund which the
Acquiring Fund reasonably believes might result in such litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Trust, on behalf of
the Acquiring Fund, and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquiring Fund made in this Agreement are
true and correct on and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as the Acquired Fund shall reasonably request.
6.3. The Acquired Fund shall have received on the Closing Date an opinion of
Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquired Fund,
and dated as of the Closing Date, to the effect that:
(a) The Acquiring Trust has been duly formed and is an existing business
trust; (b) the Acquiring Fund has the power to carry on its
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business as presently conducted in accordance with the description thereof
in the Acquiring Fund's registration statement under the 1940 Act; (c) the
Agreement has been duly authorized, executed and delivered by the Acquiring
Trust, on behalf of the Acquiring Fund, and constitutes a valid and legally
binding obligation of the Acquiring Trust, on behalf of the Acquiring Fund,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; (d) the execution and delivery of the Agreement did not,
and the exchange of the Acquired Fund's assets for Acquiring Fund Shares
pursuant to the Agreement will not, violate the Acquiring Trust's
Declaration of Trust, as amended, or By-laws; and (e) to the knowledge of
such counsel, all regulatory consents, authorizations, approvals or filings
required to be obtained or made by the Acquiring Fund under the Federal laws
of the United States or the laws of the Commonwealth of Massachusetts for
the exchange of the Acquired Fund's assets for Acquiring Fund Shares,
pursuant to the Agreement have been obtained or made.
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
6.5 The Acquiring Fund shall have (i) adopted a new investment management
agreement and (ii) entered into an administrative services agreement with
Scudder Kemper Investments, Inc. ("Scudder Kemper"), each in a form reasonably
satisfactory to the Acquired Fund.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of the Acquired Trust, on behalf of
the Acquired Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than the Acquiring Fund, its adviser or any of their affiliates) against the
Acquired Fund or its investment adviser(s), Board members or officers arising
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out of this Agreement and (ii) no facts known to the Acquired Fund which the
Acquired Fund reasonably believes might result in such litigation.
7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing Date,
certified by the Treasurer of the Acquired Fund.
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquired Trust with respect to the Acquired Fund made in this Agreement are
true and correct on and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as the Acquiring Fund shall reasonably request.
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Dechert Price & Rhoads, in a form reasonably satisfactory to the Acquiring
Fund, and dated as of the Closing Date, to the effect that:
(a) The Acquired Trust has been duly formed and is an existing business
trust; (b) the Acquired Fund has the power to carry on its business as
presently conducted in accordance with the description thereof in the
Acquired Trust's registration statement under the 1940 Act; (c) the
Agreement has been duly authorized, executed and delivered by the Acquired
Trust, on behalf of the Acquired Fund, and constitutes a valid and legally
binding obligation of the Acquired Trust, on behalf of the Acquired Fund,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; (d) the execution and delivery of the Agreement did not,
and the exchange of the Acquired Fund's assets for Acquiring Fund Shares
pursuant to the Agreement will not, violate the Acquired Trust's Declaration
of Trust, as amended, or By-laws; and (e) to the knowledge of such counsel,
all regulatory consents, authorizations, approvals or filings required to be
obtained or made by the Acquired Fund under the Federal laws of the United
States or the laws of the Commonwealth of Massachusetts for the exchange of
the Acquired Fund's assets for Acquiring Fund Shares, pursuant to the
Agreement have been obtained or made.
7.5. The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date.
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7.6 The Acquiring Fund shall have (i) adopted a new investment management
agreement and (ii) entered into an administrative services agreement with
Scudder Kemper.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below have not been met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Acquired Trust's
Declaration of Trust, as amended, and By-Laws, applicable Massachusetts law and
the 1940 Act, and certified copies of the resolutions evidencing such approval
shall have been delivered to the Acquiring Fund. Notwithstanding anything herein
to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
conditions set forth in this section 8.1.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions contemplated
herein.
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5. The parties shall have received an opinion of Willkie Farr & Gallagher
addressed to each of the Acquiring Fund and the Acquired Fund, in a form
reasonably satisfactory to each such party to this Agreement, substantially to
the
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effect that, based upon certain facts, assumptions and representations of the
parties, for federal income tax purposes: (i) the transfer to the Acquiring Fund
of all or substantially all of the assets of the Acquired Fund in exchange
solely for Acquiring Fund Shares and the assumption by the Acquiring Fund of all
of the liabilities of the Acquired Fund, followed by the distribution of such
shares to the Acquired Fund Shareholders in exchange for their shares of the
Acquired Fund in complete liquidation of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Code, and the
Acquiring Fund and the Acquired Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by the Acquired Fund upon the transfer of all or substantially all of
its assets to the Acquiring Fund in exchange solely for Acquiring Fund Shares
and the assumption by the Acquiring Fund of all of the liabilities of the
Acquired Fund; (iii) the basis of the assets of the Acquired Fund in the hands
of the Acquiring Fund will be the same as the basis of such assets of the
Acquired Fund immediately prior to the transfer; (iv) the holding period of the
assets of the Acquired Fund in the hands of the Acquiring Fund will include the
period during which such assets were held by the Acquired Fund; (v) no gain or
loss will be recognized by the Acquiring Fund upon the receipt of the assets of
the Acquired Fund in exchange for Acquiring Fund Shares and the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund; (vi) no gain
or loss will be recognized by Acquired Fund Shareholders upon the receipt of the
Acquiring Fund Shares solely in exchange for their shares of the Acquired Fund
as part of the transaction; (vii) the basis of the Acquiring Fund Shares
received by Acquired Fund Shareholders will be the same as the basis of the
shares of the Acquired Fund exchanged therefor; and (viii) the holding period of
Acquiring Fund Shares received by Acquired Fund Shareholders will include the
holding period during which the shares of the Acquired Fund exchanged therefor
were held, provided that at the time of the exchange the shares of the Acquired
Fund were held as capital assets in the hands of Acquired Fund Shareholders. The
delivery of such opinion is conditioned upon receipt by Willkie Farr & Gallagher
of representations it shall request of each of the Acquiring Trust and the
Acquired Trust. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the condition set forth in this
section 8.5.
9. INDEMNIFICATION
9.1. The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's Board members and officers from and against
any and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquired Fund or
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any of its Board members or officers may become subject, insofar as any such
loss, claim, damage, liability or expense (or actions with respect thereto)
arises out of or is based on any breach by the Acquiring Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
9.2. The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's Board members and officers from and
against any and all losses, claims, damages, liabilities or expenses (including,
without limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquiring Fund or any of its
Board members or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
10. FEES AND EXPENSES
10.1. Each of the Acquiring Trust, on behalf of the Acquiring Fund, and the
Acquired Trust, on behalf of the Acquired Fund, represents and warrants to the
other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
10.2. Each Fund will pay its own allocable share of expenses associated with
the Reorganization, except that Scudder Kemper will bear any such expenses in
excess of $25,202 for the Acquiring Fund and $748,040 for the Acquired Fund
(approximately $0.0003 and $0.0086 per share, respectively, based on
December 31, 1999 net assets for each Fund). Any such expenses which are so
borne by Scudder Kemper will be solely and directly related to the
Reorganization within the meaning of Revenue Ruling 73-54, 1973-1 C.B. 187.
Acquired Fund Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing and the obligations of each of the
Acquiring Fund and Acquired Fund in Sections 9.1 and 9.2 shall survive the
Closing.
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12. TERMINATION
12.1. This Agreement may be terminated and the transactions contemplated
hereby may be abandoned by either party by (i) mutual agreement of the parties,
or (ii) by either party if the Closing shall not have occurred on or before
October 31, 2000, unless such date is extended by mutual agreement of the
parties, or (iii) by either party if the other party shall have materially
breached its obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective Board members or
officers, except for any such material breach or intentional misrepresentation,
as to each of which all remedies at law or in equity of the party adversely
affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by any authorized officer of the Acquired
Fund and any authorized officer of the Acquiring Fund; provided, however, that
following the meeting of the Acquired Fund Shareholders called by the Acquired
Fund pursuant to section 5.3 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund Shareholders under this Agreement
to the detriment of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, Two International Place, Boston, MA 02110-4103, with a copy to
Dechert Price & Rhoads, Ten Post Office Square South, Boston, MA 02109-4603,
Attention: Sheldon A. Jones, Esq., or to the Acquiring Fund, Two International
Place, Boston, MA 02110-4103, with a copy to Dechert Price & Rhoads, Ten Post
Office Square South, Boston, MA 02109-4603, Attention: Sheldon A. Jones, Esq.,
or to any other address that the Acquired Fund or the Acquiring Fund shall have
last designated by notice to the other party.
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15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and the shareholders of the
Acquiring Fund and the Acquired Fund and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
15.4. References in this Agreement to the Trust mean and refer to the Board
members of the Trust from time to time serving under its Declaration of Trust on
file with the Secretary of State of the Commonwealth of Massachusetts, as the
same may be amended from time to time, pursuant to which the Trust conducts its
business. It is expressly agreed that the obligations of each Trust hereunder
shall not be binding upon any of the Board members, shareholders, nominees,
officers, agents, or employees of the Trusts or the Funds personally, but bind
only the respective property of the Funds, as provided in each Trust's
Declaration of Trust. Moreover, no series of either Trust other than the Funds
shall be responsible for the obligations of the Trusts hereunder, and all
persons shall look only to the assets of the Funds to satisfy the obligations of
the Trusts hereunder. The execution and the delivery of this Agreement have been
authorized by each Trust's Board members, on behalf of the applicable Fund, and
this Agreement has been signed by authorized officers of each Fund acting as
such, and neither such authorization by such Board members, nor such execution
and delivery by such officers, shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the respective property of the Funds, as provided in each Trust's
Declaration of Trust.
Notwithstanding anything to the contrary contained in this Agreement, the
obligations, agreements, representations and warranties with respect to each
Fund shall constitute the obligations, agreements, representations and
warranties of that Fund only (the "Obligated Fund"), and in no event shall any
other series of the Trusts or the assets of any such series be held liable with
respect to
A-21
<PAGE>
the breach or other default by the Obligated Fund of its obligations,
agreements, representations and warranties as set forth herein.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts, without regard
to its principles of conflicts of laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by an authorized officer and its seal to be affixed thereto and
attested by its Secretary or Assistant Secretary.
Attest: AARP TAX FREE INCOME TRUST
on behalf of AARP Insured Tax Free General Fund
- ------------------------------
Secretary
By: ------------------------------
Its: ------------------------------
Attest: SCUDDER MUNICIPAL TRUST
on behalf of Scudder Managed Municipal Bonds
- ------------------------------
Secretary
By: ------------------------------
Its: ------------------------------
A-22
<PAGE>
AGREED TO AND ACKNOWLEDGED
ONLY WITH RESPECT TO
PARAGRAPH 10.2 HERETO
SCUDDER KEMPER INVESTMENTS, INC.
By:
- ------------------------------
Its:
- ------------------------------
A-23
<PAGE>
EXHIBIT B
MANAGEMENT'S DISCUSSION OF ACQUIRING FUND'S PERFORMANCE
Performance Update
as of May 31, 1999
Performance Update as of May 31, 1999
- --------------------------------------------------------------------------------
Fund Index Comparisons
- --------------------------------------------------------------------------------
Total Return
-------------------------------------------------------------
Period Ended Growth of Average
5/31/1999 $10,000 Cumulative Annual
-------------------------------------------------------------
Scudder Managed Municipal Bonds
-------------------------------------------------------------
1 Year $ 10,404 4.04% 4.04%
5 Year $ 13,946 39.46% 6.88%
10 Year $ 20,546 105.46% 7.47%
-------------------------------------------------------------
Lehman Brothers Municipal Bond Index
-------------------------------------------------------------
1 Year $ 10,467 4.67% 4.67%
5 Year $ 14,147 41.47% 7.18%
10 Year $ 21,062 110.62% 7.73%
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Scudder Managed Lehman Brothers
Municipal Bonds Municipal Bond Index
'89 10000 10000
'90 10557 10733
'91 11645 11814
'92 12787 12976
'93 14457 14529
'94 14732 14888
'95 15978 16243
'96 16712 16986
'97 18084 18395
'98 19748 20121
'99 20546 21062
Yearly periods ended May 31
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.
B-1
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Following a series of overseas and domestic financial crises that prompted
uncertainty, volatility, and a "flight to quality," bond yields plummeted, then
returned to July 1998 levels by the close of Scudder Managed Municipal Bonds'
most recent fiscal year. During its abbreviated fiscal year beginning January 1,
1999, through May 31, 1999, the Fund returned -0.17%. Over the 12 months ended
May 31, the Fund posted a 4.04% total return, outpacing the 3.26% average
performance of the Fund's peers over the same period as tracked by Lipper
Analytical Services, Inc., an independent analyst of investment performance. As
of May 31, 1999, Scudder Managed Municipal Bonds' 30-day net annualized SEC
yield was 4.16%, equivalent to a 6.89% taxable yield for investors subject to
the 39.6% maximum federal income tax rate.
Scudder Managed Municipal Bonds' long-term performance record remains highly
competitive: As shown in the accompanying table, the Fund's average annual total
returns placed it in the top one-third of its peers over one-, three-, five-,
and ten-year periods. Please turn to the Performance Update for more information
on the Fund's long-term progress, including comparisons with the unmanaged
Lehman Brothers Municipal Bond Index.
A Market Roller Coaster
Market turmoil hit a peak in the wake of the Russian currency devaluation late
last summer, followed by the near collapse of the Long Term Capital Management
hedge fund. Volatility in the U.S. stock market increased greatly while a
massive reallocation to U.S. Treasury bonds led to substantially lower yields.
The Federal Reserve's three interest rate cuts during the third and fourth
quarters of 1998 helped to gradually restore market stability. During this
period, the U.S. economy continued to grow beyond all expectations, with a
dramatic 6% annualized increase in GDP for the fourth quarter of 1998 and a
strong start in 1999 that seemed to assure at least 4% GDP growth this year.
This show of strength, in turn, worried bond investors, who responded by sending
30-year Treasury bond yields back up to July 1998 levels. Over the twelve months
ended May 31, yields of 30-year Treasury bonds ended slightly higher, beginning
at 5.60% and ending at 5.84%. Over the same time frame, yields of 30-year AAA
insured municipal bonds also rose slightly, from 5.10% to 5.22%.
B-2
<PAGE>
- --------------------------------------------------------------------------------
Competitive Long-Term Returns
(Average annual returns for periods ended May 31, 1999)
- --------------------------------------------------------------------------------
Scudder
Managed Lipper Number
Municipal average of
Bonds annual Funds Percentile
Period return return Rank tracked Ranking
1 year 4.04% 3.26% 32 of 260 Top 12%
3 years 7.13% 6.68% 55 of 202 Top 27%
5 years 6.88% 6.42% 39 of 153 Top 25%
10 years 7.47% 7.17% 17 of 76 Top 22%
Past performance does not guarantee future results.
Lipper Analytical Services, Inc., is an independent analyst of investment
performance. Performance includes reinvestment of dividends and capital gains.
In addition to high tax free yields, municipal bonds have historically offered
greater price stability over time than Treasury bonds of comparable maturity.
The accompanying chart demonstrates the record over the past 12 months, when
most financial markets were at a peak of volatility.
- --------------------------------------------------------------------------------
Municipals Provided Greater Stability
Monthly prices of 30-year AAA-rated municipal bonds compared with prices of
30-year U.S. Treasury bonds, 5/31/98-5/31/99.
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
30-year 30-year
U.S. AAA-rated
Treasury Bonds municipal bonds
5/31/98 100.14 100.77
103.47 100.00
7/31/98 101.57 100.00
107.12 102.33
9/31/98 114.87 105.57
111.47 102.33
11/31/98 109.83 102.33
111.47 102.33
1/31/99 111.14 103.13
103.32 101.55
3/31/99 102.11 100.77
104.665 100.31
5/31/99 100.00 98.19
Past performance is not indicative of future results.
Source: Scudder Kemper Investments, Inc.
B-3
<PAGE>
Tax-Free Income and Below-Average Risk
Scudder Managed Municipal Bonds' primary goals are to generate high federally
tax-free income through investments in high-grade, long-term municipal
securities. During the Fund's abbreviated fiscal year, we maintained a two-part
strategy: First, we focused on premium "cushion" bonds -- bonds with high
coupons that compensate investors for the fact that they can be redeemed by
their issuer prior to maturity. At the same time, we continued the Fund's strong
emphasis on call protection. (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. In terms of maturity, we focused on six- to
13-year bonds, because we believe they offer the best total return potential,
based on our outlook for interest rates and the yield differentials among bonds
across the maturity spectrum.
The Fund continues its cautious stance on the market with respect to interest
rate risk, maintaining an average duration similar to that of its competitive
universe. As of May 31, 1999, the Fund's average duration was 6.9 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.)
The Fund's overall level of portfolio quality remains high, with over 65% of the
Fund's portfolio rated AAA or AA. 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, 1999, the Fund held securities
issued in 27 states plus the District of Columbia and the Virgin Islands.
Outlook
In light of recent increases in short-term interest rates -- including an
increase in the Federal Funds target rate following the close of the period -- a
long-predicted slowdown in U.S. economic activity seems more likely to occur
during the second half of 1999. At the same time, we expect that
B-4
<PAGE>
inflation will remain restrained, which should place an upper limit on interest
rate increases. Though as a general rule we maintain a portfolio duration in
line with our market, we will take a cautious approach during the coming months.
We will also monitor the level of worldwide economic activity closely over the
remainder of the year: The United States has been the only significant engine of
economic growth for some time. If the incipient economic recovery in Asia and
other parts of the world gathers steam, we will watch for additional upward
pressure on inflation and short-term interest rates and adjust our strategy
accordingly.
