As filed with the Securities and Exchange Commission on March 3, 2000. Securities Act File No. - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X| Pre-Effective Amendment No. |_| Post-Effective Amendment No. |_| SCUDDER TAX FREE TRUST (Exact Name of Registrant as Specified in Charter) Two International Place Boston, Massachusetts 02110-4103 (Address of Principal Executive Offices) (Zip Code) John Millette Scudder Kemper Investments, Inc. Two International Place Boston, Massachusetts 02110-4103 (Name and Address of Agent for Service) (617) 295-1000 (Registrant's Area Code and Telephone Number) with copies to: Caroline Pearson, Esq. Sheldon A. Jones, Esq. Scudder Kemper Investments, Inc. Dechert Price & Rhoads Two International Place Ten Post Office Square - South Boston, MA 02110-4103 Boston, MA 02109-4603 Approximate Date of Proposed Public Offering: As soon as practicable after this Registration Statement is declared effective. Title of Securities Being Registered: Shares of Beneficial Interest ($.01 par value) of Scudder Medium Term Tax Free Fund, a series of the Registrant - -------------------------------------------------------------------------------- It is proposed that this filing will become effective on April 3, 2000 pursuant to Rule 488 under the Securities Act of 1933. - -------------------------------------------------------------------------------- No filing fee is required because the Registrant has previously registered an indefinite number of its shares under the Securities Act of 1933, as amended, pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended. -2- PART A INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS -3- NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF SCUDDER TAX FREE TRUST SCUDDER LIMITED TERM TAX FREE FUND Please take notice that a Special Meeting of Shareholders (the "Meeting") of Scudder Limited Term Tax Free Fund (the "Fund"), a series of Scudder Tax Free Trust (the "Trust"), will be held at the offices of Scudder Kemper Investments, Inc., Floor 13, Two International Place, Boston, MA 02110-4103, on July 13, 2000, at 3:00 p.m., Eastern time, for the following purposes: 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 Medium Term Tax Free Fund in exchange for shares of the Class S shares class of Scudder Medium Term Tax Free Fund; and Proposal 3: To ratify the selection of PricewaterhouseCoopers LLP as the independent accountants for the Fund for the Fund's current fiscal year. 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, [Signature] John Millette, Secretary [date] 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 -4- 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. -5- Table of Contents Introduction.................... Proposal 1: Election of Trustees/Directors for the Acquired Trust/Corporation........ Nominees for Election.............. Trustees/Directors Not Standing for Re-election............ Responsibilities of the Board -- Board and Committee Meetings........ Audit Committee........ Committee on Independent Trustees/Directors........ Attendance............ Honorary Trustees/Directors......... Officers............. Compensation of Trustees/Directors and Officers......... Proposal 2: Approval of Agreement and Plan of Reorganization...... I. SYNOPSIS......... Introduction......... Background of the Reorganization........... Reasons for the Proposed Transaction; Board Approval....... Investment Objectives, Policies and Restrictions of the Funds........ Portfolio Turnover.......... Performance........... Investment Manager; Fees and Expenses...... Administrative Fee.......... Comparison of Expenses......... Financial Highlights......... Distribution of Shares........ Purchase, Redemption and Exchange Information......... Dividends and other Distributions.......... Tax Consequences........ II. PRINCIPAL RISK FACTORS...... III. THE PROPOSED TRANSCTION.......... Description of the Plan........ Board Approval of the Proposed Transaction...... Description of the Securities to be Issued..... Federal Income Tax Consequences......... Capitalization........... Proposal 3: Ratification or Rejection of the Selection of Independent Accountants Additional Information Exhibit A Exhibit B Appendix 1 Appendix 2 Part B: Statement of Additional Information Part C: Other Information -6- PROXY STATEMENT/PROSPECTUS [DATE] Relating to the acquisition of the assets of SCUDDER LIMITED TERM TAX FREE FUND (the "Acquired Fund"), a separate series of SCUDDER TAX FREE TRUST (the "Trust") Two International Place Boston, Massachusetts 02110-4103 (800) 728-3337 by and in exchange for shares of beneficial interest of the Class S shares class of SCUDDER MEDIUM TERM TAX FREE FUND (the "Acquiring Fund"), a separate series of the 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"). Proposal 1 describes the election of Trustees, and Proposal 3 proposes the ratification 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 Class S Shares class of the Acquiring Fund (known as the "Class S 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 Class S Shares having an aggregate net asset value equal to the aggregate net asset value of such shareholder's shares of the Acquired Fund 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. In the descriptions of the Proposals below, the word "fund" is sometimes used to mean investment companies 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 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 by the Trust, on behalf of the applicable Fund. -7- 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. 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 October 1, 1999, 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, 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 on the preceding page. A Statement of Additional Information dated ___________________, 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 on the preceding page. Shareholder inquiries regarding either 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 Class S 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 the Trust. The Trust is an open-end management investment company organized as a Massachusetts business trust. The Board of Trustees (except as otherwise noted, "Trustees" refers to the Trustees of the Trust and "Board" refers to the Board of Trustees of the 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 13, 2000, at Scudder Kemper's offices, at Floor 13, Two International Place, Boston, MA 02110-4103 at 3:00 p.m. (Eastern time), or at such later time made necessary by adjournment (the "Meeting"). 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 FOR THE TRUST At the Meeting, shareholders will be asked to elect nine individuals to constitute the Board of Trustees of the Trust. These individuals were nominated after a careful and deliberate selection process by the present Board of Trustees of the Trust. The nominees for election, who are listed below, include -8- seven persons who currently serve as Independent Trustees (as defined below) of the 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 AARP. The nominees listed below are also being nominated for election as trustees or directors of most of the other no-load funds advised by Scudder Kemper. 