In terms of the Fund's day-to-day strategy, we will continue to seek competitive
returns by purchasing eight- to 13-year premium cushion bonds and noncallable
bonds 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.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Ashton P. Goodfield
Philip G. Condon Ashton P. Goodfield
B-5
<PAGE>
APPENDIX 1
FUND SHARES OWNED BY NOMINEES AND TRUSTEES
Many of the nominees and Trustees own shares of the series of the Acquired
Trust and of other funds in the Scudder Family of Funds and AARP Funds,
allocating their investments among such funds based on their individual
investment needs. The following table sets forth, for each nominee and Trustee,
the number of shares owned in each series of the Acquired Trust as of
January 31, 2000. The information as to beneficial ownership is based on
statements furnished to the Acquired Trust by each nominee and Trustee. Unless
otherwise noted, beneficial ownership is based on sole voting and investment
power. Each nominee's and Trustee's individual shareholdings of any series of
the Acquired Trust constitute less than 1% of the outstanding shares of such
fund. As a group, the Trustees and officers own less than 1% of the shares of
any series of the Acquired Trust.
<TABLE>
<CAPTION>
AARP HIGH QUALITY TAX AARP INSURED TAX FREE
FREE MONEY FUND GENERAL BOND FUND
--------------------- ---------------------
<S> <C> <C>
Carole Lewis Anderson(3)..................... 0 0
Adelaide Attard(1)........................... 0 0
Henry P. Becton, Jr.(1)...................... 0 0
Robert N. Butler, M.D.(3).................... 0 0
Linda C. Coughlin(1)......................... 0 0
Horace B. Deets(1)........................... 0 4,451(5)
Dawn-Marie Driscoll(1)....................... 0 0
Edgar R. Fiedler(1).......................... 1,146 792
Lt. Gen. Eugene P. Forrester(1).............. 0 230
Keith R. Fox(1).............................. 0 0
George L. Maddox, Jr.(1)..................... 0 0
Robert J. Myers(2)........................... 0 2,547
James H. Schulz(3)........................... 0 0
Gordon Shillinglaw(1)........................ 2,167 11,198(6)
Joan Edelman Spero(2)........................ 0 0
Jean Gleason Stromberg(2).................... 0 0
Jean C. Tempel(1)............................ 0 0
Steven Zaleznick(4).......................... 0 0
All Trustees and Officers as a Group......... 3,313 19,218(7)
</TABLE>
- ------------------------------
(1) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds were over
$100,000.
(2) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds ranged
between $50,000 and $100,000.
(3) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds ranged
between $10,000 and $50,000.
(4) Total aggregate holdings in each series of the Acquired Trust listed and
all other funds in the Scudder Family of Funds and AARP Funds were $0.
(5) Mr. Deets' shares in AARP Insured Tax Free General Bond Fund are held with
shared investment and voting power.
<PAGE>
(6) Mr. Shillinglaw's shares in AARP Insured Tax Free General Bond Fund include
8,162 shares with sole investment and voting power, and 3,036 shares with
shared investment and voting power.
(7) As a group, as of January 31, 2000, the Trustees and officers of AARP
Insured Tax Free General Bond Fund held 11,732 shares with sole voting and
investment power and 7,486 shares with shared investment and voting power.
2
<PAGE>
board of trustees/directors responsible for most Scudder Funds. It is
proposed that this board would continue to have AARP representation. It is
the Board's belief that this has the potential for increasing efficiency and
benefiting fund shareholders. The Board also believes that a single board,
responsible for overseeing most of the no-load funds advised by Scudder
Kemper, can more effectively represent shareholder interests. THE BOARD OF
YOUR FUND RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH NOMINEE.
You are also being asked to ratify the selection of PricewaterhouseCoopers
LLP as the independent accountants of your Fund for the current fiscal year.
THE BOARD OF YOUR FUND RECOMMENDS THAT YOU VOTE IN FAVOR OF THIS PROPOSAL.
Q: WHEN WOULD THESE CHANGES TAKE EFFECT?
A: The Board expects that the proposed changes would take effect during the
third calendar quarter of this year if the proposed combination is approved.
Q: WHOM SHOULD I CALL FOR MORE INFORMATION ABOUT THIS PROXY STATEMENT?
A: Please call Shareholder Communications Corporation, your Fund's information
agent, at 1-800-605-1203.
<PAGE>
For more information, please call Shareholder Communications
Corporation, your Fund's information agent at 1-800-605-1203.
AA Insured Tx Fr G Bond
<PAGE>
This proxy statement/prospectus is accompanied by the Acquiring Fund's
prospectus dated October 1, 1999, which was previously filed with the Commission
via EDGAR on September 29, 1999 (File No. 2-57139) and is incorporated by
reference herein.
<PAGE>
PART B
SCUDDER MUNICIPAL TRUST
- ------------------------------------------------------------------------------
Statement of Additional Information
April 18, 2000
- ------------------------------------------------------------------------------
Acquisition of the Assets of By and in Exchange for Shares of
AARP Insured Tax Free General Bond Fund Scudder Managed Municipal Bonds
(the "Acquired Fund"), a series of AARP (the "Acquiring Fund"), a series
Tax Free Income Trust of Scudder Municipal Trust
Two International Place (the "Acquiring Trust")
Boston, MA 02110-4103 Two International Place
Boston, MA 02110-4103
This Statement of Additional Information is available to the shareholders of
the Acquired Fund in connection with a proposed transaction whereby the
Acquiring Fund will acquire all or substantially all of the assets and all of
the liabilities of the Acquired Fund in exchange for shares of the Acquiring
Fund (the "Reorganization").
This Statement of Additional Information of the Acquiring Trust contains
material which may be of interest to investors but which is not included in
the Prospectus/Proxy Statement of the Acquiring Trust relating to the
Reorganization. This Statement of Additional Information consists of this
cover page and the following documents:
1. The Acquiring Fund's statement of additional information dated October 1,
1999, which was previously filed with the Securities and Exchange Commission
(the "Commission") via EDGAR on September 29, 1999 (File No. 2-57139) and is
incorporated by reference herein.
2. The Acquiring Fund's annual report to shareholders for the fiscal year
ended May 31, 1999, which was previously filed with the Commission via EDGAR
on July 26, 1999 (File No. 811-02671) and is incorporated by reference herein.
3. The Acquired Fund's prospectus dated February 1, 2000, which was
previously filed with the Commission via EDGAR on January 31, 2000 (File
No. 2-91579) and is incorporated by reference herein.
4. The Acquired Fund's statement of additional information dated February 1,
2000, which was previously filed with the Commission via EDGAR on January 31,
2000 (File No. 2-91579) and is incorporated by reference herein.
5. The Acquired Fund's annual report to shareholders for the fiscal year
ended September 30, 1999, which was previously filed with the Commission via
EDGAR on December 3, 1999 (File No. 811-04050) and is incorporated by
reference herein.
6. The financial statements and schedules of the Acquiring Fund and the
Acquired Fund required by Regulation S-X for the periods specified in
Article 3 thereof, which are filed herein.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated April 18, 2000 relating to the
Reorganization may be obtained by writing the Acquired Fund at
-53-
<PAGE>
Two International Place, Boston, MA 02110-4103 or by calling Scudder Investor
Services, Inc. at 1-800-225-2470. This Statement of Additional Information
should be read in conjunction with the Prospectus/Proxy Statement.
-54-
<PAGE>
PRO FORMA
PORTFOLIO OF INVESTMENTS
AS OF OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Managed AARP Insured AARP Insured
Municipal Tax Free Ohio Tax Pro Forma Managed Tax Free Ohio Pro Forma
Bond General Free Fund Combined Municipal General Tax Free Combined
Principal Bond Principal Principal Bond Market Bond Market Fund Market Market
Amount($) Principal Amount($) Amount($) Value($) Value($) Value($) Value($)(1)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL
INVESTMENTS 1.5%
- ---------------------------
- ---------------------------
ALASKA
Valdez, AK, Marine 1,500,000 1,500,000 1,500,000 1,500,000
Terminal Revenue, Exxon
Pipeline Project B,
3.750%, 12/1/33
ARIZONA
Maricopa County, AZ, 700,000 700,000 700,000 700,000
Pollution Control
Revenue, Series A,
Variable Rate, 5.100%,
05/01/2029
MASSACHUSETTS
Massachusetts Health & 6,500,000 6,500,000 6,500,000 6,500,000
Educational Facilities
Authority, Series B,
Daily Demand Note, MBIA
Insured, 3.850%, 7/1/05
NEW YORK
New York City, NY, 500,000 500,000 500,000 500,000
General Obligation,
Series B, Daily Demand
Note, FGIC Insured,
4.050%, 10/01/2020
New York Municipal Water 3,000,000 3,000,000 3,000,000 3,000,000
Authority, Series 1994
G, Variable Rate Demand
Note, 3.750%, 06/15/2024
Long Island, NY, Power 5,000,000 5,000,000 5,000,000 5,000,000
Authority New York
Electricity, Revenue,
Series 6, 3.750%,
05/01/2033
New York State Energy 5,000,000 5,000,000 5,000,000 5,000,000
Research & Development
Authority, Pollution
Control Revenue, Niagara
Mohawk Co., Daily Demand
Note, 3.950%, 07/01/2015
OHIO
Ohio Air Quality 1,200,000 1,200,000 1,200,000 1,200,000
Development Authority,
Cincinnati Gas and
Electric, Daily Demmand
Note, 4.150%, 12/1/15
Ohio Air Quality 3,400,000 3,400,000 3,400,000 3,400,000
Development Authority
Revenue, Cincinnati Gas
and Electric, Daily
Demand Note, 3.700%,
09/01/2030
Ohio Water Development 400,000 400,000 400,000 400,000
Authority, Environmental
Mead Corporation, Series
1986 B, Daily Demand
Note, 3.750%, 11/1/15
TEXAS
Harris County, TX, 2,000,000 5,000,000 7,000,000 2,000,000 5,000,000 7,000,000
Health Facilities,
Revenue, Saint Lukes
Episcopal Hospital,
Series A, 3.700%,
02/15/2027
Harris County, TX, 1,500,000 1,500,000 1,500,000 1,500,000
Health Facilities,
Revenue, St Lukes
Episcopal Hospital,
Series B, 3.800%,
02/15/2027
SHORT-TERM MUNICIPAL INVESTMENTS
SHORT-TERM MUNICIPAL INVESTMENTS (COST OF $20,000,000 ---------------------------------------------------
$10,700,000 $5,000,000 AND $35,700,000 RESPECTIVELY) 20,000,000 10,700,000 5,000,000 35,700,000
---------------------------------------------------
---------------------------------------------------
LONG-TERM MUNICIPAL
INVESTMENTS 98.5%
- ---------------------------
- ---------------------------
ALASKA
Anchorage, AK, Electric 2,620,000 2,620,000 2,860,475 2,860,475
Utility Revenue, 6.500%,
12/01/2007
North Slope Borough, AK, 7,000,000 4,000,000 11,000,000 4,967,340 2,838,480 7,805,820
General Obligation,
Capital Appreciation,
Series A, Zero Coupon,
06/30/2006
North Slope Borough, AK, 5,000,000 5,000,000 3,345,100 3,345,100
General Obligation,
Capital Appreciation,
Series A, Zero Coupon,
06/30/2007
North Slope Borough, AK, 7,000,000 7,000,000 4,406,710 4,406,710
General Obligation,
Series 1997A, Zero
Coupon, 6/30/08
North Slope Borough, AK, 18,200,000 25,600,000 43,800,000 13,672,022 19,230,976 32,902,998
General Obligation,
Capital Appreciation,
Series B, Zero Coupon,
06/30/2005
North Slope Borough, AK, 8,000,000 11,000,000 19,000,000 6,871,760 9,448,670 16,320,430
General Obligation,
Series B, Zero Coupon,
1/1/03
North Slope Borough, AK, 15,000,000 15,500,000 30,500,000 11,910,900 12,307,930 24,218,830
General Obligation,
Capital Appreciation,
Series B, Zero Coupon,
06/30/2004
ARIZONA
Arizonia Municipal 3,500,000 3,500,000 4,193,630 4,193,630
Finance Program,
Certificate of
Participation, Series
<PAGE>
25, MBIA, 7.875%,
08/01/2014
Maricopa County, AZ, 4,000,000 4,000,000 3,264,480 3,264,480
School District #28,
Kyrene Elementary,
Series B, Zero Coupon,
FGIC, 01/01/2004
Maricopa County, AZ, 2,950,000 2,950,000 2,440,152 2,440,152
School District #6,
Washington Elementary,
Series B, FGIC, 4.100%,
07/01/2013
Maricopa County, AZ, 5,280,000 5,280,000 4,081,546 4,081,546
Unified School District
#41, Gilbert School, FGIC,
Zero Coupon, 01/01/2005
Maricopa County, AZ, 4,905,000 4,905,000 3,585,898 3,585,898
School District No. 28,
Kyrene Elementary School,
Series B, Zero Coupon,
01/01/2006
CALIFORNIA
Alameda County, CA, 8,995,000 8,995,000 9,242,183 9,242,183
Certificate of
Participation, Santa
Rita Jail Project,
5.375%, 06/01/2009
Banning, CA, Wastewater, 960,000 960,000 1,182,202 1,182,202
Certificate of
Participation, AMBAC,
8.000%, 1/1/19
Banning, CA, Wastewater, 1,080,000 1,080,000 1,316,639 1,316,639
Certificate of
Participation, AMBAC,
8.000%, 1/1/19
Big Bear Lake, CA , 3,800,000 3,800,000 4,055,816 4,055,816
MBIA Insured, Series
1996, 6.000%, 04/01/2011
California General 4,000,000 4,000,000 4,389,360 4,389,360
Obligation, 6.250%,
10/1/07
California General 5,000,000 5,000,000 5,468,200 5,468,200
Obligation, 6.250%,
4/1/08
California, General 15,600,000 15,600,000 17,405,388 17,405,388
Obligation, 6.600%,
02/01/2009
California Housing 1,000,000 1,000,000 1,079,340 1,079,340
Finance Agency,
Multi-Unit Rental
Housing Revenue,
Series A, 7.700%,
08/01/2010
California Pollution 12,000,000 12,000,000 12,914,760 12,914,760
Control Financing
Authority, Solid Waste
Disposal Revenue,
Canadian Fibre of
Riverside PJ, Series
1997 A, 9.000%,
07/01/2019
California Statewide 2,250,000 2,250,000 2,304,675 2,304,675
Community Development
Authority, Certificate
of Participation,
Lutheran Homes, 5.500%,
11/15/08
Foothill Eastern 6,250,000 6,250,000 5,259,500 5,259,500
Transportation Corridor
Agency, CA , Toll Road
Revenue, Senior Lien,
Series A, Step-up Coupon
0% to 1/1/2005, 7.15%
to 1/1/2014, 01/01/2014
Foothill Eastern 4,000,000 4,000,000 3,354,560 3,354,560
Transportation Corridor
Agency, CA, Toll Road
Revenue, Senior Lien,
Series A, Step-up Coupon,
0% to 1/1/2005, 7.1%
to 1/1/2011, 01/01/2011
Foothill Eastern 4,000,000 4,000,000 3,359,440 3,359,440
Transportation Corridor
Agency, CA, Toll Road
Revenue, Senior Lien,
Series A, Step-up Coupon,
0% to 1/1/2005, 7.1%
to 1/1/2012, 01/01/2012
Foothill Eastern 11,000,000 11,000,000 4,599,760 4,599,760
Transportation Corridor
Agency, CA, Toll Road
Revenue, Senior Lien,
Series A, Zero Coupon,
01/01/2015
Foothill Eastern 5,000,000 5,000,000 4,110,500 4,110,500
Transportation Corridor
Agency, CA, Toll Road
Revenue, Senior Lien,
Series A, Step-up Coupon,
0% to 1/1/2005, 7.05%
to 1/1/2009, 01/01/2009
Los Angeles County, 4,030,000 4,030,000 2,649,967 2,649,967
CA, Certificate of
Participation, Disney
Parking Project, Zero
Coupon, 09/01/2007
Los Angeles County, 5,425,000 5,425,000 3,129,618 3,129,618
CA, Certificate of
Participation, Disney
Parking Project, Zero
Coupon, 09/01/2009
California Housing 2,015,000 2,015,000 2,039,039 2,039,039
Finance Agency, MBIA
Insured, 5.300%,
08/01/2014
California State
Public Works Board, 8,095,000 8,095,000 8,876,006 8,876,006
Lease Revenue,
Series A, AMBAC insured,
6.300%, 12/01/2006
Los Angeles County, 3,000,000 3,000,000 2,991,930 2,991,930
CA , Public Works
Authority, MBIA Insured,
Series 1996B, 5.250%,
09/01/2011
Los Angeles County, 9,000,000 9,000,000 9,653,220 9,653,220
CA, Capital Asset
Leasing, AMBAC, 6.000%,
12/01/2006
<PAGE>
Los Angeles County, 11,140,000 11,140,000 10,739,294 10,739,294
CA, Public Works Finance
Authority, Lease Revenue,
Multiple Projects IV,
MBIA, 4.750%, 12/1/10
Madera County, CA, 2,840,000 2,840,000 3,154,700 3,154,700
Certificates of
Participation, Valley
Childrens Hospital,
6.500%, 03/15/2010
Oakland, CA, 2,000,000 2,000,000 2,150,480 2,150,480
Redevelopment Agency,
Tax Allocation, AMBAC,
6.000%, 02/01/2007
Roseville, CA, Unified 1,830,000 1,830,000 1,032,797 1,032,797
High School District,
General Obligation,
Series B, Zero Coupon,
08/01/2010
Roseville, CA, Unified 1,000,000 1,000,000 399,450 399,450
High School District,
General Obligation,
Series B, Zero Coupon,
08/01/2015
San Joaquin Hills, CA, 2,000,000 2,000,000 1,015,280 1,015,280
Transportation,
Revenue, Series A,
Zero Coupon, 1/15/12
San Joaquin, CA, 3,895,000 3,895,000 3,917,630 3,917,630
Certificate of
Participation, County
Public Facilities
Project, 5.500%,
11/15/2013
San Diego County, 6,300,000 6,300,000 6,613,110 6,613,110
CA, Water Authority
Revenue, Certificate
of Participation, FGIC,
5.632%, 04/25/2007
San Diego, CA, Water 4,500,000 4,500,000 4,701,240 4,701,240
Authority,, Certificate
of Participation, FGIC,
5.681%, 04/22/2009
San Francisco, CA, Bay 2,000,000 2,000,000 2,265,300 2,265,300
Area Rapid Transit
District, Sales Tax
Revenue Refunding,
AMBAC, 6.750%,
07/01/2010
San Joaquin Hills, 3,000,000 3,000,000 1,522,920 1,522,920
CA, Transportation,
Revenue, Series A,
Zero Coupon, 1/15/12
San Joaquin, CA, 2,000,000 2,000,000 2,011,620 2,011,620
Certificate of
Participation, County
Public Facilities
Project, 5.500%,
11/15/2013
Sweetwater Authority, 10,000,000 10,000,000 10,111,600 10,111,600
CA, Water Revenue,
AMBAC insured, 5.250%,
4/1/10
COLORADO
Colorado Housing 2,030,000 2,030,000 2,205,209 2,205,209
Finance Authority
Revenue, 8.100%,
10/01/2005
Colorado Housing 2,145,000 2,145,000 2,332,988 2,332,988
Finance Authority
Revenue, 8.150%,
10/01/2006
Colorado Housing 2,320,000 2,320,000 2,523,325 2,523,325
Finance Authority
Revenue, Multi-Family
Mortgage, Series A,
8.150%, 10/01/2007
Colorado Housing 2,510,000 2,510,000 2,733,315 2,733,315
Finance Authority
Revenue, Multi-Family
Mortgage, Series A,
8.200%, 10/01/2008
Colorado Housing 2,725,000 2,725,000 2,967,443 2,967,443
Finance Authority
Revenue, Multi-Family
Mortgage, Series A,
8.200%, 10/01/2009
Colorado Housing 1,940,000 1,940,000 2,115,201 2,115,201
Finance Authority
Revenue, 8.250%,
10/01/2010
Colorado Housing 1,680,000 1,680,000 1,831,721 1,831,721
Finance Authority
Revenue, 8.250%,
10/01/2011
Colorado Housing 1,945,000 1,945,000 2,120,653 2,120,653
Finance Authority
Revenue, 8.250%,
10/01/2012
Denver, CO, Urban 945,000 945,000 990,029 990,029
Renewal Authority,
Tax Increment Revenue,
Pavilions-Convention,
AMT, Series 1989,
7.500%, 09/01/2004
Mesa County, CO, 6,435,000 6,435,000 3,288,864 3,288,864
Residual Revenue,
Single Family Housing,
ETM, Series 1992,
Zero Coupon, 12/01/2011
CONNECTICUT
Connecticut Resource 2,000,000 2,000,000 2,149,460 2,149,460
Recovery Authority ,
MBIA Insured, Series
1996, 6.250%, 11/15/2005
Connecticut Resource 4,525,000 4,525,000 4,882,294 4,882,294
Recovery Authority ,
MBIA Insured, Series
1996A, 6.250%, 11/15/2006
Connecticut State Health 5,000,000 5,000,000 5,136,250 5,136,250
Facility Authority ,
Series 1992B, 6.150%,
11/15/04
DISTRICT OF COLUMBIA
<PAGE>
District of Columbia, 9,000,000 9,000,000 9,056,970 9,056,970
General Obligation,
Series B, 5.500%, 6/1/10
District of Columbia, 350,000 350,000 368,060 368,060
Prerefunded, Series A,
5.875%, 06/01/2005
District of Columbia, 4,400,000 4,400,000 4,583,304 4,583,304
Unrefunded Balance,
Series A, 5.875%,
06/01/2005
District of Columbia, 2,160,000 2,160,000 2,327,897 2,327,897
Unrefunded Balance,
MBIA Insured, 6.250%,
6/1/10
District of Columbia, 110,000 110,000 121,525 121,525
General Obligation,
Prerefunded 8/1/99 at
100, MBIA Insured,,
6.500%, 06/01/2010
District of Columbia, 3,500,000 3,500,000 3,417,680 3,417,680
General Obligation,
Series B, MBIA, Zero
Coupon, 06/01/2000
District of Columbia, 2,000,000 2,000,000 1,686,940 1,686,940
General Obligation,
Series B, Zero Coupon,
6/1/03
District of Columbia, 1,350,000 1,350,000 1,368,819 1,368,819
General Obligation,
Series B3, 5.300%,
6/1/05
District of Columbia, 1,000,000 1,000,000 1,017,940 1,017,940
General Obligation,
Series B3, 5.500%,
6/1/07
District of Columbia, 3,225,000 3,225,000 3,266,677 3,266,677
General Obligation,
Series B3, 5.500%,
6/1/08
District of Columbia, 5,000,000 5,000,000 4,714,600 4,714,600
Water and Sewer
Authority, Public
Utility Revenue,
5.500%, 10/01/2023
District of Columbia, 3,300,000 3,300,000 3,437,478 3,437,478
General Obligation,
Series A, 5.875%,
6/1/05
District of Columbia, 12,500,000 12,500,000 12,618,250 12,618,250
General Obligation,
Inverse Floating Rate
Note, Series 1999B,
6.818%, 06/01/2010
District of Columbia, 1,780,000 1,780,000 1,816,704 1,816,704
Certificate of
Participation, 6.875%,
01/01/2003
District of Columbia, 1,000,000 1,000,000 1,047,830 1,047,830
Certificate of
Participation, 7.300%,
01/01/2013
District of Columbia, 3,905,000 3,905,000 4,082,014 4,082,014
Unrefunded Balance,
Series B, 6.125%,
06/01/2003
District of Columbia, 95,000 95,000 100,565 100,565
General Obligation,
Prerefunded 6/1/02 at
102, Series B,, 6.125%,
06/01/2003
District of Columbia, 18,905,000 18,905,000 19,207,480 19,207,480
General Obligation,
Series B, AMBAC, 5.400%,
6/1/06
District of Columbia, 10,000,000 10,000,000 10,160,000 10,160,000
General Obligation,
Series B3, MBIA, 5.400%,
6/1/06
District of Columbia, 25,000,000 25,000,000 25,448,500 25,448,500
General Obligation,
Series B, AMBAC, 5.500%,
6/1/07
District of Columbia, 21,300,000 21,300,000 21,575,196 21,575,196
General Obligation,
Series B, AMBAC, 5.500%,
6/1/08
District of Columbia, 16,150,000 16,150,000 16,280,815 16,280,815
General Obligation,
Series B, AMBAC, 5.500%,
6/1/09
District of Columbia, 2,840,000 2,840,000 2,863,004 2,863,004
General Obligation,
Series B, MBIA, 5.500%,
6/1/09
District of Columbia, 1,050,000 1,050,000 1,034,030 1,034,030
General Obligation,
Series B, MBIA, 5.500%,
6/1/12
Washington DC Convention 4,000,000 4,000,000 3,858,000 3,858,000
Center, Authority
Dedicated Tax Revenue,
5.250%, 10/01/2012
GEORGIA
Cobb County, GA, 2,305,000 2,305,000 2,350,639 2,350,639
Kennestone Hospital
Authority, Series A,
MBIA, 5.625%, 4/1/11
Burke County, GA, 5,000,000 5,000,000 5,599,450 5,599,450
Development Authority,
Pollution Control
Revenue, Votgle
Project, 7.700%,
01/01/2006
Georgia Municipal 5,000,000 5,000,000 5,429,650 5,429,650
Electric Authority,
Power Revenue,
Series V, 6.500%,
1/1/12
<PAGE>
Georgia Municipal 3,500,000 3,500,000 3,800,755 3,800,755
Electricity Authority,
Power Revenue, Fourth
Crossover, Project
No. 1, Series 1997
X, 6.500%, 01/01/2012
Georgia, General 4,000,000 4,000,000 4,134,960 4,134,960
Obligation, Series B,
5.750%, 08/01/2012
Macon-Bibb County, 3,000,000 3,000,000 2,971,230 2,971,230
GA, Hospital Authority,
Medical Center of
Central Georgia,
Series C, FGIC, 5.250%,
8/1/11
Municipal Electric 3,500,000 3,500,000 3,764,880 3,764,880
Authority Power
Revenue , Series Y,
6.400%, 01/01/2013
HAWAII
State of Hawaii, 18,095,000 18,095,000 18,217,322 18,217,322
General Obligation,
Series CT, 5.700%,
09/01/2013
State of Hawaii, 2,000,000 2,000,000 2,113,180 2,113,180
General Obligation,
Series 1992 BZ, FGIC
Insured, 6.000%, 10/1/09
ILLINOIS
Central Lake County, 2,245,000 2,245,000 1,995,872 1,995,872
IL, Joint Action Water
Agency, Refunding
Revenue, MBIA, Zero
Coupon, 05/01/2002
Central Lake County, 2,445,000 2,445,000 1,954,655 1,954,655
IL, Joint Action Water
Agency, Refunding, Zero
Coupon, 5/1/04
Chicago, IL, Public 4,000,000 4,000,000 2,598,200 2,598,200
Building Commission,
Capital Appreciation,
ETM, Series 1990 A,
Zero Coupon, 01/01/2008
Chicago, IL, Public 2,655,000 2,655,000 2,664,399 2,664,399
Building Commission,
Building Revenue,
Series A, 5.250%,
12/01/2008
Chicago, IL, Wastewater 11,990,000 11,990,000 12,231,239 12,231,239
Transmission Revenue,
FGIC, 5.500%,
01/01/2009
Chicago, IL, Wastewater 7,220,000 7,220,000 7,264,114 7,264,114
Transmission Revenue,
FGIC, 5.500%, 01/01/2010
Chicago, IL, General 26,000,000 26,000,000 27,301,560 27,301,560
Obligation Lease, Board
of Education, Series A,
6.250%, 1/1/15
Chicago, IL, Board of 36,625,000 36,625,000 36,920,564 36,920,564
Education, Certificates
of Participation,
Series A, 6.000%,
01/01/2020
Chicago, IL, Motor 5,000,000 5,000,000 4,810,150 4,810,150
Fuel Tax Revenue,
5.375%, 01/01/2014
Chicago, IL, Wastewater 3,215,000 3,215,000 3,123,180 3,123,180
Transmission Revenue,
5.375%, 01/01/2013
Chicago, IL, General 7,200,000 7,200,000 7,481,952 7,481,952
Obligation, Emergency
Telephone Systems,
5.600%, 1/1/09
Chicago, IL, General 1,620,000 1,620,000 1,547,716 1,547,716
Obligation, Series B,
5.000%, 01/01/2011
Chicago, IL, General 5,200,000 5,200,000 5,018,728 5,018,728
Obligation, Series B,
AMBAC, 5.000%, 01/01/2010
Chicago, IL, General 9,550,000 9,550,000 8,850,081 8,850,081
Obligation, Series B,
AMBAC, 5.125%, 01/01/2015
Chicago, IL, General 15,410,000 15,410,000 14,969,890 14,969,890
Obligation, Series A,
MBIA, 5.375%, 01/01/2013
Chicago, IL, General 3,000,000 3,000,000 3,188,250 3,188,250
Obligation, AMBAC,
6.250%, 01/01/2011
Chicago, IL, General 3,750,000 3,750,000 3,948,300 3,948,300
Obligation, Series 1996
A2, 6.250%, 01/01/2014
Chicago, IL, General 11,025,000 11,025,000 11,253,328 11,253,328
Obligation Lease, Board
of Education, Series A,
MBIA Insured, 6.000%,
01/01/2016
Chicago, IL, General 1,600,000 1,600,000 1,706,304 1,706,304
Obligation Lease, Board
of Education , MBIA
Insured, Series 1996,
6.250%, 12/01/2011
Chicago, IL, General 11,550,000 11,550,000 12,291,048 12,291,048
Obligation Lease, Board
of Education, Series A,
MBIA, 6.250%, 01/01/2010
Chicago, IL, General 2,725,000 2,725,000 2,861,414 2,861,414
Obligation Lease, Board
of Education, Series A,
6.250%, 1/1/15
Chicago, IL, O'Hare 2,255,000 2,255,000 2,369,644 2,369,644
International Airport,
Refunding Revenue, AMBAC
Insured, Series 1996A,
6.000%, 1/1/06
Chicago, IL, O'Hare 2,250,000 2,250,000 1,966,433 1,966,433
International Airport,
Special Facilities
Revenue,
<PAGE>
United Airlines Project,
Series A, 5.350%,
09/01/2016
Chicago, IL, Public 9,705,000 9,705,000 9,542,732 9,542,732
Building Commission,
Building Revenue,
Series A, MBIA, 5.250%,
12/01/2011
Chicago, IL, Public 10,420,000 10,420,000 10,403,328 10,403,328
Building Commission,
Building Revenue,
Series A, MBIA,
5.250%, 12/01/2009
Chicago, IL, Public 3,500,000 3,500,000 3,534,265 3,534,265
Building Commission,
Building Revenue,
Series A, MBIA Insured,
5.250%, 12/01/2007
Chicago, IL, Public 2,430,000 2,430,000 1,776,500 1,776,500
Building Commission,
Board of Education,
Series A, MBIA, Zero
Coupon, 01/01/2006
Chicago,IL, O'Hare 6,500,000 6,500,000 6,209,970 6,209,970
International Airport,
Revenue Refunding,
Series C, MBIA, 5.000%,
01/01/2011
Cook & Dupage Counties, 2,550,000 2,550,000 1,664,972 1,664,972
IL , Housing Development
Authority, Zero Coupon,
FSA Insured, 12/01/2007
Cook & Dupage Counties, 2,625,000 2,625,000 1,611,645 1,611,645
IL , Housing Development
Authority, Zero Coupon,
FSA Insured, 12/01/2008
Cook & Dupage Counties, 2,860,000 2,860,000 1,652,765 1,652,765
IL , Housing Development
Authority, Zero Coupon,
FSA Insured, 12/01/2009
Cook County, IL, 1,700,000 1,700,000 1,043,732 1,043,732
Community High School
District #233, Capital
Appreciation Series 1993
B, FGIC Insured, Zero
Coupon, 12/01/2008
Cook County, IL, General 3,205,000 3,205,000 2,511,630 2,511,630
Obligation, Zero Coupon,
ETM, AMBAC Insured,
11/1/04
Cook County, IL, General 5,000,000 5,000,000 5,290,400 5,290,400
Obligation, Series C,
FGIC, 6.000%, 11/15/2007
Decatur, IL, General 1,455,000 1,455,000 1,204,304 1,204,304
Obligation, Series 1991,
AMBAC, Zero Coupon,
10/1/03
Decatur, IL, General 1,415,000 1,415,000 1,108,058 1,108,058
Obligation, Series 1991,
AMBAC, Zero Coupon,
10/1/04