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 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 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 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 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 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 listed in the following paragraphs and table for more than five years, but 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. Nominees for Election as Trustees: Henry P. Becton, Jr. (56) Henry P. Becton, Jr. graduated from Yale University in 1965, where he was elected to Phi Beta Kappa and was Chairman of the Yale Broadcasting Corporation. He received his J.D. degree from Harvard Law School in 1968. He joined the staff of WGBH Educational Foundation in 1970, was appointed General Manager in 1978, and was elected President and General Manager in 1984. 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 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 -9- 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 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 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. 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 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 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 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 -10- 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 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 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. 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 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 of various mutual funds advised by Scudder Kemper since 1994. -11- 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 the AARP, which included tax and legal matters affecting non-profit organizations, contract negotiations, publication review and public policy litigation. In 1979, he joined the 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. Trustees Not Standing for Re-election: - -------------------------------------------------------------------------------- Present Office with the Trust; Principal Occupation or Employment Name and Directorships - ---- ----------------- - -------------------------------------------------------------------------------- Peter B. Freeman (67) Trustee; Corporate Director and Trustee. Mr. Freeman serves on the Boards of an additional 13 trusts or corporations whose funds are advised by Scudder Kemper. - -------------------------------------------------------------------------------- George M. Lovejoy, Jr. (69) Trustee; President and Director, Fifty Associates (real estate corporation). Mr. Lovejoy serves on the Boards of an additional 11 trusts or corporations whose funds are advised by Scudder Kemper. - -------------------------------------------------------------------------------- Wesley W. Marple, Jr. (68) Trustee; Professor of Business Administration, Northeastern University, College of Business Administration. Mr. Marple serves on the Boards of an additional 10 trusts or corporations whose funds are advised by Scudder Kemper. - -------------------------------------------------------------------------------- Kathryn L. Quirk (47)* Trustee, Vice President and Assistant Secretary; Managing Director of Scudder Kemper Investments, Inc. Ms. Quirk serves on the Boards of an additional 18 trusts or corporations whose funds are advised by Scudder Kemper. - -------------------------------------------------------------------------------- * Nominee or Trustee considered by the 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 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 Trust. -12- Appendix 1 hereto sets forth the number of shares of each series of the Trust owned directly or beneficially by the Trustees of the Trust and by the nominees for election. 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 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 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 Trust and other operational matters, including policies and procedures designed to assure compliance with regulatory and other requirements. In 1999, the Trustees conducted over 20 meetings to deal with fund issues (including committee meetings and special meetings of the Independent Trustees). 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 1999 Advisory Group Report 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 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 such as investment, accounting and shareholder servicing issues. The Board of the Trust has an Audit Committee and a Committee on Independent Trustees, the responsibilities of which are described below. In addition, the Trust has an Executive Committee and a Valuation Committee. Audit Committee The Audit Committee reviews with management and the independent public accountants for each series of the Trust, among other things, the scope of the audit and the internal controls of each series of the 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 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 Trust. As suggested by the Advisory Group Report, the Trust's Audit Committee is comprised entirely of Independent Trustees, meets privately with the independent accountants of each series of the 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. -13- Committee on Independent Trustees The full Board of Trustees of the Trust has a Committee on Independent Trustees, comprised solely of Independent Trustees, charged with the duty of making all nominations of Independent Trustees, establishing Trustees' compensation policies, retirement policies and fund ownership policies, reviewing Trustees' affiliations and relationships annually, and periodically assessing and reviewing evaluations of the Board of Trustees' effectiveness. Attendance As noted above, the Trustees conducted over 20 meetings in calendar year 1999 to deal with fund matters, including various committee meetings and special meetings of the Independent Trustees. The full Board of Trustees of the Trust met eleven times, the Audit Committee met two times and the Committee on Independent Trustees met one time during calendar year 1999. Each then current Trustee attended 100% of the total meetings of the full Board of Trustees and each above-named committee on which he or she served as a regular member that were held during that period. Officers The following persons are officers of the Trust: - -------------------------------------------------------------------------------- Present Office with the Trust; Principal Year First Became an Name (Age) Occupation or Employment(1) Officer(2) - ---------- --------------------------- -------------------- - -------------------------------------------------------------------------------- Linda C. Coughlin (48) Trustee, President; 2000 Managing Director of Scudder Kemper - -------------------------------------------------------------------------------- Kathryn L. Quirk (47) Trustee, Vice President 1997 and Assistant Secretary; Managing Director of Scudder Kemper - -------------------------------------------------------------------------------- Ashton P. Goodfield (36) Vice President; Senior 1999 Vice President of Scudder Kemper - -------------------------------------------------------------------------------- Ann M. McCreary (43) Vice President; Managing 1998 Director of Scudder Kemper - -------------------------------------------------------------------------------- John Millette (38) Vice President and 1999 Secretary; Assistant Vice President of Scudder Kemper - -------------------------------------------------------------------------------- John R. Hebble (41) Treasurer; Senior Vice 1998 President of Scudder Kemper - -------------------------------------------------------------------------------- - ---------- (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 Trust. -14- - -------------------------------------------------------------------------------- Caroline Pearson (38) Assistant Secretary; 1997 Senior Vice President of Scudder Kemper Investments, Inc.; Associate, Dechert Price & Rhoads (law firm) 1989 to 1997 - -------------------------------------------------------------------------------- Compensation of Trustees and Officers The Trust pays each Independent Trustee a Trustee's fee for each series of the Trust plus specified amounts for Board and committee meetings attended and reimburses expenses related to the business of any series of the Trust. Each such unaffiliated Trustee receives an annual Trustee's fee of $2,400 per fund if the fund's total net assets do not exceed $100 million, $4,800 per fund if the fund's total net assets exceed $100 million but do not exceed $1 billion and $7,200 per fund if the fund's total net assets exceed $1 billion. The lead Trustee receives an additional annual retainer fee of $500 per fund. Each Independent Trustee also receives fees of $150 per fund for attending each Board meeting, Audit Committee meeting or other meeting held for the purpose of considering arrangements between the Trust and Scudder Kemper, or any of its other affiliates. Each Independent Trustee also receives $75 per fund for all other committee meetings attended. The newly-constituted Board may determine to change its compensation structure. The Independent Trustees of the Trust are not entitled to benefits under any pension or retirement plan. It is currently anticipated that a one-time benefit will be provided to those Independent Trustees who have volunteered to leave the board prior to their normal retirement date in order to facilitate the nomination of a consolidated board. The amount of such benefit has not been finally determined, but is expected to be based on a Trustee's years of service and remaining years to normal retirement. [Further detail to be provided when available.] [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 Trust's investments, pays the compensation and certain expenses of its personnel who serve as Trustees and officers of the Trust and receives a management fee for its services. Several of the 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 Trust makes no direct payments to them other than for reimbursement of travel expenses in connection with their attendance at Board and committee meetings. The following Compensation Table provides in tabular form the following data: Column (1) All Trustees who receive compensation from the Trust. Column (2) Aggregate compensation received by each Trustee of the 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. -15- Compensation Table - -------------------------------------------------------------------------------- Total Compensation from Aggregate Compensation Fund Complex Paid to Trustee (number of funds) Trustee - -------------------------------------------------------------------------------- Henry P. Becton Jr. $12,310 (2 funds) $140,000 (28 funds) - -------------------------------------------------------------------------------- Dawn-Marie Driscoll $13,114 (2 funds) $150,000 (28 funds) - -------------------------------------------------------------------------------- Peter B. Freeman $12,383 (2 funds) $179,783 (53 funds) - -------------------------------------------------------------------------------- George M. Lovejoy, Jr. $12,383 (2 funds) $153,200 (30 funds) - -------------------------------------------------------------------------------- Wesley W. Marple, Jr. $12,383 (2 funds) $140,000 (28 funds) - -------------------------------------------------------------------------------- Jean C. Tempel $12,383 (2 funds) $140,000 (28 funds) - -------------------------------------------------------------------------------- The Board of Trustees of Scudder Tax Free Trust recommends that the shareholders of Scudder Limited Term Tax Free 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 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 (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 Class S 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 Trust. As a result of the Reorganization, each shareholder of the Acquired Fund will become a shareholder of the Class S Shares and will hold, immediately after the Reorganization, Class S 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 all 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, checkwriting, and automatic dividend reinvestment. The shareholder service features of the Acquiring Fund are identical to those of the Acquired Fund. See "Purchase, Redemption, and Exchange Information." -16- 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. The mutual fund industry has grown dramatically over the last ten years. During this period of rapid growth, investment managers expanded the range of fund offerings that they make available to investors in an effort to meet the growing and changing needs and desires of an increasingly large and dynamic group of investors. With this expansion has come increased complexity and competition among mutual funds, as well as increased confusion among investors. The group of no-load funds advised by Scudder Kemper has followed this pattern, increasing from 44 no-load funds in 1990 to 77 no-load funds at present. As a result, 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 funds offered through the AARP Investment Program (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 most of the no-load funds advised by Scudder Kemper 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 the Acquiring Fund of an administrative fee, Scudder Kemper would agree to provide or pay for substantially all services that a 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 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. Reasons for the Proposed Reorganization; Board Approval Since receiving Scudder Kemper's proposals on October 5, 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 -17- Scudder Kemper, the Independent Trustees have requested, and Scudder Kemper has accepted, numerous changes designed to protect and enhance the interests of shareholders. See "Board Approval of the Proposed Transaction" below. The Trustees believe that the Reorganization will provide shareholders of the Acquired Fund with the following benefits: o LOWER EXPENSES. If the Reorganization is approved, Acquired Fund shareholders may benefit from lower total Fund operating expenses. Please refer to "Comparison of Expenses" below. o GREATER PREDICTABILITY OF EXPENSES. On or prior to 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 most 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. o SIMILAR INVESTMENT OBJECTIVES AND POLICIES. The combined fund will continue to seek current tax-free income with limited principal fluctuation. The Funds are currently managed by the same portfolio management teams and have similar investment styles, but the Acquiring Fund may purchase securities with longer durations and possibly greater principal fluctuations. o 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 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. o TAX-FREE REORGANIZATION. Shareholders of the Acquired Fund will exchange their shares for shares of the Acquiring Fund of equal value. It is expected that the transaction will be tax-free for Acquired Fund shareholders. For these reasons, as more fully described below under "The Proposed Transaction - Board Approval of the Proposed Transaction," the Trustees of the Trust, including the Independent Trustees, have concluded that: o the Reorganization is in the best interests of the Acquired Fund and its shareholders; and o 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. However, there are some -18- differences. The investment objective of the Acquiring Fund is to seek a high level of income free from regular federal income taxes and to limit principal fluctuation. The investment objective of the Acquired Fund is to seek as high a level of income exempt from regular federal income tax as is consistent with a high degree of principal stability. 