Decatur, IL, Public 1,725,000 1,725,000 1,819,530 1,819,530
Building Commission,
General Obligation,
Certificate of
Participation, FGIC,
6.500%, 01/01/2003
Decatur, IL, Public 1,500,000 1,500,000 1,617,270 1,617,270
Building Commission,
General Obligation,
Certificate of
Participation, FGIC,
6.500%, 01/01/2006
Du-Page, IL, Industrial 3,600,000 3,600,000 3,648,600 3,648,600
Development Revenue,
Weyerhaeuser Company
Project, Series 1983,
8.650%, 11/01/2008
Hoffman Estates, IL, 8,500,000 8,500,000 6,005,250 6,005,250
Tax Increment Revenue,
Capital Appreciation,
Junior Lien, Series
1991, Zero Coupon,
5/15/06
Hoffman Estates, IL, 17,460,000 17,460,000 11,611,948 11,611,948
Tax Increment Revenue,
Capital Appreciation,
Junior Lien, Series
1991, Zero Coupon,
5/15/07
Illinois, Dedicated 3,000,000 3,000,000 3,199,740 3,199,740
Tax Revenue, Civic
Center Project, AMBAC,
6.250%, 12/15/11
Illinois, Dedicated 6,975,000 6,975,000 7,215,638 7,215,638
Tax Revenue, Civic
Center Project, AMBAC,
6.250%, 12/15/20
Illinois Dedicated Tax 4,765,000 4,765,000 5,230,588 5,230,588
Revenue, Civic Center
Project, Series A,
6.500%, 12/15/07
Illinois Dedicated 5,255,000 5,255,000 5,782,182 5,782,182
Tax Revenue, Civic
Center Project,
Series A, AMBAC,
6.500%, 12/15/2008
Illinois Development 5,000,000 5,000,000 5,052,450 5,052,450
Finance Authority,
Commonwealth Edison,
Refunding, 5.850%,
01/15/2014
Illinois Educational 3,100,000 2,860,000 5,960,000 2,337,462 2,277,933 4,615,395
Facilities Authority,
Loyola University, 1991
Series A, MBIA, Zero
Coupon, 7/1/04
Illinois Educational 4,000,000 4,000,000 3,016,080 3,016,080
Facilities Authority,
Loyola University, Zero
Coupon, 07/01/2005
Illinois Health 1,640,000 1,640,000 1,722,853 1,722,853
Facilities Authority,
Brokaw-Mennonite
Healthcare, FGIC,
<PAGE>
6.000%, 08/15/2009
Illinois Health 1,380,000 1,380,000 1,453,678 1,453,678
Facilities Authority,
Brokaw-Mennonite
Healthcare, FGIC,
6.000%, 08/15/2006
Illinois Health 1,460,000 1,460,000 1,538,709 1,538,709
Facilities Authority,
Brokaw-Mennonite
Healthcare, FGIC,
6.000%, 08/15/2007
Illinois Health 1,550,000 1,550,000 1,630,910 1,630,910
Facilities Authority,
Brokaw-Mennonite
Healthcare, FGIC,
6.000%, 08/15/2008
Illinois Health 3,400,000 3,400,000 3,569,966 3,569,966
Facilities Authority,
Children's Memorial
Hospital, MBIA,
6.250%, 08/15/2013
Illinois Health 17,000,000 17,000,000 18,154,640 18,154,640
Facilities Authority,
Felician Healthcare
Inc., Series A, AMBAC,
6.250%, 12/01/2015
Illinois Health 1,350,000 1,350,000 1,455,179 1,455,179
Facilities Authority,
SSM Healthcare System,
MBIA, 6.400%, 6/1/08
Illinois Health 2,135,000 2,135,000 2,231,203 2,231,203
Facilities Authority,
Memorial Medical Center,
MBIA, 6.750%, 10/1/11
Illinois Health 2,700,000 2,700,000 2,864,376 2,864,376
Facilities Authority,
Sherman Hospital, MBIA,
6.750%, 8/1/11
Illinois Health 1,000,000 1,000,000 903,560 903,560
Facilities Authority,
Centegra Health System,
5.200%, 9/1/12
Illinois Health 1,725,000 1,725,000 1,715,702 1,715,702
Facilities Authority,
Memorial Medical
Certer-Springfield,
5.250%, 10/01/2009
Illinois Health 2,500,000 2,500,000 2,530,675 2,530,675
Facilities Authority,
University of Chicago
Hospital, Refunding,
Series A, 5.500%,
8/15/08
Illinois State Toll 3,665,000 3,665,000 3,610,758 3,610,758
Highway Authority, Toll
Highway Priority
Revenue Bond, Series A,
5.500%, 01/01/2013
Illinois State Sales 2,100,000 2,100,000 2,280,453 2,280,453
Tax Revenue, Series P,
6.500%, 06/15/2013
Joliet, IL, Junior 2,500,000 2,500,000 2,770,575 2,770,575
College Assistance
Corp., Lease Revenue,
North Campus Extension
Center, MBIA, 6.700%,
9/1/12
Kane County, IL , MBIA 1,775,000 1,775,000 1,924,118 1,924,118
Insured, Series 1996A,
6.500%, 02/01/2010
Kane, Cook and Dupage 1,040,000 1,040,000 554,455 554,455
Counties, IL, School
District #46 Elgin,
Series 1996B, FSA
Insured, Zero Coupon,
1/1/11
Kane, Cook and Dupage 1,300,000 1,300,000 647,413 647,413
Counties, IL, School
District #46 Elgin,
Series 1996B, FSA
Insured, Zero Coupon,
1/1/12
Kane, Cook and Dupage 2,095,000 2,095,000 972,729 972,729
Counties, IL, School
District #46 Elgin,
Series 1996B, FSA
Insured, Zero Coupon,
1/1/13
Kendall, Kane and Will 1,055,000 1,055,000 945,291 945,291
Counties, IL, Community
Unit School District
Number 308, Oswego,
FGIC, Zero Coupon,
3/1/02
Kendall, Kane and Will 1,540,000 1,540,000 1,174,481 1,174,481
Counties, IL, Community
Unit School District
Number 308, Oswego,
FGIC, Zero Coupon,
3/1/05
Kendall, Kane and Will 1,595,000 1,595,000 1,149,118 1,149,118
Counties, IL, Community
Unit School District
Number 308, Oswego,
FGIC, Zero Coupon,
3/1/06
Metropolitan Pier & 5,625,000 5,625,000 2,543,344 2,543,344
Exposition Authority,
IL , McCormick Project,
Series 1994, Zero
Coupon, 06/15/2013
Metropolitan Pier & 3,200,000 3,200,000 2,622,528 2,622,528
Exposition Authority,
IL, McCormick Place
Expansion Project,
MBIA, Zero Coupon,
12/15/03
Metropolitan Pier & 10,300,000 10,300,000 8,184,483 8,184,483
Exposition Authority,
IL, McCormick Place
Expansion Project, MBIA,
Zero Coupon, 6/15/04
Northwest Suburban 2,575,000 2,575,000 2,788,210 2,788,210
Municipal Joint Action
Water Agency, IL, Supply
System Revenue, MBIA,
6.450%, 05/01/2007
<PAGE>
Northern Illinois 1,865,000 1,865,000 1,416,337 1,416,337
University, Board of
Regents, Zero Coupon,
04/01/2005
Northern Illinois 1,865,000 1,865,000 1,380,865 1,380,865
University, Board of
Regents, Zero Coupon,
10/01/2005
Northern Illinois 1,865,000 1,865,000 1,337,858 1,337,858
University, Board of
Regents, Zero Coupon,
04/01/2006
Northern Illinois 1,865,000 1,865,000 1,303,710 1,303,710
University, Board of
Regents, Zero Coupon,
10/01/2006
Northern Illinois 1,865,000 1,865,000 1,261,262 1,261,262
University, Board of
Regents, Zero Coupon,
04/01/2007
Northern Illinois 1,865,000 1,865,000 1,228,457 1,228,457
University, Board of
Regents, Zero Coupon,
10/01/2007
Oak Lawn, IL, Water and 1,295,000 1,295,000 1,070,641 1,070,641
Sewer Revenue, Zero
Coupon, 10/01/2003
Oak Lawn, IL, Water and 1,295,000 1,295,000 1,014,568 1,014,568
Sewer Revenue, Zero
Coupon, 10/01/2004
Oak Lawn, IL, Water and 1,295,000 1,295,000 959,375 959,375
Sewer Revenue, Zero
Coupon, 10/01/2005
Oak Lawn, IL, Water and 1,295,000 1,295,000 905,257 905,257
Sewer Revenue, Zero
Coupon, 10/01/2006
Rosemont, IL, Tax 2,655,000 2,655,000 1,733,529 1,733,529
Increment, Seriec C,
FGIC, Zero Coupon,
12/01/2007
Rosemont, IL, Tax 7,060,000 4,455,000 11,515,000 5,183,240 3,270,727 8,453,967
Increment, Series C,
FGIC, Zero Coupon,
12/01/2005
Rosemont, IL, Tax 6,000,000 6,000,000 4,659,720 4,659,720
Increment Revenue,
Zero Coupon,
12/1/2004
State University 7,000,000 7,000,000 5,182,870 5,182,870
Retirement System,
IL, Special Revenue,
Zero Coupon, 10/1/05
Skokie, IL, Park 3,000,000 3,000,000 1,518,930 1,518,930
District, Series
1994B, AMBAC Insured,
Zero Coupon, 12/1/11
State University 2,750,000 2,750,000 2,276,175 2,276,175
Retirement System,
IL, Special Revenue,
MBIA, Zero Coupon,
10/01/2003
University of Illinois, 3,890,000 3,890,000 3,301,599 3,301,599
Board of Trustees,
Series 1991, AMBAC,
Zero Coupon,
04/01/2003
University of Illinois, 3,830,000 3,830,000 2,913,251 2,913,251
Board of Trustees,
Series 1991, AMBAC,
Zero Coupon,
04/01/2005
Will County, IL, 1,325,000 1,325,000 1,264,938 1,264,938
Community Unit
School District #201-U,
Crete-Monee, Capital
Appreciation, MBIA, Zero
Coupon, 12/15/00
Will County, IL, 1,730,000 1,730,000 1,572,397 1,572,397
Community Unit School
District #201-U,
Crete-Monee, Capital
Appreciation, MBIA,
Zero Coupon, 12/15/01
Will County, IL, Capital 3,725,000 3,725,000 2,594,314 2,594,314
Appreciation, School
District No. 201-U,
Zero Coupon, 12/15/2006
Winnebago County, IL, 1,675,000 1,675,000 1,847,944 1,847,944
School District No. 122,
6.550%, 06/01/2009
Winnebago County, IL, 1,825,000 1,825,000 1,989,086 1,989,086
School District No. 122,
6.550%, 06/01/2010
INDIANA
Fort Wayne, IN, 1,400,000 1,400,000 1,429,638 1,429,638
Parkview Memorial
Hospital, Series A,
FGIC, 6.500%, 11/15/12
Indiana Health 5,000,000 5,000,000 5,252,850 5,252,850
Facilities Finance
Authority, Hospital
Revenue, Community
Hospitals Project,
MBIA, 6.400%, 5/1/12
Indiana Health 4,660,000 4,660,000 4,655,620 4,655,620
Facilities Financing
Authority, Charity
Obligation Group,
Series D, 5.750%,
11/15/2012
Indiana Health 230,000 1,570,000 1,800,000 239,803 1,636,913 1,876,716
Facilities Financing
Authority, Hospital
Revenue, Series 1990 A,
6.000%, 07/01/2003
Indiana Health 240,000 1,665,000 1,905,000 251,602 1,745,486 1,997,088
Facilities Financing
Authority, Hospital
Revenue, Series 1990A,
6.000%, 07/01/2004
Indiana Health 255,000 1,765,000 2,020,000 267,694 1,852,862 2,120,556
Facilities Financing
Authority, Hospital
Revenue, Series 1990A,
6.000%, 07/01/2005
Indiana Health 270,000 1,875,000 2,145,000 283,886 1,971,431 2,255,317
Facilities Financing
Authority, Hospital
Revenue, Series 1990A,
6.000%, 07/01/2006
Indiana Health 285,000 1,985,000 2,270,000 299,618 2,086,811 2,386,429
Facilities Financing
<PAGE>
Authority, Hospital
Revenue, Series 1990A,
6.000%, 07/01/2007
Indiana Health 165,000 1,125,000 1,290,000 172,875 1,178,696 1,351,571
Facilities Financing
Authority, Hospital
Revenue, Series 1990A,
6.000%, 07/01/2009
Indiana Health 175,000 1,185,000 1,360,000 181,977 1,232,246 1,414,223
Facilities Financing
Authority, Hospital
Revenue, Series 1990A,
6.000%, 07/01/2010
Indiana Health 185,000 1,260,000 1,445,000 191,904 1,307,023 1,498,927
Facilities Financing
Authority, Hospital
Revenue, Series 1990A,
6.000%, 07/01/2011
Indiana Health 190,000 1,345,000 1,535,000 195,943 1,387,072 1,583,015
Facilities Financing
Authority, Hospital
Revenue, Series 1990A,
6.000%, 07/01/2012
Indiana Health 200,000 1,420,000 1,620,000 205,052 1,455,869 1,660,921
Facilities Financing
Authority, Hospital
Revenue, Series 1990A,
6.000%, 07/01/2013
Indiana Health 215,000 1,505,000 1,720,000 219,188 1,534,317 1,753,505
Facilities Financing
Authority, Hospital
Revenue, Series 1990A,
6.000%, 07/01/2014
Indiana Health 225,000 1,600,000 1,825,000 227,489 1,617,696 1,845,185
Facilities Financing
Authority, Hospital
Revenue, Series 1990A,
6.000%, 07/01/2015
Indiana Health 235,000 1,700,000 1,935,000 237,200 1,715,912 1,953,112
Facilities Financing
Authority, Hospital
Revenue, Series 1990A,
6.000%, 07/01/2016
Indiana Health 250,000 1,800,000 2,050,000 251,875 1,813,500 2,065,375
Facilities Financing
Authority, Hospital
Revenue, Series 1990A,
6.000%, 07/01/2017
Indiana Health 265,000 1,910,000 2,175,000 266,754 1,922,644 2,189,398
Facilities Financing
Authority, Hospital
Revenue, Series 1990A,
6.000%, 07/01/2018
Indiana Health 160,000 1,085,000 1,245,000 167,920 1,138,708 1,306,628
Facilities Financing
Authority, Hospital
Revenue, Series 1997A,
6.000%, 07/01/2008
Indiana Health 205,000 1,395,000 1,600,000 210,285 1,430,963 1,641,248
Facilities Financing
Authority, Hospital
Revenue, Tax Exempt
Custodian Receipts
Refund, Series 1997 A,
6.000%, 07/01/2001
Indiana Health 215,000 1,480,000 1,695,000 222,581 1,532,185 1,754,766
Facilities Financing
Authority, Hospital
Revenue, Tax Exempt
Custodian Receipts
Refund, Series 1997
A, 6.000%, 07/01/2002
Indiana Municipal Power 8,960,000 8,960,000 8,679,552 8,679,552
Agency, Power Supply
System, Series B,
5.500%, 1/1/16
Indiana Municipal Power 1,750,000 1,750,000 1,822,013 1,822,013
Agency, Power Supply
System, Series B,
6.000%, 1/1/12
Indiana Transportation 5,000,000 5,000,000 5,098,550 5,098,550
Finance Authority,
Highway Revenue,
Series A, 5.750%,
06/01/2012
Rockport, IN, Pollution 4,500,000 4,500,000 4,692,285 4,692,285
Control Revenue,
Series B, Refunding,
7.600%, 3/1/16
Indiana University, 8,500,000 8,500,000 5,993,265 5,993,265
Revenue Refunding,
Series H, AMBAC, Zero
Coupon, 8/1/06
Indiana University, 10,000,000 10,000,000 6,250,400 6,250,400
Revenue Refunding,
Student Fee Revenue,
Series H, Zero Coupon,
AMBAC, 08/01/2008
Merrillville, IN, 4,000,000 4,000,000 2,127,840 2,127,840
Multiple School Building
Corp., First Mortgage,
MBIA, Zero Coupon,
01/15/2011
IOWA
Polk County, IA, 5,000,000 5,000,000 5,289,750 5,289,750
Mercy Hospital, MBIA,
6.750%, 11/01/2005
KANSAS
Kansas City, KS, 4,095,000 4,095,000 3,861,012 3,861,012
Utility System Revenue,
Capital Appreciation,
AMBAC Insured,
Prerefunded, Zero
Coupon, 3/1/01
Kansas City, KS, 3,575,000 3,575,000 2,827,074 2,827,074
Utility System Revenue,
ETM, Zero Coupon,
09/01/2004
Kansas City, KS, 5,300,000 5,300,000 3,967,792 3,967,792
Utility System Revenue,
ETM, Zero Coupon,
09/01/2005
Kansas City, KS, 1,875,000 1,875,000 1,326,919 1,326,919
Utility System Revenue,
ETM, Zero Coupon,
09/01/2006
Kansas City, KS, 2,640,000 2,640,000 2,083,752 2,083,752
Utility System Revenue,
Zero Coupon, 09/01/2004
<PAGE>
Kansas City, KS, Utility 3,950,000 3,950,000 2,950,413 2,950,413
System Revenue, Zero
Coupon, 09/01/2005
Kansas City, KS, Utility 1,375,000 1,375,000 970,489 970,489
System Revenue, Zero
Coupon, 09/01/2006
LOUISIANA
Louisiana Public 5,765,000 5,765,000 5,671,549 5,671,549
Facilities Authority,
Prerefunded 2/15/08 at
100, 4.750%, 5/1/16
Bastrop, LA, Industrial 10,250,000 10,250,000 10,769,368 10,769,368
Development Board,
Pollution Control
Revenue, International
Paper Co. Project,
6.900%, 03/01/2007
New Orleans, LA, General 2,500,000 2,500,000 1,866,275 1,866,275
Obligation, Zero Coupon,
09/01/2005
New Orleans, LA, General 10,000,000 10,000,000 6,651,400 6,651,400
Obligation, AMBAC, Zero
Coupon, 09/01/2007
New Orleans, LA, General 4,850,000 4,850,000 3,250,422 3,250,422
Obligation, Zero Coupon,
07/15/2006
Orleans, LA, Levee 1,765,000 1,765,000 1,788,369 1,788,369
District, Levee
Improvement Bonds,
Series 1986, 5.950%,
11/01/2014
MARYLAND
Baltimore, MD, Revenue 3,100,000 3,100,000 3,237,764 3,237,764
Exchanged, Auto Parking
Revenue, Series 1996A,
5.900%, 7/1/12
Northeast Maryland Waste 3,390,000 3,390,000 3,736,085 3,736,085
Disposal Authority,
Southwest Resource
Recovery System Revenue,
7.200%, 01/01/2007
Northeast Maryland Waste 3,440,000 3,440,000 3,791,190 3,791,190
Disposal Authority
Revenue, Southwest
Resource Recovery System,
7.200%, 01/01/2006
MASSACHUSETTS
Massachusetts General 5,750,000 5,750,000 5,613,783 5,613,783
Obligation, Series C,
5.250%, 08/01/2012
Massachusetts Health & 2,920,000 2,920,000 2,815,084 2,815,084
Educational Facilities
Authority, Boston Medical
Center, Series A, 5.250%,
07/01/2012
Massachusetts Bay 2,500,000 2,500,000 2,591,025 2,591,025
Transportation Authority,
Revenue, Series B,
6.200%, 3/1/16
Massachusetts College 4,110,000 4,110,000 4,813,139 4,813,139
Building Authority
Project, Series A,
7.500%, 5/1/10
Massachusetts College 3,750,000 3,750,000 4,443,938 4,443,938
Building Authority
Project, Series A,
7.500%, 5/1/14
Massachusetts Health & 3,000,000 3,000,000 3,231,570 3,231,570
Educational Facilities
Authority, Massachusetts
General Hospital,
Series F, 6.250%, 7/1/12
Massachusetts Port 2,000,000 2,000,000 1,972,940 1,972,940
Authority Revenue,
Series B, AMT, 5.500%,
07/01/2012
Massachusetts State 2,000,000 2,000,000 1,927,360 1,927,360
Development Financial
Agency, Revenue, Health
Care Facilities,
Series A, 7.100%,
7/1/32
Massachusetts Water 10,000,000 10,000,000 10,472,700 10,472,700
Resource Authority,
General Revenue,
Series C, 6.000%,
12/01/2011
Massachusetts Water 2,625,000 2,625,000 2,855,213 2,855,213
Resource Authority,
Series A, 6.500%,
7/15/09
Massachusetts Water 13,445,000 13,445,000 14,367,596 14,367,596
Resource Authority,
Series A, 6.500%,
7/15/19
MICHIGAN
Detroit, MI, General 1,000,000 1,000,000 952,190 952,190
Obligation, City School
District, Series 1998 C,
5.250%, 05/01/2014
Michigan, Hospital 3,000,000 3,000,000 2,888,340 2,888,340
Finance Authority,
Series 1999A, 6.000%,
11/15/2019
Michigan Municipal Bond 4,000,000 4,000,000 4,050,280 4,050,280
Authority Revenue, Clean
Water Revolving Funding,
5.625%, 10/01/2011
Michigan Municipal Bond 5,000,000 5,000,000 5,026,100 5,026,100
Authority Revenue, Clean
Water Revolving Funding,
5.625%, 10/01/2012
Wayne Charter County, 4,040,000 4,040,000 3,954,958 3,954,958
MI, Airport
<PAGE>
Revenue, Detroit Metro
Wayne County Airport,
Series B, 5.250%,
12/01/2011
Wayne Charter County, 3,165,000 3,165,000 3,065,872 3,065,872
MI, Airport Revenue,
Series 1998 B, 5.250%,
12/1/12
MONTANA
Montana Board Housing 1,510,000 1,510,000 467,723 467,723
Revenue, Capital
Appreciation,
Single-Family Revenue,
Series A, Zero Coupon,
06/01/2010
MISSOURI
Missouri Health & 8,125,000 8,125,000 8,736,081 8,736,081
Educational Facilities
Authority, SSM Healthcare,
1992 Series AA, MBIA,
6.350%, 6/1/08
Missouri Health & 8,640,000 8,640,000 9,327,917 9,327,917
Educational Facilities
Authority, SSM
Healthcare, 1992 Series
AA, MBIA, 6.400%, 6/1/09
NEVADA
Clark County, NV, School 8,070,000 8,070,000 6,164,270 6,164,270
District, General
Obligation, Series B,
FGIC, Zero Coupon,
03/01/2005
Clark County, NV, School 4,350,000 4,350,000 2,625,530 2,625,530
District, Series 1991B,
Zero Coupon, 03/01/2009
Nevada State Housing 3,050,000 3,050,000 3,087,820 3,087,820
Division, Single Family
Mortgage Revenue, Series
R, 5.950%, 10/01/2011
NEW HAMPSHIRE
New Hampshire State 1,370,000 1,370,000 1,475,257 1,475,257
Housing Finance
Authority, Single Family
Revenue, AMT, Series
1997 C, 5.900%,
07/01/2019
NEW JERSEY
New Jersey Highway 4,371,000 4,371,000 4,670,457 4,670,457
Authority, ETM,
6.500%, 01/01/2011
New Jersey Turnpike 1,250,000 1,250,000 1,279,138 1,279,138
Authority, MBIA Insured,
Series 1991A, 6.300%,
1/1/01
NEW YORK
Metropolitan 6,775,000 6,775,000 6,857,655 6,857,655
Transportation Authority
of New York, Transit
Facilities Revenue,
Series O, 5.750%,
07/01/2013
Metropolitan 1,595,000 1,595,000 1,684,304 1,684,304
Transportation Authority
of New York, Transit
Facilities Revenue,
7.000%, 07/01/2002
Monroe County, NY, 4,515,000 4,515,000 4,568,683 4,568,683
Airport Authority,
Series 1999, 5.750%,
01/01/2013
New York City, NY, 5,500,000 5,500,000 5,769,830 5,769,830
General Obligation,
5.900%, 02/01/2005
New York City, NY, 9,000,000 9,000,000 8,651,160 8,651,160
General Obligation,
Series 1991 A, 3.000%,
08/15/2002
New York City, NY, 3,425,000 3,425,000 3,591,421 3,591,421
General Obligation,
Series B, 6.000%,
08/15/2004
New York City, NY, 5,000,000 5,000,000 5,257,100 5,257,100
General Obligation,
Series A, 6.375%,
08/01/2004
New York City, NY, 7,000,000 7,000,000 7,475,790 7,475,790
General Obligation,
Series 1995 E, 6.500%,
02/15/2005
New York City, NY, 6,500,000 6,500,000 6,971,640 6,971,640
General Obligation,
Series 1995 E, 6.600%,
08/01/2004
New York City, NY, 2,000,000 2,000,000 2,197,500 2,197,500
General Obligation,
Series 1996 G,
6.750%, 02/01/2009
New York City, NY, 3,000,000 3,000,000 3,204,540 3,204,540
General Obligation,
Series B, 6.750%,
08/15/2003
New York City, NY, 5,000 5,000 5,347 5,347
General Obligation,
Prerefunded, Series H,
7.000%, 2/1/05
New York City, NY, 480,000 480,000 509,270 509,270
General Obligation,
Series H, 7.000%,
02/01/2005
New York City, NY, 165,000 165,000 168,671 168,671
General Obligation,
Unrefunded Balance,
Series 1989 D, 7.000%,
08/01/2002
New York City, NY, 655,000 655,000 669,318 669,318
General Obligation,
Unrefunded Balance,
Series 1989 D, 7.000%,
08/01/2002
New York City, NY, 2,005,000 2,005,000 2,080,348 2,080,348
General Obligation,
Series H, 7.200%,
08/01/2001
New York City, NY, 3,510,000 3,510,000 3,700,418 3,700,418
General Obligation,
Series B, 6.100%,
08/15/2005
<PAGE>
New York State Dormitory 2,000,000 2,000,000 2,011,700 2,011,700
Authority, City
University System,
Consolidated Revenue,
Series F, 5.375%,
07/01/2007
New York State Dormitory 4,000,000 4,000,000 4,113,280 4,113,280
Authority, City
University System,
Consolidated
Revenue, Series A,
5.750%, 07/01/2006
New York State Dormitory 3,000,000 3,000,000 3,134,730 3,134,730
Authority, City
University System,
Consolidated Revenue,
Series A, 5.750%,
07/01/2006
New York State Dormitory 3,085,000 3,085,000 3,172,367 3,172,367
Authority, City
University System,
Consolidated Revenue,
Series E, 5.750%,
07/01/2006
Onondaga County, NY, 3,500,000 3,500,000 3,507,945 3,507,945
Industrial Development
Agency, Solid Waste
Disposal Facility,
Solvay Paperboard LLC,
Series 1998, 7.000%,
11/01/2030
Port Authority of New 2,000,000 2,000,000 2,110,600 2,110,600
York & New Jersey,
Special Obligation
Revenue, Series 1996,
7.000%, 10/01/2007
New York City, NY, 55,000 55,000 55,270 55,270
General Obligation,
Unrefunded Balance,
Series D, 1998,
6.000%, 08/01/2008
New York City, NY, 225,000 225,000 237,692 237,692
General Obligation,
Series C, AMBAC,
6.400%, 08/01/2004
New York City, NY, 195,000 195,000 205,275 205,275
General Obligation,
Series C, AMBAC,
6.400%, 08/01/2005
New York City, NY, 10,235,000 10,235,000 10,904,369 10,904,369
General Obligation,
Series C, AMBAC,
Prerefunded 8/01/02 at
101.50, 6.400%,
08/01/2005
New York City, NY, 275,000 275,000 292,985 292,985
General Obligation,
Series C, AMBAC,
Prerefunded 8/1/02 at
101.50, 6.400%,
08/01/2004
New York City, NY, 1,385,000 1,385,000 1,388,795 1,388,795
General Obligation,
Series E, ETM, MBIA,
7.000%, 12/1/07
New York City, NY, 740,000 740,000 753,956 753,956
General Obligation,
Series A, ETM, 8.000%,
11/01/2001
New York City, NY, 5,000 5,000 5,099 5,099
General Obligation,
Series D, 8.000%,
08/01/2005
New York, NY, 14,460,000 14,460,000 14,197,840 14,197,840
General Obligation,
Series A, 5.250%,
08/01/2011
New York, NY, 10,000,000 10,000,000 9,885,700 9,885,700
General Obligation,
Series A, 5.200%,
08/01/2010
New York City, 20,000 20,000 20,093 20,093
New York General
Obligation, Unrefunded
Balance 1997, Series D,
6.000%, 08/01/2006
New York State 2,000,000 2,000,000 2,118,680 2,118,680
Dormitory Authority,
State University of New
York, AMBAC insured,
6.000%, 07/01/2009
New York State 1,845,000 1,845,000 1,878,173 1,878,173
Dormitory Authority,
College and University
Pooled Capital
Program, 7.800%,
12/01/2005
New York State 4,000,000 4,000,000 4,443,400 4,443,400
Dormitory Authority
Revenue, City
University, FGIC,
Series D, 7.000%,
07/01/2009
New York State 5,750,000 5,750,000 6,643,205 6,643,205
Dormitory Authority
Revenue, City
University, Series C,
FGIC, 7.500%,
07/01/2010
New York State Energy 5,300,000 5,300,000 5,604,167 5,604,167
Research and Development
Authority, Pollution
Control Revenue,
Electric and Gas,
5.900%, 12/01/2006
New York State, Urban 4,500,000 4,500,000 4,906,845 4,906,845
Development Authority,
Correctional Facilities,
6.500%, 01/01/2011
Suffolk County, NY, 8,000,000 8,000,000 8,441,280 8,441,280
Industrial Development
Agency, Southwest Sewer
System, FGIC, 6.000%,
02/01/2007
NORTH CAROLINA
North Carolina Eastern 2,000,000 2,000,000 2,036,580 2,036,580
Municipal Power Agency,
AMBAC insured, 5.500%,
1/1/07
North Carolina Eastern 8,775,000 8,775,000 8,803,080 8,803,080
Municipal Power Agency,
Power System Revenue,
Series B, FGIC, 6.000%,
01/01/2018
North Carolina Municipal 8,500,000 8,500,000 8,426,220 8,426,220
Power Agency No. 1,
Catawba Electric
Revenue, 5.250%,
01/01/2009
North Carolina Municipal 2,500,000 2,500,000 2,493,250 2,493,250
Power Agency No. 1,
Catawba Electric
Revenue, MBIA, 5.250%,
01/01/2008
<PAGE>
North Carolina Municipal 8,235,000 8,235,000 8,546,695 8,546,695
Power Agency No. 1,
Catawba Electric
Revenue, MBIA, 6.000%,
01/01/2011
North Carolina Municipal 5,000,000 5,000,000 5,593,950 5,593,950
Power Agency No. 1,
Catawba Electricity,
Revenue, Series 1992,
7.250%, 01/01/2007
North Carolina Municipal 2,585,000 2,585,000 2,705,280 2,705,280
Power Agency, Number 1,
Catawba Electric Power
Revenue, Series 1997,
AMBAC Insured,
6.000%, 01/01/2008
NORTH DAKOTA
Bismarck, ND, Hospital 2,850,000 2,850,000 2,537,270 2,537,270
Revenue, St. Alexius
Medical Center, Series
1991, AMBAC, Zero
Coupon, 05/01/2002
OHIO
Cleveland, OH, Water 10,000,000 10,000,000 9,971,300 9,971,300
Works Revenue, MBIA
Insured, Series 1993G,
5.500%, 1/1/13
Beavercreek, OH, Local 1,000,000 1,000,000 1,096,786 1,096,786
School District, General
Obligation, Series 1996,
6.600%, 12/01/2015
Butler County, OH, 1,500,000 1,500,000 1,586,880 1,586,880
Transportation
Improvement District,
Series 1997 A, 6.000%,
04/01/2010
Cleveland, OH, Non 820,000 820,000 405,055 405,055
Taxable Revenue Bond,
Cleveland Stadium,
Series A, 12/1/11
Cleveland, OH, Public 2,250,000 2,250,000 1,316,205 1,316,205
Power System Improvement
Revenue, Series 1994 A,
Zero Coupon,, 11/15/2009
Cleveland, OH, Revenue 820,000 820,000 332,141 332,141
Bond, Cleveland Stadium,
Series A, 12/01/2014
Cleveland, OH, Revenue 820,000 820,000 269,362 269,362
Bond, Cleveland Stadium,
Series A, 12/01/2017
Cleveland, OH, Revenue 810,000 810,000 456,743 456,743
Bond, Cleveland Stadium,
Series B, 12/01/2009
Cleveland, OH, Revenue 815,000 815,000 306,114 306,114
Bond, Cleveland Stadium,
Series B, 12/01/2015
Cleveland, OH, Revenue 815,000 815,000 251,273 251,273
Bond, Cleveland Stadium,
Series B, 12/01/2018
Cleveland, OH, 1,000,000 1,000,000 896,610 896,610
Waterworks Revenue,
Series I, 5.000%,
01/01/2017
Cleveland, OH, 50,000 50,000 52,600 52,600
Waterworks Revenue,
Unrefunded, First
Mortgage Revenue, Series
F 1992A, 6.250%,
01/01/2007
Cleveland, OH, Urban 1,000,000 1,000,000 1,008,390 1,008,390
Renewal Tax Increment
Rock & Roll Hall of
Fame and Museum
Project, 6.750%,
03/15/2018
Cleveland, OH, General 1,000,000 1,000,000 1,065,660 1,065,660
Obligation, Series A,
Prerefunded 07/01/2002,
6.300%, 07/01/2006
Cleveland, OH, Parking 1,385,000 1,385,000 1,478,474 1,478,474
Facility Revenue,
6.000%, 09/15/2009
Cleveland, OH, Public 750,000 750,000 795,300 795,300
Power System Improvement
Revenue, Series B
Prerefunded 11/15/2001,
7.000%, 11/15/17
Cleveland, OH, Public 1,050,000 1,050,000 1,109,997 1,109,997
Power System Revenue,
Series 1996-1, 6.000%,
11/15/11
Cleveland, OH, 950,000 950,000 1,004,264 1,004,264
Waterworks Revenue,
Prerefunded 1/1/2002,
First Mortgage Revenue,
Series F 1992A, 6.250%,
1/1/07
Cleveland-Cuyahoga 1,000,000 1,000,000 976,190 976,190
County, OH, Port
Development Revenue, C&P
Docks Project, 6.000%,
03/01/2007
Cleveland, OH Public 2,250,000 2,250,000 1,080,900 1,080,900
Power Systems Revenue,
Capital Appreciation,
First Mortgage, Series
1994A, Zero Coupon,
11/15/12
Columbus, OH, General 1,000,000 1,000,000 1,065,590 1,065,590
Obligation, Unlimited Tax,
Sewer Improvement,
Prerefunded 05/01/2003,
6.000%, 5/1/13
Cuyahoga County, OH, 1,500,000 1,500,000 1,308,915 1,308,915
General Obligation, Jail
Facilities, Series 1991,
ETM, Zero Coupon,
10/01/2002
Cuyahoga County, OH, 1,000,000 1,000,000 1,047,020 1,047,020
Hospital Facilities
Revenue, Health
Cleveland Inc., Series
1993, 6.250%, 08/15/2010
Dublin, OH, City School 1,000,000 1,000,000 512,900 512,900
District,
<PAGE>
Capital Appreciation,
Series 1998, Zero
Coupon, 12/01/2011
Fairfield, OH, City 1,000,000 1,000,000 1,138,120 1,138,120
School District,
7.200%, 12/01/2009
Franklin County, OH, 500,000 500,000 471,275 471,275
Health Care Facilities,
Revenue Refunding, Ohio
Presbyterian Services,
Series 1997, 5.250%,
07/02/2008
Franklin County, OH, 1,950,000 1,950,000 1,953,608 1,953,608
Riverside United
Methodist Hospital,
Series A, 5.750%,
5/15/12
Franklin County, OH, 1,000,000 1,000,000 866,440 866,440
Health Care Facilities,
Revenue Refunding, Ohio
Presbyterian Services,
Series 1997, 5.500%,
07/01/2017
Gateway Economic 4,000,000 4,000,000 3,965,800 3,965,800
Development Corporation
of Cleveland, OH,