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. The Acquiring Fund invests primarily in high-grade, intermediate-term municipal bonds with a dollar-weighted average effective maturity between five and 10 years. The Acquiring Fund may not purchase securities with effective maturities of greater than 15 years. The Acquired Fund invests primarily in shorter-term, high-grade municipal debt securities with a dollar-weighted average maturity between one and five years. The Acquired Fund may not purchase securities with effective maturities of greater than 10 years. At least 65% of each Fund's net assets will be invested in municipal securities which are rated within the three highest quality rating categories. At least 80% of each Fund's total assets will normally be invested in municipal securities. For temporary defensive purposes, more than 20% of each Fund's assets may be invested in taxable securities. A portion of each Fund's income may be subject to regular federal, state and local income taxes. The Acquiring Fund may invest more than 25% of its assets in industrial development or other private activity bonds. The Acquiring Fund also may use stand-by commitments and other puts and engage in reverse repurchase agreements. The Acquired Fund has no stated policy regarding these types of investments. The Acquiring Fund's investment restrictions are identical to the Acquired Fund's investment restrictions, as set forth in its Statement of Additional Information. Investment restrictions of each Fund which 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 Acquiring Fund and the Acquired Fund for a fuller description of each Fund's investment policies and restrictions. Portfolio Turnover The average annual 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 (i.e., prior to the creation of Class S Shares) and for the five months ended May 31, 1999 were 10.8% and 12.5%, respectively. The average annual portfolio turnover rate for the Acquired Fund for the fiscal year ended October 31, 1998 and for the seven months ended May 31, 1999 were 23.2% and 5.6%, respectively. Performance The following table compares the investment performance of each Fund, and may provide some indication of the risks of investing in each Fund by showing changes in each Fund's performance from year to year and how the Fund's average annual return for the periods indicated compare with those of a broad measure of market performance. Neither Fund's past performance is an indication of how the Fund will perform in the future. -19- Average Annual Total Return For the Periods Ending December 31, 1999 - ---------------------------------------------------------------------------------------------------------------------- Acquiring Fund Acquired Fund Acquiring Fund+ Acquired Fund Benchmark Index** Benchmark Index** --------------- ------------- ----------------- ----------------- - ---------------------------------------------------------------------------------------------------------------------- Past year (1.11%) 0.39% (2.06%) 1.98% - ---------------------------------------------------------------------------------------------------------------------- Past 5 years 5.98% 4.87% 6.91% 5.17% - ---------------------------------------------------------------------------------------------------------------------- Past 10 years 6.39% N/A 6.89% N/A - ---------------------------------------------------------------------------------------------------------------------- Since Inception N/A 4.20%* N/A 4.56% - ---------------------------------------------------------------------------------------------------------------------- + Class S Shares were not offered during the periods covered. Performance shown is for shares of the Acquiring Fund existing during the periods covered. *The inception date for the Acquired Fund is February 15, 1994. **The Acquiring Fund's benchmark index is the Lehman Brothers Municipal Bond Index, a market value-weighted measure of municipal bonds issued across the United States. The Acquired Fund's benchmark index is the Lehman Brothers Municipal Bond Index (3 year), an unmanaged, market value-weighted measure of the short-term municipal bond market which includes bonds with maturities of two to three years. Index returns are calculated monthly, assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. Total return for the Acquiring Fund would have been lower during the past 5 and 10 year periods if the Investment Manager had not maintained expenses. Total return for the Acquired Fund would have been lower during all periods if the Investment Manager had not maintained expenses. For management's discussion of the Acquiring Fund's performance for the fiscal year ended May 31, 1999 (prior to the creation of the Class S 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 0.60% of the first $500 million of average daily net assets and 0.50% of average daily net assets in excess of $500 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 -20- Fund had total net assets of $643,270,302. For the fiscal year ended December 31, 1998 and the five months ended May 31, 1999, the Acquiring Fund paid the Investment Manager a fee of 0.57% and 0.57% (annualized), respectively, of average daily net assets. The Investment Manager receives a fee pursuant to the investment management agreement as compensation for its services on behalf of the Acquired Fund. For these services, the Acquired Fund pays the Investment Manager a fee at an annual rate of 0.60% of average daily net assets. As of May 31, 1999, the Acquired Fund had total net assets of $107,303,722. For the fiscal year ended October 31, 1998 and the seven months ended May 31, 1999, the Acquired Fund paid the Investment Manager a fee of 0.53% and 0.54% (annualized), respectively, of average daily net assets. By contract, the Acquired Fund's total annual Fund operating expenses are maintained at no more than 0.75% through September 30, 2000. 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. The details of the proposal (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 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 bears the 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 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. -21- 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. 