Stadium Revenue,
6.500%, 09/15/2014
Gateway Economic 2,550,000 2,550,000 2,621,451 2,621,451
Development Corporation
of Greater Cleveland,
OH, Excise Tax, Series
1990, 7.200%, 9/1/01
Hamilton County, OH, 1,000,000 1,000,000 1,025,700 1,025,700
Sewer System Revenue,
Improvement and
Refunding, FGIC Insured,
5.450%, 12/01/2009
Hamilton County, OH, 530,000 530,000 555,795 555,795
Sewer System Revenue,
Series 1991 A, 6.400%,
12/1/05
Hamilton County, OH, 220,000 220,000 231,473 231,473
Sewer System Revenue,
Series 1991 A,
Prerefunded
06/01/2001, 6.400%,
12/01/2005
Hamilton County, OH, 2,000,000 2,000,000 2,143,980 2,143,980
Health System Revenue,
Franciscan Sisters of
the Poor Health System,
Providence Hospital,
Series 1992, 6.800%,
7/1/08
Hamilton County, OH, 1,000,000 1,000,000 1,027,960 1,027,960
Hospital Facilities
Revenue, Christ
Hospital, Series 1991 B,
Prerefunded 01/01/2001,
6.625%, 01/01/2006
Hilliard, OH, School 1,655,000 1,655,000 793,076 793,076
District, Series 1996A,
Zero Coupon, FGIC
Insured, 12/1/12
Huber Heights, OH, 1,005,000 1,005,000 481,596 481,596
Water System Revenue,
Capital Appreciation,
Zero Coupon, 12/01/2012
Lorain County, OH, 1,000,000 1,000,000 1,049,990 1,049,990
Hospital Refunding
Revenue, Humility of
Mary Health Care System,
Series A, Prerefunded
12/15/2005, 5.900%,
12/15/2008
Lorain, OH, Hospital 1,000,000 1,000,000 1,075,820 1,075,820
Authority Refunding
Revenue, Lakeland
Community Hospital
Inc., 6.500%, 11/15/2012
Lucas County, OH, 500,000 500,000 434,380 434,380
Toledo Port Authority
Development, Revenue
Bond, Northwest Ohio
Bond Fund, Series A,
5.400%, 05/15/2019
Lucas County, OH, 1,375,000 1,375,000 1,466,493 1,466,493
Hospital Revenue, Flower
Hospital, Series 1993,
Prerefunded 12/01/2004,
6.125%, 12/1/13
Mahoning County, OH, 1,100,000 1,100,000 1,168,508 1,168,508
General Obligation,
Limited Tax, 6.600%,
12/1/06
Medina, OH, City School 1,500,000 1,500,000 1,040,985 1,040,985
District, General
Obligation, 12/01/2006
Miami County, OH, 1,000,000 1,000,000 959,100 959,100
Revenue Refunding,
Hospital Upper Valley,
Series 1996 C, 6.250%,
05/15/2013
North Olmstead, OH, 2,000,000 2,000,000 2,133,020 2,133,020
General Obligation,
6.200%, 12/01/2011
North Olmsted, OH, 1,500,000 1,500,000 1,589,130 1,589,130
General Obligation,
6.250%, 12/15/2012
Northeast Ohio Regional 1,550,000 1,550,000 1,557,952 1,557,952
Sewer District,
Wastewater Improvement
Revenue Refunding,
5.500%, 11/15/2012
Northeast Ohio Regional 1,000,000 1,000,000 1,005,110 1,005,110
Sewer District,
Wastewater Improvement
Revenue Refunding,
5.600%, 11/15/2013
Ohio Air Quality 1,250,000 1,250,000 1,372,925 1,372,925
Development Authority,
Pollution Control
Revenue, Cleveland
Electric Company,
8.000%, 12/1/13
Ohio Gateway Economic 1,500,000 1,500,000 1,582,830 1,582,830
Development Corp.,
Revenue, Cuyahoga
County Annual Gateway,
7.500%, 09/01/2005
Ohio General Obligation, 1,000,000 1,000,000 1,066,880 1,066,880
Series 1994, 6.000%,
08/01/2010
Ohio Higher Education 2,250,000 2,250,000 2,416,770 2,416,770
Facilities
<PAGE>
Revenue, Case Western
Reserve University,
Series B, 6.500%,
10/1/20
Ohio Higher Educational 1,000,000 1,000,000 1,035,940 1,035,940
Facility Commission,
Refunding Revenue, Case
Western Reserve
University, 6.000%,
10/1/14
Ohio Housing Finance 730,000 730,000 752,557 752,557
Agency, Single-Family
Mortgage Revenue, Series
1990 F, 7.600%,
09/01/2016
Ohio Public Facilities 1,500,000 1,500,000 1,529,280 1,529,280
Commission, Higher
Educational Capital
Facilities Revenue,
Series 2B, 5.400%,
11/01/2007
Ohio State Building 2,000,000 2,000,000 1,949,260 1,949,260
Authority, 5.375%,
10/1/13
Ohio State Building 1,000,000 1,000,000 986,680 986,680
Authority,
Administration
Building, Series A,
5.375%, 10/01/2012
Ohio State Building 750,000 750,000 762,285 762,285
Authority, Revenue Bond,
Adult Correctional
Facilities, Series A,
5.500%, 10/01/2010
Ohio State Building 1,000,000 1,000,000 1,056,270 1,056,270
Authority, Correctional
Facilites Revenue,
Series 1991 A, 6.500%,
10/01/2004
Ohio State Building 500,000 500,000 554,570 554,570
Authority, Toledo
Government Office
Building, Series A,
Prerefunded 04/01/2003,
8.000%, 10/1/27
Ohio State Higher 2,325,000 2,325,000 2,437,205 2,437,205
Education Facility,
Series 1997A, Step-up
Coupon 0% to 7/1/00, 6.5
to, 07/01/2008
Ohio State Higher 200,000 200,000 210,994 210,994
Education Facility,
Prefunded 12/01/2000,
FGIC, 7.250%, 12/1/12
Ohio State Higher 800,000 800,000 843,976 843,976
Education Facility,
Prerefunded on
12/01/2000, Series 1989,
7.250%, 12/01/2012
Ohio State Higher 1,000,000 1,000,000 957,070 957,070
Educational Facilities
Commission, Higher
Educational Facilities-
Oberlin College-Revenue
Bonds, 5.250%, 10/1/14
Ohio State Water 500,000 500,000 450,865 450,865
Development Authority,
Revenue, Bay Shore
Project, Series A,
5.875%, 09/01/2020
Ohio Water Development 1,000,000 1,000,000 998,290 998,290
Authority Revenue Bond,
5.250%, 12/01/2010
Olmsted Falls, OH, City 1,000,000 1,000,000 1,076,700 1,076,700
School District, General
Obligation, Series 1991,
Prerefunded 12/15/2001,
7.050%, 12/15/11
Rocky River, OH, City 1,000,000 1,000,000 946,290 946,290
School District, School
Improvement, Series 1998,
5.375%, 12/01/2017
Strongsville, OH, City 1,000,000 1,000,000 1,002,950 1,002,950
School District, General
Obligation, 5.350%,
12/1/11
Summit County, OH, 1,000,000 1,000,000 1,094,750 1,094,750
General Obligation,
Prerefunded 12/01/2004,
6.400%, 12/1/14
University of Akron, 1,365,000 1,365,000 1,382,841 1,382,841
General Receipts,
Revenue, 5.750%,
01/01/2013
Warren County, OH, Water 1,720,000 1,720,000 1,611,107 1,611,107
Improvement, General
Obligation, The P&G
Project, Series 1995,
5.250%, 12/01/2016
OKLAHOMA
Oklahoma Development 2,500,000 2,500,000 2,146,350 2,146,350
Financial Authority,
Revenue Bond, Hillcrest
Health Center Inc.,
5.625%, 08/15/2019
Tulsa, OK, Industrial 6,430,000 6,430,000 4,474,701 4,474,701
Development Authority,
Hospital Revenue, St.
John's Medical Center,
MBIA Insured, Zero
Coupon, 12/01/2006
Tulsa, OK, Industrial 5,430,000 5,430,000 4,229,644 4,229,644
Development Authority,
Hospital Revenue, St.
John's Medical Center,
MBIA, Zero Coupon,
12/01/2004
Tulsa, OK, Industrial 3,930,000 3,930,000 3,404,638 3,404,638
Development Authority,
St. John's Medical
Center, MBIA, Zero
Coupon, 12/01/2002
OREGON
Chemeketa, OR, 2,385,000 2,385,000 2,361,293 2,361,293
Community College
District, 5.500%,
06/01/2014
PENNSYLVANIA
Allegheny County, PA, 1,500,000 1,500,000 1,499,865 1,499,865
Airport Revenue,
Pittsburgh International
Airport, Series 1997 A,
5.750%, 01/01/2013
<PAGE>
Armstrong County, PA, 1,000,000 1,000,000 1,050,540 1,050,540
Hospital Authority,
Revenue, St Francis
Medical Center Project,
Series A, 6.250%, 6/1/13
Berks County, PA, 1,000,000 1,000,000 1,022,180 1,022,180
Municipal Authority
Hospital Revenue,
Reading Hospital and
Medical Center Project,
5.500%, 10/1/08
Berks County, PA, 1,000,000 1,000,000 1,012,500 1,012,500
Municipal Authority
Hospital Revenue,
Reading Hospital Medical
Center Project, 5.700%,
10/1/14
Bethlehem, PA, Water 1,000,000 1,000,000 1,039,932 1,039,932
Revenue, Series 1992,
Prerefunded 11/15/01,
6.250%, 11/15/01
Blair County, PA, 1,500,000 1,500,000 1,490,955 1,490,955
Hospital Authority,
Altoona Hospital,
Series 1998 PJ-A,
5.500%, 07/01/2011
Blair County, PA, 3,590,000 3,590,000 3,598,329 3,598,329
Hospital Authority,
Altoona Hospital,
Project A, 5.500%, 7/1/10
Bucks County, PA, Water 425,000 425,000 450,730 450,730
and Sewer Authority
Revenue, ETM, 6.375%,
12/1/08
Commonwealth of 4,250,000 4,250,000 4,420,553 4,420,553
Pennsylvania, Industrial
Development Authority,
Economic Development
Revenue, 5.800%, 1/1/08
Commonwealth of 4,875,000 4,875,000 5,080,140 5,080,140
Pennsylvania, Industrial
Development Authority,
Economic Development
Revenue, AMBAC,
5.800%, 07/01/2008
Commonwealth of 2,000,000 20,000,000 22,000,000 2,054,460 20,544,600 22,599,060
Philadelphia, PA, Water
& Wastewater Refunding
Revenue, 5.625%,
06/15/2009
Delaware County, PA, 1,000,000 1,000,000 996,580 996,580
White Horse Village, NC
Series 1996 A, 6.600%,
7/1/06
Delaware County, PA, 1,500,000 1,500,000 1,593,030 1,593,030
Health Facilities
Revenue, Mercy Health
Corporation of
Southeastern
Pennsylvania, Series B,
6.000%, 11/15/2007
Delaware County, PA, 1,750,000 1,750,000 1,705,305 1,705,305
Hospital Revenue,
Memorial Hospital,
5.500%, 08/15/2013
Erie County, PA, 1,000,000 1,000,000 943,940 943,940
Pollution Control,
5.300%, 04/01/2012
Erie County, PA, 1,000,000 1,000,000 1,039,230 1,039,230
Prison Authority,
Commonwealth Lease
Revenue, Prerefunded
11/1/01, 6.250%, 11/1/01
Gettysburgh, PA, 1,020,000 1,020,000 999,498 999,498
Gettysburgh College,
Revenue Bond, 5.375%,
08/15/2013
Harrisburg, PA, General 1,000,000 1,000,000 514,140 514,140
Obligation, Refunding,
Zero Coupon, Series 1997
D, 9/15/11
Indiana County, PA, 1,000,000 1,000,000 1,004,130 1,004,130
Industrial Development
Authority, Pennsylvania
Electric Company,
Pollution Control
Revenue, 5.350%,
11/01/2010
Latrobe, PA, Industrial 1,000,000 1,000,000 934,810 934,810
Development Authority,
St. Vincent College
Project, 5.375%,
05/01/2013
Lebanon County, PA, 600,000 600,000 612,138 612,138
Hospital Authority
Revenue, Series 1989 B,
Prerefunded 11/1/99,
8.250%, 11/1/18
Luzerne County, PA, 1,400,000 1,400,000 1,340,696 1,340,696
Flood Protection
Authority, Series 1998
A, 5.250%, 1/15/13
Montgomery County, PA, 1,500,000 1,500,000 1,500,180 1,500,180
Redevelopment Authority,
Multi-Family Housing
Revenue, KBF Associates
L.P. Project, 6.375%,
07/01/2012
Pennsylvania Convention 2,200,000 2,200,000 2,240,832 2,240,832
Center Authority,
Funding Revenue,
6.000%, 9/1/09
Pennsylvania General 1,000,000 1,000,000 1,076,590 1,076,590
Obligation, 6.250%,
07/01/2010
Pennsylvania General 2,500,000 2,500,000 2,814,400 2,814,400
Obligation, 10.000%,
04/15/2002
Pennsylvania Housing 840,000 840,000 873,919 873,919
Finance Agency, Single
Family Mortgage Revenue,
Series 1992-33, 6.850%,
10/01/2009
<PAGE>
Pennsylvania Housing 865,000 865,000 893,164 893,164
Finance Agency, Single
Family Mortgage Revenue,
Series 1991-32, 7.150%,
04/01/2015
Pennsylvania 1,000,000 1,000,000 1,059,030 1,059,030
Intergovernmental
Cooperation Authority,
Special Tax Revenue,
City of Philadelphia,
Prerefunded 6/15/02,
6.800%, 6/15/12
Pennsylvania State 1,525,000 1,525,000 1,459,776 1,459,776
Higher Education
Facilities Authority,
Temple University,
Series 1998, 5.250%,
4/1/13
Philadelphia, PA, Port 2,000,000 2,000,000 2,062,380 2,062,380
Authority Lease Revenue,
Series 1993, 6.200%,
9/1/13
Philadelphia, PA, 1,000,000 1,000,000 1,075,200 1,075,200
General Obligation,
School District, Series
A, 6.250%, 9/1/09
Philadelphia, PA, 1,000,000 1,000,000 846,910 846,910
Authority for Industrial
Development Health Care
Facilities Revenue,
Baptist Home of
Philadelphia, Series A,
5.500%, 11/15/18
Philadelphia, PA, 1,000,000 1,000,000 993,160 993,160
Authority for
Industrial Development,
Commercial Development
Revenues, 6.500%,
10/1/27
Philadelphia, PA, 1,000,000 1,000,000 1,055,170 1,055,170
Hospital and Higher
Education Facilities
Authority, Hospital
Revenue, Children's
Seashore House, Series
A, 7.000%, 08/15/2012
Philadelphia, PA, 1,000,000 1,000,000 1,072,780 1,072,780
Water Revenue, 6.250%,
08/01/2010
Commonwealth of 5,000,000 5,000,000 5,127,950 5,127,950
Philadelphia, PA, Water
& Wastewater Revenue,
MBIA, 5.500%, 06/15/2007
Philadelphia, PA, Water 5,500,000 5,500,000 5,367,230 5,367,230
and Wastewater Revenue,
5.250%, 12/15/2012
Pittsburgh, PA, General 1,500,000 1,500,000 1,468,635 1,468,635
Obligation, Series 1993
A, 5.500%, 09/01/2014
Pittsburgh, PA, Water 150,000 150,000 171,048 171,048
and Sewer System
Revenue, ETM, 7.250%,
09/01/2014
Somerset County, PA, 1,000,000 1,000,000 1,038,380 1,038,380
General Authority,
Commonwealth Lease
Revenue, Prerefunded
10/15/01, 6.250%,
10/15/11
Union County, PA, Higher 1,000,000 1,000,000 1,044,160 1,044,160
Education Facilities
Authority, University
Revenue, Bucknell
University, 6.200%,
4/1/07
University Area, PA, 1,750,000 1,750,000 1,678,093 1,678,093
Sewer Revenue, 5.250%,
11/01/2014
Westmoreland County, PA, 7,300,000 7,300,000 7,293,138 7,293,138
Industrial Development
Revenue, Westmoreland
Health System, AMBAC,
5.375%, 7/1/11
PUERTO RICO
Puerto Rico Aqueduct and 1,000,000 1,000,000 1,056,230 1,056,230
Sewer Authority, Revenue
Refunding, 6.000%,
7/1/09
Puerto Rico 1,000,000 1,000,000 1,001,820 1,001,820
Commonwealth, Highway &
Transportation
Authority, Series 1993W,
5.500%, 07/01/2013
Puerto Rico Electric 2,000,000 2,000,000 2,166,740 2,166,740
Power Authority, Series
1994S, 6.125%,
07/01/2009
Puerto Rico, General 1,000,000 1,000,000 1,074,730 1,074,730
Obligation, Public
Improvement, Prerefunded
07/01/2002, 6.600%,
07/01/2013
University Area, PA, 1,000,000 1,000,000 1,073,320 1,073,320
Sewer Revenue, 5.250%,
11/01/2014
University of Puerto 1,000,000 1,000,000 1,089,280 1,089,280
Rico, University
Systems, Series N,
6.250%, 06/01/2008
RHODE ISLAND
Rhode Island Clean Water 2,000,000 2,000,000 1,909,880 1,909,880
Protection Agency,
Pollution Control
Revenue, Revolving Fund,
Series A, MBIA, 5.400%,
10/01/2015
Rhode Island Convention 5,000,000 5,000,000 4,856,300 4,856,300
Center Authority,
Refunding Revenue,
Series 1993 B, MBIA,
5.000%, 05/15/2010
Rhode Island Convention 2,750,000 2,750,000 2,375,203 2,375,203
Center Authority, Series
B, 5.000%, 5/15/20
Rhode Island Convention 22,000,000 22,000,000 20,663,720 20,663,720
Center
<PAGE>
Authority, Refunding
Revenue, 1993 Series B,
MBIA Insured, 5.250%,
5/15/15
Rhode Island Depositors 6,200,000 6,200,000 6,529,096 6,529,096
Economic Protection