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 Acquiring Fund 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 below 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 Class S Shares. Pro Forma information in the tables and examples relates to the Class S Shares and the AARP Shares class of shares of the Acquiring Fund. Shareholder Transaction Expenses - -------------------------------------------------------------------------------- Pro Forma Acquiring Fund Acquired Fund (Combined) - -------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage None None None of offering price) - -------------------------------------------------------------------------------- Maximum deferred sales charge (load) (as a percentage of purchase price or redemption None None None proceeds) - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- -22- Annual Fund Operating Expenses (Unaudited) - -------------------------------------------------------------------------------- Acquiring Pro Forma* Fund Acquired Fund (Combined) ---- ------------- ---------- - -------------------------------------------------------------------------------- Management fees 0.58% 0.60% 0.57% - -------------------------------------------------------------------------------- Distribution and/or service (12b-1) fees None None None - -------------------------------------------------------------------------------- Other expenses 0.13% 0.30% 0.15% - -------------------------------------------------------------------------------- Total annual Fund operating expenses 0.71% 0.90% 0.72% - -------------------------------------------------------------------------------- Expense reimbursements N/A 0.15% N/A - -------------------------------------------------------------------------------- Net annual Fund operating expenses N/A 0.75%# N/A - -------------------------------------------------------------------------------- + There is a $5 wire service fee for receiving redemption proceeds via wire. # By contract, the Acquired Fund's total annual Fund operating expenses are maintained at no more than 0.75% through September 30, 2000. There is no guarantee that this expense waiver will continue beyond September 30, 2000. * Pro Forma expenses reflect the implementation of the Administrative Fee for the Acquiring Fund to be effective upon the Reorganization. In evaluating the Proposals, 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 expense ratio of 0.73% for the Acquiring Fund and 0.87% (without reflecting any expense reimbursements) for the Acquired Fund. Examples (Unaudited) Based on the costs above (including one year of capped expenses in each period included in the Acquired Fund column), 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 and that 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: -23- - -------------------------------------------------------------------------------- Pro Forma Year Acquiring Fund Acquired Fund (Combined) ** - ---- -------------- ------------- ------------- - -------------------------------------------------------------------------------- 1st $ 73 $ 77 $ 74 - -------------------------------------------------------------------------------- 3rd $227 $272 $230 - -------------------------------------------------------------------------------- 5th $395 $484 $401 - -------------------------------------------------------------------------------- 10th $883 $1,094 $894 - -------------------------------------------------------------------------------- ** Pro Forma expenses reflect the implementation of the Administrative Fee for the Acquiring Fund to be effective upon the Reorganization. Financial Highlights The financial highlights table for the Acquiring Fund prior the creation of Class S 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 whatsoever 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 of the Class S Shares. Dividends and other Distributions Each of the Funds intends to declare dividends from its net investment income daily and to distribute them monthly. Each of the Funds intends to distribute net 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. -24- 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 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, risk associated with interest rates, and risk associated with credit quality. Management risk refers to the fact that securities selected by Scudder Kemper on behalf of each Fund might not perform as well as the securities held by other mutual funds. Risk associated with interest rates refers to the link between interest rates and debt security performance. A rise in interest rates generally means a fall in bond prices, and therefore in the value of an investment in each Fund. Changes in interest rates will also affect each Fund's yield. When interest rates fall, each Fund's yield tends to fall as well. Risk associated with credit quality refers to the fact that, if a Fund's portfolio security declines in credit quality or goes into default, it could hurt the Fund's performance. Interest rate risk and credit risk are generally greater for funds investing in fixed income securities with longer maturities and portfolios with longer durations. Because the Acquiring Fund generally invests in securities with longer maturities than does the Acquired Fund (see "Investment Objectives, Policies and Restrictions of the Funds"), interest rate risk and credit risk will generally be greater for the Acquiring Fund than for the Acquired Fund. For a further discussion of the investment techniques and risk factors applicable to the Acquired Fund and the Acquiring Fund, see the "Investment Objectives, Policies and Restrictions of the Funds" herein, and the Prospectuses and Statements of Additional Information for the Funds, which are incorporated by reference herein. 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 Class S 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 Class S 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 Trust. Upon completion of the Reorganization, each shareholder of the Acquired Fund will own that number of full and fractional Class S 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 Trust identical in all material respects to the account currently maintained by the Trust for such shareholder. In the interest of -25- economy and convenience, Class S 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 requests (including by check) received by the transfer agent after the Closing will be treated as requests received for the redemption of Class S Shares received by the shareholder in connection with the Reorganization. The obligations of the Trust on behalf of each of the Acquired Fund and the Acquiring Fund 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 the 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 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 $21,642 for the Acquiring Fund and $11,056 for the Acquired Fund (approximately $0.0004 and $0.0016 per share, respectively, based on December 31, 1999 net assets for each Fund). 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 October 5, 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"). 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. -26- 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 October 5 meeting, the Independent Trustees met in person or by telephone on seven 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. At the February 7, 2000 meeting, the Independent Trustees 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 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 -27- 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 substantially 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 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 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. Description of the Securities to be Issued The Acquiring Fund is a series of the Trust, a Massachusetts business trust established under a Declaration of Trust dated December 28, 1982, as amended. The Trust's authorized capital consists of an unlimited number of shares of beneficial interest, par value $0.01 per share. The Trustees of the Trust are authorized to divide the Acquiring Trust's shares into separate series. The Acquiring Fund is one of two series of the Trust that the Board has created to date. The Trustees of the Trust are also authorized to further divide the shares of the series of the Trust into classes. The Trustees of the Trust have authorized the division of the Acquiring Fund into two classes, Class S Shares and AARP Shares. 