Corp., Special
Obligation, Series B,
MBIA, 5.800%, 08/01/2010
Rhode Island Depositors 4,525,000 4,525,000 4,740,843 4,740,843
Economic Protection
Corp., Special
Obligation, Series B,
MBIA, 5.800%, 08/01/2011
Rhode Island Depositors 2,500,000 2,500,000 2,602,800 2,602,800
Economic Protection
Corp., Special
Obligation, Series B,
MBIA, 5.800%, 08/01/2012
Rhode Island Depositors 7,340,000 7,340,000 7,585,670 7,585,670
Economic Protection
Corp., Special
Obligation, Series B,
MBIA, 5.800%, 08/01/2013
SOUTH CAROLINA
Piedmont, SC, Municipal 840,000 840,000 870,114 870,114
Power Agency, Electric
Revenue, Series 1993,
ETM, MBIA Insured,
5.500%, 01/01/2008
Piedmont, SC, Municipal 2,190,000 2,190,000 2,220,879 2,220,879
Power Agency, Electric
Revenue, Series 1993,
ETM, MBIA Insured,
5.500%, 01/01/2012
Piedmont, SC, Municipal 430,000 430,000 466,464 466,464
Power Agency, Electric
Revenue, Series 1991 A,
ETM, FGIC Insured,
6.500%, 01/01/2016
Piedmont, SC, Municipal 2,810,000 2,810,000 2,780,326 2,780,326
Power Agency, Electric
Revenue, MBIA Insured,
5.500%, 01/01/2012
TENNESSEE
Knox County, TN, Health 15,405,000 15,405,000 15,657,642 15,657,642
& Educational Hospital
Facilities Board, Fort
Sanders Alliance, MBIA,
5.750%, 1/1/11
Knox County, TN, Health 17,880,000 17,880,000 18,049,860 18,049,860
& Educational Hospital
Facilities Board, Fort
Sanders Alliance, MBIA,
5.750%, 1/1/12
Knox County, TN, Health, 2,000,000 2,000,000 1,994,060 1,994,060
Education and Housing
Facilities Board, MBIA
insured, 5.750%,
01/01/2014
Knox County, TN, Health 4,000,000 4,000,000 4,197,680 4,197,680
& Educational Facilities
Board, Fort Sanders
Alliance, MBIA, 6.250%,
01/01/2013
Knox County, TN, Health, 3,250,000 3,750,000 7,000,000 3,711,695 4,282,725 7,994,420
Education & Housing
Facilities Board,
Hospital Facilities
Revenue, Fort Sanders
Alliance, 7.250%,
01/01/2009
TEXAS
Austin, TX, Combined 5,020,000 5,020,000 2,916,570 2,916,570
Utility System Revenue,
Zero Coupon, 11/15/2009
Austin, TX, Independant 2,000,000 2,000,000 1,836,020 1,836,020
School District, Series
1998, 5.000%, 8/1/15
Austin, TX, Bergstrom 4,000,000 4,000,000 3,729,800 3,729,800
Landhost Enterprises,
Revenue, Series A,
6.750%, 04/01/2027
Austin, TX, Utility 3,460,000 3,460,000 2,134,993 2,134,993
Systems Revenue
Refunding, MBIA
Insured, Series A, Zero
Coupon, 11/15/2008
Bexar County, TX, Health 3,000,000 3,000,000 3,095,880 3,095,880
Facilities Development
Corp., Baptist Health
System, Series 1997,
6.000%, 11/15/12
Bexar County, TX, Health 2,000,000 2,000,000 2,076,440 2,076,440
Facilities Development
Corp., Baptist Health
System, Series 1997A,
6.000%, 11/15/11
Brownsville, TX, Utility 4,085,000 4,085,000 4,377,118 4,377,118
System Revenue, AMBAC
Insured, 6.250%, 9/1/10
Cedar Hill, TX, Zero 1,500,000 1,500,000 883,335 883,335
Coupon, Series 1996,
08/15/2009
Cedar Hill, TX, Zero 3,130,000 3,130,000 1,727,979 1,727,979
Coupon, Series 1996,
08/15/2010
Conroe Texas, 1,250,000 1,250,000 1,237,125 1,237,125
Independant School
District, 5.500%,
02/15/2013
Dallas-Fort Worth, TX, 4,500,000 4,500,000 5,023,575 5,023,575
Airport Revenue, 7.375%,
11/01/2009
Dallas-Fort Worth, TX, 14,250,000 14,250,000 14,799,195 14,799,195
Airport
<PAGE>
Revenue, American
Airlines, AMT, 7.500%,
11/01/2025
Dallas-Fort Worth, TX, 2,390,000 2,390,000 2,713,941 2,713,941
Airport Revenue, 7.800%,
11/01/2007
Dallas, TX, Housing 6,535,000 6,535,000 1,159,505 1,159,505
Finance Corp., Single
Family Mortgage Revenue,
MBIA, Zero Coupon,
10/01/2016
Dallas-Fort Worth, TX, 4,500,000 4,500,000 5,023,575 5,023,575
Airport Revenue, FGIC,
7.375%, 11/01/2008
Dallas-Fort Worth, TX, 3,500,000 3,500,000 3,892,175 3,892,175
Airport Revenue, FGIC,
7.375%, 11/01/2010
Dallas-Fort Worth, TX, 1,000,000 1,000,000 1,111,220 1,111,220
Airport Revenue, FGIC,
7.750%, 11/01/2003
Dallas-Fort Worth, TX, 2,000,000 2,000,000 2,267,420 2,267,420
Airport Revenue, FGIC,
7.800%, 11/01/2005
Dallas-Fort Worth, TX, 2,025,000 2,025,000 2,299,469 2,299,469
Airport Revenue, FGIC,
7.800%, 11/01/2006
Harris County, TX, 2,965,000 2,965,000 3,157,784 3,157,784
Health Facilities
Development, MBIA
Insured, 6.250%, 5/15/09
Harris County, TX, 1,000,000 1,000,000 963,190 963,190
General Obligation, Flood
Control District, MBIA,
Zero Coupon, 10/01/2000
Harris County, TX, 4,025,000 4,025,000 3,004,622 3,004,622
General Obligation, Toll
Road Authority,
Subordinate Lien,
Series A, Zero Coupon,
08/15/2005
Harris County, TX, 2,050,000 2,050,000 1,617,799 1,617,799
General Obligation, Toll
Road Authority,
Subordinate Lien,
Unlimited Tax, Series A,
Zero Coupon, 08/15/2004
Harris County, TX, 9,035,000 9,035,000 6,328,566 6,328,566
General Obligation,
Capital Appreciation
Bond, Zero Coupon, FGIC,
10/01/2006
Harris County, TX, 2,785,000 2,785,000 2,966,805 2,966,805
Health Facilities,
Texas Medical Center
Project, MBIA Insured,
6.250%, 05/15/2008
Harris County, TX, Toll 4,010,000 4,010,000 2,827,331 2,827,331
Road Authority, Toll
Road Revenue,
Subordinate Lien, Series
A, Zero Coupon,
08/15/2006
Harris County, TX, 4,050,000 4,050,000 3,196,139 3,196,139
Toll Road Authority,
Zero Coupon, 08/15/2004
Harris County, TX, AMT, 3,070,000 3,070,000 3,128,913 3,128,913
Series 1998, 5.500%,
08/15/2006
Harris County, TX, 3,000,000 3,000,000 3,183,060 3,183,060
Health Facilities, Texas
Medical Center Project,
Series 1996, 6.250%,
05/15/2010
Houston, TX, Water and 15,000,000 15,000,000 11,032,200 11,032,200
Sewer System Authority,
Series C, Zero Coupon,
12/1/05
Houston, TX, Water and 3,400,000 3,400,000 2,225,232 2,225,232
Sewer System Authority,
Series C, Zero Coupon,
12/1/07
Houston, TX, Water 2,500,000 2,500,000 2,650,075 2,650,075
Conveyance System
Contract, Certificate
of Participation,
Series J, 6.125%,
12/15/05
Houston, TX, Water & 14,575,000 14,575,000 10,121,900 10,121,900
Sewer System Authority,
Series C, AMBAC, Zero
Coupon, 12/01/2006
Houston, TX, Water & 19,000,000 19,000,000 11,696,210 11,696,210
Sewer System Authority,
Series C, AMBAC, Zero
Coupon, 12/01/2008
Houston, TX, Water & 14,750,000 14,750,000 8,548,953 8,548,953
Sewer System Authority,
Series C, Zero Coupon,
AMBAC, 12/01/2009
Houston, TX, Water & 5,000,000 5,000,000 2,716,000 2,716,000
Sewer System Authority,
Zero Coupon, AMBAC
Insured, 12/1/10
Houston, TX, Water & 3,350,000 3,350,000 1,589,073 1,589,073
Sewer System Authority,
Zero Coupon, AMBAC
Insured, Series 1991C,
12/01/2012
Hurst Euless Bedford, 4,925,000 4,925,000 2,900,283 2,900,283
TX, Independent School
District,Capital
Appreciation Refunding,
Series 1994, Zero
Coupon, 8/15/09
Laredo TX, Independent 2,465,000 2,465,000 2,571,981 2,571,981
School District, 6.000%,
08/01/2011
Lower Colorado River 8,900,000 8,900,000 7,659,073 7,659,073
Authority, TX,
Refunding, Zero
Coupon, 01/01/2003
Lower Colorado River 5,000,000 5,000,000 5,250,950 5,250,950
Authority, TX,
<PAGE>
6.000%, 05/15/2010
Lubbock, TX, Health 3,945,000 3,945,000 4,085,126 4,085,126
Facilities Development
Corp., Methodist
Hospital, Series B,
AMBAC, 5.500%,
12/01/2006
Lubbock, TX, Health 2,415,000 2,415,000 2,516,841 2,516,841
Facilities Development
Corp., Methodist
Hospital, Series B,
AMBAC, 5.600%,
12/01/2007
Lubbock, TX, Health 4,400,000 4,400,000 4,588,892 4,588,892
Facilities Development
Corp., Methodist
Hospital, Series B,
AMBAC, 5.625%,
12/01/2008
Lubbock, TX, Health 4,640,000 4,640,000 4,826,296 4,826,296
Facilities Development
Corporation, Series B,,
5.625%, 12/01/2009
Montgomery County, 800,000 800,000 667,072 667,072
TX, Prerefunded,
Capital Appreciation,
Zero Coupon, 9/1/03
Montgomery County, TX, 795,000 795,000 628,384 628,384
Prerefunded, Capital
Appreciation, Zero
Coupon, 9/1/04
Montgomery County, TX, 2,675,000 2,675,000 2,225,520 2,225,520
Unrefunded Balance,
Capital Appreciation,
Zero Coupon,
09/01/2003
Montgomery County, TX, 2,680,000 2,680,000 2,110,339 2,110,339
Unrefunded Balance,
Capital Appreciation,
Zero Coupon, 09/01/2004
Montgomery County, TX, 2,790,000 2,790,000 2,078,048 2,078,048
Unrefunded Balance,
Capital Appreciation,
Zero Coupon, 09/01/2005
Montgomery County, TX, 685,000 685,000 512,531 512,531
Prerefunded, Capital
Appreciation, Zero
Coupon, 9/1/05
Northeast, TX, Hospital 2,180,000 2,180,000 2,266,263 2,266,263
Authority, Revenue
Refunding, Northeast
Medical Center, Series
1997, 6.000%, 5/15/10
Northwest Texas 3,690,000 3,690,000 2,037,138 2,037,138
Independent School
District, Capital
Appreciation Bonds,
Series 1991, Zero
Coupon, 08/15/2010
San Antonio, TX, 1,695,000 1,695,000 1,801,751 1,801,751
Airport Systems
Revenue, Refunding,
7.000%, 07/01/2002
San Antonio, TX, 17,900,000 17,900,000 13,038,897 13,038,897
Electric & Gas, Revenue
Refunding, Series A,
FGIC, Zero Coupon,
02/01/2006
San Antonio, TX, 7,000,000 2,500,000 9,500,000 5,369,420 1,917,650 7,287,070
Electric and Gas
Revenue, Refunding,
Series A, Zero Coupon,
02/01/2005
San Antonio, TX, 5,000,000 8,000,000 13,000,000 3,835,300 6,136,480 9,971,780
Electric and Gas
Revenue, Refunding,
Series A, Zero
Coupon, 02/01/2005
San Antonio, TX, 4,400,000 4,400,000 2,679,776 2,679,776
Zero Coupon, FGIC
Insured, Series 1991B,
02/01/2009
San Antonio, TX, 2,000,000 2,000,000 2,116,200 2,116,200
Hotel Revenue, FGIC
Insured, Series 1996,
6.000%, 8/15/06
San Antonio, TX, 3,000,000 3,000,000 2,920,470 2,920,470
Electric & Gas,
Revenue, Series A,
5.250%, 02/01/2012
State of Texas, 7,540,000 7,540,000 5,759,504 5,759,504
General Obligation,
Capital Appreciation,
Prerefunded, Series C,
04/01/2005
State of Texas, General 850,000 850,000 646,544 646,544
Obligation, Capital
Appreciation, Series C,
4/1/05
State of Texas, General 7,385,000 7,385,000 5,340,906 5,340,906
Obligation, Capital
Appreciation Bond,
Super Collider, Series
C, Zero Coupon, FGIC,
4/1/06
Tarrant County, TX, 4,615,000 4,615,000 4,842,289 4,842,289
Health Facilities
Development Corp.,
Hospital Refunding
Revenue, Fort Worth
Osteopathic Hospital,
MBIA, 6.000%,
05/15/2011
Tarrant County, TX, 6,235,000 6,235,000 6,227,269 6,227,269
Health Facilities
Development Corp.,
Hospital Refunding
Revenue, Fort-Worth
Osteopathic Hospital,
MBIA, 6.000%,
05/15/2021
Texas Municipal Power 9,250,000 9,250,000 9,875,300 9,875,300
Agency, MBIA, 6.100%,
09/01/2007
Texas Municipal Power 4,435,000 4,435,000 4,788,647 4,788,647
Agency, MBIA, 6.100%,
09/01/2009
Texas Public Finance 13,915,000 13,915,000 10,086,844 10,086,844
Authority, Building
Authority, Zero Coupon,
MBIA, 2/1/06
Texas Public Finance 5,190,000 5,190,000 5,569,493 5,569,493
Authority,
<PAGE>
Building Authority,
Series B, AMBAC,
6.250%, 02/01/2008
Texas Municipal Power 5,150,000 5,150,000 2,477,923 2,477,923
Agency, Series 1989,
09/01/2012
Travis County, TX, 1,720,000 1,720,000 1,770,448 1,770,448
Health Facilities
Development Corp.,
Ascension Health,
Inverse Floating Rate
Note, 7.320%, 11/15/11
Travis County, TX, 1,390,000 1,390,000 1,447,671 1,447,671
Health Facilities
Development Corp.,
Ascension Health,
Inverse Floating Rate
Note, Series 1999A,
8.290%, 11/15/2015
Travis County, TX, 6,885,000 6,885,000 7,137,266 7,137,266
Health Facilities
Development Corp.,
Ascension Health,
Inverse Floating Rate
Note, 8.320%, 11/15/16
Trinity River, Texas, 6,040,000 6,040,000 5,880,786 5,880,786
Wastewater Systems
Revenue, Series B,
5.250%, 8/1/12
UTAH
Associated Municipal 2,755,000 2,755,000 2,681,111 2,681,111
Power System, UT,
Hunter Project,
Refunding Revenue,
AMBAC, Zero Coupon,
07/01/2000
Associated Municipal 5,200,000 5,200,000 4,590,508 4,590,508
Power System, UT,
Hunter Project,
Refunding Revenue,
AMBAC, Zero Coupon,
07/01/2002
Associated Municipal 5,895,000 5,895,000 4,680,335 4,680,335
Power System, UT,
Hunter Project,
Refunding Revenue,
AMBAC, Zero Coupon,
07/01/2004
Associated Municipal 5,900,000 5,900,000 4,431,549 4,431,549
Power System, UT,
Hunter Project,
Refunding Revenue,
AMBAC, Zero Coupon,
07/01/2005
Associated Municipal 5,895,000 5,895,000 4,182,620 4,182,620
Power System, UT,
Hunter Project,
Refunding Revenue,
AMBAC, Zero Coupon,
07/01/2006
Associated Municipal 3,750,000 3,750,000 2,508,488 2,508,488
Power System, UT,
Hunter Project,
Refunding Revenue,
AMBAC, Zero Coupon,
07/01/2007
Intermountain Power 1,000,000 1,000,000 838,640 838,640
Agency, UT, Power
Supply Revenue, Series
A, MBIA, Zero Coupon,
07/01/2003
Intermountain Power 1,730,000 1,730,000 1,373,534 1,373,534
Agency, UT, Power
Supply Revenue, Series
A, MBIA, Zero Coupon,
07/01/2004
Intermountain Power 8,230,000 8,230,000 7,265,362 7,265,362
Agency, UT, Power
Supply Revenue, Series
B, Zero Coupon, 7/1/02
Intermountain Power 3,000,000 7,000,000 10,000,000 3,002,640 7,006,160 10,008,800
Agency, UT, Power
Supply Revenue, Series
1993, 5.550%, 7/1/11
Intermountain Power 4,000,000 4,000,000 4,364,760 4,364,760
Agency, UT, Power
Supply Revenue, Series
A, 6.500%, 7/1/08
Intermountain Power 1,655,000 1,655,000 1,461,017 1,461,017
Supply Agency, UT,
Power Supply Revenue,
Series A, AMBAC,
Zero Coupon, 07/01/2002
Intermountain Power 1,000,000 1,000,000 945,120 945,120
Supply Agency, UT,
Power Supply Revenue,
FGIC, 5.000%, 7/1/12
Intermountain Power 4,000,000 4,000,000 3,769,200 3,769,200
Agency, UT, Power
Supply Revenue, Series
C, 5.250%, 7/1/14
Provo, UT, Electric 1,800,000 1,800,000 2,475,216 2,475,216
System Revenue, ETM,
AMBAC, 10.375%,
09/15/2015
Salt Lake City, UT, 1,500,000 1,500,000 1,575,120 1,575,120
Hospital Revenue,
Intermountain Health
Care, Inversed Inflow,
5.660%, 02/15/2012
VIRGINIA
Roanoke, VA, Industrial 5,500,000 5,500,000 5,658,565 5,658,565
Development Authority,
Roanoke Memorial
Hospital, Series B,
MBIA, 6.125%,
07/01/2017
Southeastern Public 7,380,000 7,380,000 7,290,481 7,290,481
Service Authority, VA,
Refunding Revenue,
Series A, MBIA, 5.250%,
07/01/2010
Virginia Beach, VA, 1,595,000 1,595,000 1,684,655 1,684,655