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 Class S Shares of the Acquiring Fund. If Class S 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. 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 (and a proportionate fractional vote per each fractional share) held on matters on which they are entitled to vote. The Trust is not required to hold shareholder meetings annually, although shareholder meetings may be called for purposes such as electing or removing Trustees, changing fundamental policies or approving an investment management contract. In the event that shareholders of the Trust wish to communicate with other shareholders concerning the removal of any Trustee, such shareholders shall be assisted in communicating with other shareholders for the purpose of obtaining signatures to request a meeting of shareholders, all in the manner provided in Section 16(c) of the 1940 Act as if Section 16(c) were applicable. 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. -28- Federal Income Tax Consequences The Reorganization is conditioned upon the receipt by the Trust, on behalf of each 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 Class S 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 recognized by the Acquired Fund upon the transfer of all or substantially all of its assets to the Acquiring Fund in exchange solely for Class S Shares and the assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund or upon the distribution of the Class S 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 Class S 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 Class S Shares solely in exchange for their shares of the Acquired Fund as part of the transaction; (vii) the basis of the Class S 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 Class S 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 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. Capitalization The following table shows on an unaudited basis the capitalization of each Fund as of October 31, 1999 (i.e., prior to the creation of Class S Shares), and on a pro forma basis as of that date giving effect to the Reorganization: -29- - -------------------------------------------------------------------------------------------------------------------------- Pro Forma Pro Forma Acquiring Fund Acquired Fund Adjustments Combined(1) -------------- ------------- ----------- ----------- - -------------------------------------------------------------------------------------------------------------------------- Net Assets $587,014,460 $ 87,982,120 ($32,698)(3) $674,963,882(2) - -------------------------------------------------------------------------------------------------------------------------- Net Asset Value Per Share $10.88 $11.85 -- $10.88 - -------------------------------------------------------------------------------------------------------------------------- Shares Outstanding 53,956,645 7,421,852 663,724 62,042,221 - -------------------------------------------------------------------------------------------------------------------------- (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 may shares of the Acquiring Fund will be received by the shareholders of the Acquired 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 for the Acquiring Fund. (3) Represents one-time proxy, legal, accounting and other costs of the Reorganization of $21,642 and $11,056 to be borne by the Acquiring Fund and the Acquired Fund, respectively. The Board of Trustees of Scudder Tax Free Trust recommends that the shareholders of Scudder Limited Term Tax Free Fund vote in favor of this Proposal 2. PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS The Board of the 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 Scudder Tax Free Trust recommends that the shareholders of Scudder Limited Term Tax Free Fund vote in favor of this Proposal 3. ADDITIONAL INFORMATION Information about the Funds Additional information about the Trust, 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 Trust is subject to the informational requirements of the Securities Exchange Act of 1934 and the 1940 Act, and in accordance therewith, files reports, proxy material and other -30- information about each of the Funds with the Securities and Exchange Commission. Such reports, proxy material and other information filed by the Trust can be inspected and copied at the Public Reference Room maintained by the Securities and Exchange 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 Trust, materials that are incorporated by reference into the prospectuses and Statements of Additional Information, and other information about the 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 - 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 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. 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. 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 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 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 -31- 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. 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 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 (the "Record Date") will be entitled to one vote per share on all business of the Meeting. As of [date], there were ____________ shares of the Acquired Fund outstanding. As of [date], the officers and Trustees of the Trust as a group owned beneficially [less than 1%][___%] of the outstanding shares of the Acquiring Fund. [Appendix 2 hereto sets forth the beneficial owners of at least 5% of each Fund's shares.] To the best of the Trust's knowledge, as of _______________, no person owned beneficially more than 5% of either Fund's outstanding shares[, except as stated on Appendix 2.] Shareholder Communications Corporation ("SCC") has been engaged to assist in the solicitation of proxies, at an estimated cost of $9,163. 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 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, 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 originally sent with the proxy -32- statement or attend in person. Should shareholders require additional information regarding the proxy or replacement proxy cards, they may contact SCC toll-free at 1-800-603-1915. 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 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. 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 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, [signature] John Millette, Secretary -33- INDEX OF EXHIBITS EXHIBIT A: AGREEMENT AND PLAN OF REORGANIZATION EXHIBIT B: MANAGEMENT'S DISCUSSION OF THE ACQUIRING FUND'S PERFORMANCE FOR ITS MOST RECENT FISCAL YEAR. -34- 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 Tax Free Trust (the "Trust"), a Massachusetts business trust with its principal place of business at Two International Place, on behalf of each of Scudder Medium Term Tax Free Fund (the "Acquiring Fund") and Scudder Limited Term Tax Free Fund (the "Acquired Fund" and, together with the Acquiring Fund, each a "Fund" and collectively the "Funds") . Each of the Acquiring Fund and the Acquired Fund is a separate series of the Trust. 