Development Authority,
Virginia Beach General
Hospital Project,
AMBAC, 6.000%, 2/15/11
Virginia Beach, VA, 3,000,000 3,000,000 2,695,200 2,695,200
Development Authority,
VA Beach General
Hospital Project,
5.125%, 02/15/2018
Winchester County, VA, 5,700,000 5,700,000 5,539,716 5,539,716
Industrial
<PAGE>
Development Authority,
Hospital Revenue,
AMBAC, 6.000%,
01/01/2015
VIRGIN ISLANDS
Virgin Islands Public 1,500,000 1,000,000 2,500,000 1,652,400 1,101,600 2,754,000
Financial Authority
Revenue, Series A,
Prerefunded 10/01/2002,
7.250%, 10/1/18
Virgin Islands, Public 1,500,000 1,500,000 1,489,500 1,489,500
Finance Authority,
Matching Fund Loan
Notes, Senior Lien,
Series C, 5.500%,
10/1/08
WASHINGTON
Clark County, WA, 7,500,000 7,500,000 7,893,450 7,893,450
Public Utility District
#1, FGIC insured,
6.000%, 1/1/06
Clark County, WA, 2,200,000 2,200,000 2,315,786 2,315,786
Public Utility
District, FGIC Insured,
Series 1995, 6.000%,
01/01/2008
Cowlitz County, WA, 1,560,000 1,560,000 1,495,198 1,495,198
General Obligation,
Series 1999, 5.500%,
11/1/16
King & Snohomish 1,650,000 1,650,000 1,695,194 1,695,194
Counties, WA, General
Obligation, School
District #417, FGIC,
5.600%, 12/01/2010
King County, WA, Public 3,500,000 3,500,000 3,280,515 3,280,515
Hospital District #1,
Valley Medical Center,
Series 1992, AMBAC,
5.500%, 09/01/2017
Seattle, WA, General 6,200,000 6,200,000 6,064,964 6,064,964
Obligation, Library
Facilities, Series A,
5.375%, 12/1/13
Snohomish County, WA, 3,325,000 3,325,000 3,625,613 3,625,613
School District #6,
FGIC, 6.500%,
12/01/2007
State of Washington, 2,625,000 2,625,000 1,452,281 1,452,281
General Obligation
Series AT-5, MBIA
Insured, Zero Coupon,
08/01/2010
Washington Health Care 2,645,000 2,645,000 2,709,723 2,709,723
Facilities Authority,
Franciscan Health
System - St. Joseph's
Hospital, 5.400%,
1/1/08
Washington Health Care 2,000,000 2,000,000 2,052,420 2,052,420
Facilities Authority,
Franciscan Health
System - St. Joseph's
Hospital, 5.400%,
1/1/07
Washington Health Care 4,865,000 4,865,000 5,051,524 5,051,524
Facilities Authority,
Empire Health
Services-Spokane,
5.800%, 11/01/2008
Washington Health Care 2,155,000 2,155,000 2,231,416 2,231,416
Facilities Authority,
Empire Health
Services-Spokane, MBIA,
5.650%, 11/1/05
Washington Health Care 3,440,000 3,440,000 3,568,484 3,568,484
Facilities Authority,
Empire Health
Services-Spokane, MBIA,
5.700%, 11/1/06
Washington Health Care 7,350,000 7,350,000 7,631,432 7,631,432
Facilities Authority,
Empire Health
Services-Spokane, MBIA,
5.750%, 11/1/07
Washington Health Care 4,595,000 4,595,000 4,753,573 4,753,573
Facilities Authority,
Empire Health
Services-Spokane, MBIA,
5.800%, 11/1/09
Washington Health Care 2,100,000 2,100,000 2,165,499 2,165,499
Facilities Authority,
Empire Health
Services-Spokane, MBIA,
5.800%, 11/1/10
Washington Public Power 7,000,000 7,000,000 7,390,740 7,390,740
Supply System Nuclear
Project No. 2,
Refunding, Series A,
6.0%, 07/01/2007
Washington Public Power 8,570,000 8,570,000 5,719,875 5,719,875
Supply System, Nuclear
Project No. 1,
Refunding, Series A,
Zero Coupon, 07/01/2007
Washington Public Power 5,555,000 5,555,000 3,933,662 3,933,662
Supply System, Nuclear
Project No. 3,
Refunding, Series B,
Zero Coupon, 07/01/2006
Washington Public Power 11,925,000 11,925,000 10,519,043 10,519,043
Supply System, Nuclear
Project No. 3,
Refunding, Series B,
Zero Coupon, 07/01/2002
Washington Public Power 3,000,000 3,000,000 3,090,930 3,090,930
Supply System, Nuclear
Project No. 3,
Refunding, Series 1993
B, 5.650%, 07/01/2008
Washington Public Power 12,350,000 12,350,000 14,137,786 14,137,786
Supply System, Nuclear
Project No. 1,
Refunding, Series 1990
B, 7.250%, 07/01/2009
Washington Public Power 7,000,000 7,000,000 7,820,470 7,820,470
Supply System, Nuclear
Project No. 2,
Refunding,
<PAGE>
Series A, 7.250%,
07/01/2006
Washington Public Power 750,000 750,000 778,920 778,920
Supply System, Nuclear
Project No. 3,
Refunding, Series B,
7.375%, 07/01/2004
Washington Public Power 1,380,000 1,380,000 977,219 977,219
Supply System,, Nuclear
Project No. 3,
Refunding, Series A,
Zero Coupon, 7/1/06
Washington Public Power 3,625,000 3,625,000 2,874,118 2,874,118
Supply System, Revenue
Refunding, Nuclear
Project #3, Series A,
MBIA, Zero Coupon,
7/1/04
Washington Public Power 4,125,000 4,125,000 3,093,173 3,093,173
Supply System, Revenue
Refunding, Nuclear
Project #3, Series A,
MBIA, Zero Coupon,
7/1/05
Washington Public Power 5,000,000 5,000,000 5,168,800 5,168,800
Supply System, Revenue
Refunding, Nuclear
Project #2, Series A,
MBIA, 5.700%,
07/01/2008
Washington Public Power 5,000,000 5,000,000 5,272,400 5,272,400
Supply System, Nuclear
Power Project #1, AMBAC
Insured, 6.000%,
07/01/2008
Washington Public Power 3,830,000 3,830,000 3,981,591 3,981,591
Supply System, Revenue
Refunding, Nuclear
Project #1, Series A,
FGIC, 7.000%,
07/01/2011
Washington Public Power 10,000,000 10,000,000 10,428,700 10,428,700
Supply System, Revenue
Refunding, Nuclear
Project #2, Series C,
FGIC, 7.000%,
07/01/2001
Washington Public Power 10,895,000 10,895,000 11,343,329 11,343,329
Supply System, Revenue
Refunding, Nuclear
Project #1, Series B,
FGIC, 7.250%,
07/01/2012
Washington Public Power 2,000,000 2,000,000 2,082,300 2,082,300
Supply System, Revenue
Refunding, Nuclear
Project #2, Series A,
FGIC, 7.250%,
07/01/2003
Washington Public Power 1,370,000 1,370,000 1,444,090 1,444,090
Supply System, Revenue
Refunding, Nuclear
Project #2, Series C,
FGIC, 7.375%,
07/01/2011
Washington Public Power 5,860,000 5,860,000 3,246,850 3,246,850
Supply System, Nuclear
Power Project #3,
Series 1989A, MBIA/BIG
Insured, 07/01/2010
Washington Public Power 4,200,000 4,200,000 2,229,528 2,229,528
Supply System, Nuclear
Project #2, Series
1992A, MBIA/BIG
Insured, Zero Coupon,
7/1/11
Washington Public Power 2,000,000 2,000,000 2,307,800 2,307,800
Supply System,
Refunding Revenue,
Nuclear Project #3,
7.500%, 07/01/2008
WEST VIRGINIA
West Virginia, School 4,000,000 4,000,000 4,154,200 4,154,200
Building Authority
Revenue, Series B, MBIA
Insured, 6.750%,
07/01/2010
WISCONSIN
Kenosha, WI, General 3,475,000 3,475,000 2,770,340 2,770,340
Obligation, Series C,
MBIA, Zero Coupon,
6/1/04
Wisconsin Health & 1,500,000 1,500,000 1,554,630 1,554,630
Educational Facilities
Authority, Aurora
Medical, FSA Insured,
5.750%, 11/15/2007
Wisconsin Health & 2,000,000 2,000,000 2,077,260 2,077,260
Educational Facilities
Authority, Aurora
Medical, FSA Insured,
5.750%, 11/15/2006
Wisconsin Health & 4,330,000 4,330,000 4,539,529 4,539,529
Educational Facilities
Authority, Aurora
Medical, FSA Insured,
6.000%, 11/15/2009
Wisconsin Health & 4,085,000 4,085,000 4,291,252 4,291,252
Educational Facilities
Authority, Aurora
Medical, FSA Insured,
6.000%, 11/15/2008
Wisconsin Health & 2,000,000 2,000,000 2,108,640 2,108,640
Educational Facilities
Authority , MBIA
Insured, 6.100%,
08/15/2009
Wisconsin Health & 4,580,000 4,580,000 4,835,152 4,835,152
Educational Facilities
Authority, Wheaton
Franciscan Services,
MBIA, 6.100%, 8/15/08
Wisconsin Health & 5,285,000 5,285,000 5,536,619 5,536,619
Educational Facilities
Authority, Felician
Healthcare Inc., Series
B, AMBAC, 6.250%,
01/01/2022
Wisconsin Health & 9,230,000 9,230,000 9,669,440 9,669,440
Educational Facilities
Authority, Villa St.
Francis Inc., Series C,
AMBAC, 6.250%,
<PAGE>
1/1/22
Wisconsin Health & 2,335,000 2,335,000 2,510,242 2,510,242
Educational Facilities
Authority, SSM
Healthcare, Series 1992
AA, MBIA, 6.400%,
6/1/08
Wisconsin Health & 2,650,000 2,650,000 2,898,888 2,898,888
Educational Facilities
Authority, SSM
Healthcare, Series 1992
AA, 6.450%, 06/01/2010
Wisconsin Health & 2,485,000 2,485,000 2,683,179 2,683,179
Educational Facilities
Authority, SSM
Healthcare, Series 1992
AA, MBIA, 6.450%,
6/1/09
Wisconsin Health & 2,820,000 2,820,000 3,044,077 3,044,077
Educational Facilities
Authority, SSM
Healthcare, Series 1992
AA, MBIA, 6.500%,
6/1/11
Wisconsin Health & 3,000,000 3,000,000 3,284,070 3,284,070
Educational Facilities
Authority, SSM
Healthcare, Series 1992
AA, MBIA, 6.500%,
6/1/12
Wisconsin Health & 2,000,000 2,000,000 2,135,340 2,135,340
Educational Facilities
Authority, St. Luke's
Medical Center, MBIA,
7.100%, 8/15/11
Wisconsin Health and 4,800,000 4,800,000 4,395,984 4,395,984
Educational Facilities
Authority, Hospital
Sisters Services Inc. -
Obligated Group,
5.375%, 06/01/2018
Green Bay, WI, 1,700,000 1,700,000 1,721,063 1,721,063
Industrial Development
Revenue, Weyerhaeuser
Company Project, Series
A, 9.000%, 09/01/2006
Wisconsin Health and 1,500,000 1,500,000 1,437,825 1,437,825
Educational Facilities
Authority, Hospital
Sisters Inc., 5.375%,
06/01/2013
Wisconsin State Health 2,500,000 2,500,000 2,145,450 2,145,450
& Educational
Facilities, Revenue,
Series B, 5.625%,
2/15/29
Wisconsin State Health 4,000,000 4,000,000 3,420,040 3,420,040
& Educational
Facilities Authority,
Revenue Bond, Aurora
Health Care Inc.,
Series A, 5.600%,
02/15/2029
WYOMING
Wyoming Community 3,000,000 3,000,000 2,998,710 2,998,710
Development Authority,
Single Family Mortgage
Revenue, Series A,
5.850%, 06/01/2013
==================================================
LONG-TERM MUNICIPAL 693,354,919 1,527,500,473 85,749,816 2,306,605,208
INVESTMENTS ==================================================
LONG-TERM MUNICIPAL
INVESTMENTS (COST OF
$661,326,129
$1,466,359,907
$84,356,000 AND
$2,212,042,036
RESPECTIVELY)
==================================================
TOTAL INVESTMENT 713,354,919 1,538,200,473 90,749,816 2,342,305,208
PORTFOLIO-100% ==================================================
INVESTMENT PORTFOLIO
(COST OF $681,326,129
$1,477,059,907
$89,356,000 AND
$2,247,742,036
RESPECTIVELY)
</TABLE>
1) Certain securities that do not conform to the investment policies to be in
effect after the Reorganization will be disposed of prior to the Reorganization.
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
MANAGED AARP INSURED TAX OHIO TAX PRO FORMA PRO FORMA
MUNICIPAL BOND FREE GENERAL BOND FREE FUND ADJUSTMENTS COMBINED
-------------------------------------------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Investments, at value $ 713,354,919 $ 1,538,200,473 $ 90,749,816 $ 2,342,305,208
Cash 301,905 380,484 248,909 931,298
Other assets less liabilities (7,058,266) 17,752,511 884,841 $ (788,624) (2) 10,790,462
======================================================== ============= =================
Net assets $ 706,598,558 $ 1,556,333,468 $ 91,883,566 $ (788,624) $ 2,354,026,968
======================================================== ============= =================
NET ASSETS
S Class $ 798,441,540
AARP Class $ 1,555,585,428
SHARE OUTSTANDING
S Class 82,235,127 7,220,299 3,474,484 92,929,910
AARP Class 89,098,171 91,994,428 181,092,599
NET ASSET VALUE PER SHARE
S Class $ 8.59 $ 12.73 $ 8.59
AARP Class $ 17.47 $ 8.59
</TABLE>
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
MANAGED AARP INSURED TAX OHIO TAX PRO FORMA PRO FORMA
MUNICIPAL BOND FREE GENERAL BOND FREE FUND ADJUSTMENTS COMBINED
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest income $ 42,412,818 $ 89,228,402 $ 5,254,408 $ -- $ 136,895,628
-------------------------------------------------------------------------------------
Total Investment Income 42,412,818 89,228,402 5,254,408 -- 136,895,628
Expenses
Management fees 3,684,568 7,848,756 577,472 (65,381) (3) 12,045,415
Trustee fees 59,796 26,377 11,444 (37,821) (4) 59,796
All other expenses 1,056,763 3,422,871 207,528 (962,835) (5) 3,724,327
-------------------------------------------------------------------------------------
Total expenses before reductions 4,801,127 11,298,004 796,444 (1,066,037) 15,829,538
Expense reductions -- -- (111,936) 111,936 (6) --
-------------------------------------------------------------------------------------
Expenses, net 4,801,127 11,298,004 684,508 (954,101) 15,829,538
-------------------------------------------------------------------------------------
Net investment income (loss) 37,611,691 77,930,398 4,569,900 954,101 121,066,090
-------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) from investments (137,427) 10,567,083 (409,992) -- 10,019,664
and futures
Net unrealized appreciation (depreciation)
of investments and futures (47,879,710) (120,778,206) (5,779,605) -- (174,437,521)
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations $ (10,405,446) $ (32,280,725) $(1,619,697) $ 954,101 $ (43,351,767)
=====================================================================================
</TABLE>
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 1999
1. These financial statements set forth the unaudited pro forma condensed
Statement of Assets and Liabilities as of October 31, 1999, and the
unaudited pro forma condensed Statement of Operations for the twelve month
period ended October 31, 1999 for Scudder Managed Municipal Bond Fund, AARP
Insured Tax Free General Bond Fund and Scudder Ohio Tax Free Fund as
adjusted giving effect to the Reorganization as if it had occurred as of
the beginning of the period. These statements have been derived from the
books and records utilized in calculating daily net asset value for each
fund.
2. Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $25,202, $748,040 and $15,382 to be borne by the
Acquiring Fund, AARP Insured Tax Free General Bond Fund and Scudder Ohio
Tax Free Fund, respectively.
3. Represents reduction in management fees resulting from a new management
agreement.
4. Reduction in trustee fees resulting from the Reorganization.
5. Represents reduction in other expenses resulting from the implementation of
an administrative fee contract.
6. Represents the elimination of expense reimbursements.