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 Class S Shares class of voting shares of beneficial interest ($.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 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). -35- 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 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 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 (such time and date being hereinafter called 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 Trust'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. -36- 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 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 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. -37- 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 Trust, on behalf of the Acquired Fund, represents and warrants to the Acquiring Fund as follows: (a) The Trust is a business trust duly organized and validly existing under the laws of the Commonwealth of Massachusetts with power under the 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 Trust is registered with the Commission as an open-end management investment company under the Investment Company Act of 1940, as amended (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 Trust is not, and the execution, delivery and performance of this Agreement by the Trust will not result, in violation of Massachusetts law or of the 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 May 31, 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 -38- 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 May 31, 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; (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 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 Trust, and, subject to the approval of the Acquired Fund Shareholders, this Agreement constitutes a valid and binding obligation of the Trust, on behalf of the Acquired Fund, enforceable in accordance with its -39- 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. 4.2. The Trust, on behalf of the Acquiring Fund, represents and warrants to the Acquired Fund as follows: (a) The Trust is a business trust duly organized and validly existing under the laws of the Commonwealth of Massachusetts with power under the 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 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 Trust is not, and the execution, delivery and performance of this Agreement by the Trust will not result, in violation of Massachusetts law or of the 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; -40- (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, 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 for the obligations of the Acquired 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 -41- 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 Acquired 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 Fund and this Agreement will constitute a valid and binding obligation 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; (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. -42- 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 13, 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. 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 -43- and confirm to the Acquired Fund title to and possession of all Acquiring Fund shares to be transferred to 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 Trust, with respect to 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 Acquiring Fund, its adviser or any of their affiliates) against the Acquired Fund or its investment adviser(s), Board members or officers arising out of this Agreement and (ii) no facts known to the Acquired Fund which the Acquired 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 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 Fund has been duly formed and is an existing business trust; (b) the Acquiring Fund has the power to carry on its 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 Fund and constitutes a valid and legally binding obligation 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 Fund'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; and -44- 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 entered into an administrative services agreement with Scudder Kemper Investments, Inc. ("Scudder Kemper") 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 Trust, with respect to 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 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. 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 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 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 Trust's registration statement under the 1940 Act; (c) the Agreement has been duly authorized, executed and delivered by the Trust, on behalf of the Acquired Fund, and constitutes a valid and legally binding obligation of the 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 Trust's Declaration of Trust, as amended, or By-laws; and (e) to the knowledge of such counsel, all regulatory consents, authorizations, approvals or -45- 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; and 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. 7.6 The Acquiring Fund shall have 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 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; and 8.5. The parties shall have received an opinion of Willkie Farr & Gallagher addressed to the Trust, on behalf of each Fund, in a form reasonably satisfactory to each such party to this Agreement, 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 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'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 -46- 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 the shareholders of the Acquired Fund 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 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 Acquiring Fund 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. The delivery of such opinion is conditioned upon receipt by Willkie Farr & Gallagher of representations it shall request of each of the Acquiring Fund and 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 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 Fund on behalf of the Acquiring Fund, and the 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 $21,642 for the Acquiring Fund and $11,056 for the Acquired Fund (approximately $0.0004 and $0.0016 per share, respectively, based on December 31, 1999 net assets for each Fund). Any such expenses which are so -47- 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. The 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. 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 July 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 5.2 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. -48- 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 the Trust hereunder shall not be binding upon any of the Board members, shareholders, nominees, officers, agents, or employees of the Trust or the Funds personally, but bind only the respective property of the Funds, as provided in the Trust's Declaration of Trust. Moreover, no series of the Trust other than the Funds shall be responsible for the obligations of the Trust hereunder, and all persons shall look only to the assets of the Funds to satisfy the obligations of the Trust hereunder. The execution and the delivery of this Agreement have been authorized by the Trust's Board members, on behalf of each 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 property of the Funds, as provided in the 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 Trust or the assets of any such series be held liable with respect to 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 State 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. -49- Attest: SCUDDER TAX FREE TRUST on behalf of Scudder Limited Term Tax Free Fund _____________________________ Secretary ______________________________ By:___________________________ Its:__________________________ Attest: SCUDDER TAX FREE TRUST on behalf of Scudder Medium Term Tax Free Fund _____________________________ Secretary ______________________________ By:___________________________ Its:__________________________ AGREED TO AND ACKNOWLEDGED ONLY WITH RESPECT TO PARAGRAPH 10.2 HERETO SCUDDER KEMPER INVESTMENTS, INC. ____________________________________ By:_________________________________ Its:________________________________ -50- EXHIBIT B Scudder Medium Term Tax Free Fund Annual Report May 31, 1999 - -------------------------------------------------------------------------------- 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 Medium Term Tax Free Fund's most recent fiscal year. During its abbreviated fiscal year beginning January 1, 1999, through May 31, 1999, the Fund returned -0.02%. Over the 12 months ended May 31, the Fund returned 3.79%, outpacing the 3.72% 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 Medium Term Tax Free Fund's 30-day net annualized SEC yield was 3.75%, equivalent to a 6.21% taxable yield for investors subject to the 39.6% maximum federal income tax rate. Scudder Medium Term Tax Free Fund's 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 three-, five-, and ten-year periods. Please turn to the Performance Update on page 4 for more information on the Fund's long-term progress, including comparisons with the unmanaged Lehman Brothers Municipal Bond Index. 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 - -------------------------------------------------------------------------------- Competitive Long-Term Results (Average annual returns for periods ended May 31, 1999) - -------------------------------------------------------------------------------- Scudder Medium Lipper Number Term Tax average of Free Fund annual Funds Percentile Period return return Rank tracked Ranking 1 year 3.79% 3.72% 58 of 134 Top 43% 3 years 6.08% 5.85% 32 of 114 Top 28% 5 years 6.03% 5.81% 24 of 88 Top 27% 10 years 6.89% 6.58% 7 of 24 Top 29% 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. - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- Municipal 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 LINE CHART DATA 30-year 30-year AAA-rated U.S. municipal bonds Treasury bonds 5/31/98 100.77 100.14 100.00 103.47 7/31/98 100.00 101.57 102.33 107.12 9/30/98 105.57 114.87 102.33 111.47 11/30/98 102.33 109.83 102.33 111.47 1/31/99 103.13 111.14 101.55 103.32 3/31/99 100.77 102.11 100.31 104.665 5/31/99 98.19 100.00 Past performance is not indicative of future results. Source: Scudder Kemper Investments, Inc. - -------------------------------------------------------------------------------- 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 rose slightly, from 5.10% to 5.22%. 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. Tax-Free Income and Below-Average Risk Scudder Medium Term Tax Free Fund's primary investment goals are to generate high federally tax-free income while maintaining a significant degree of price stability. 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 purchased 11- to 13-year bonds during the period, 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 5.3 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 70% 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 36 states plus the District of Columbia and the Virgin Islands. The Portfolio Summary on pageNO TAG provides more information about the Fund's holdings, including quality, maturity, and sector representation. 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 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. 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 Medium Term Tax Free Fund - ---------------------------------------------------- 1 Year $ 10,379 3.79% 3.79% 5 Year $ 13,399 33.99% 6.03% 10 Year* $ 19,475 94.75% 6.89% - ---------------------------------------------------- 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 PRINTED DOCUMENT CONTAINS A LINE CHART HERE CHART DATA: Scudder Medium Lehman Brothers Term Tax Free Fund Municipal Bond Index '89 10000 10000 '90 10594 10733 '91 11507 11814 '92 12642 12976 '93 14065 14529 '94 14535 14888 '95 15596 16243 '96 16315 16986 '97 17426 18395 '98 18764 20121 '99 19475 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. Generally, the Index's average effective maturity is longer than the Fund's. Index returns assume dividends are reinvested and, unlike Fund returns, do not reflect any fees or expenses. APPENDIX 1 FUND SHARES OWNED BY NOMINEES AND TRUSTEES Many of the Nominees and Trustees own shares of the series of the 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 Trust as of January 31, 2000. The information as to beneficial ownership is based on statements furnished to the 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 Trust constitute less than 1% of the shares outstanding of such fund.] [As a group, the Trustees and officers own less than 1% of the shares of any series of the Trust.] - ----------------------------- ----------------- ---------------- SCUDDER LIMITED SCUDDER MEDIUM TERM TAX FREE TERM TAX FREE FUND FUND - ----------------------------- ----------------- ---------------- Henry P. Becton, Jr.(1) - ----------------------------- ----------------- ---------------- Linda C. Coughlin(2) - ----------------------------- ----------------- ---------------- Dawn-Marie Driscoll(3) - ----------------------------- ----------------- ---------------- Edgar R. Fiedler(4) - ----------------------------- ----------------- ---------------- Peter B. Freeman(5) - ----------------------------- ----------------- ---------------- Keith R. Fox(6) - ----------------------------- ----------------- ---------------- George M. Lovejoy, Jr.(7) - ----------------------------- ----------------- ---------------- Wesley W. Marple, Jr.(8) - ----------------------------- ----------------- ---------------- Kathryn L. Quirk(9) - ----------------------------- ----------------- ---------------- Joan Edelman Spero(10) - ----------------------------- ----------------- ---------------- Jean Gleason Stromberg(11) - ----------------------------- ----------------- ---------------- Jean C. Tempel(12) - ----------------------------- ----------------- ---------------- Steven Zaleznick(13) - ----------------------------- ----------------- ---------------- [All Trustees and Officers as a Group] - ----------------------------- ----------------- ---------------- (1) As of January 31, 2000, Mr. Becton's total aggregate holdings in each series of the Trust listed above and all other funds in the Scudder Family of Funds and AARP Funds ranged between $___________ and $___________. (2) As of January 31, 2000, Ms. Coughlin's total aggregate holdings in each series of the Trust listed above and all other funds in the Scudder Family of Funds and AARP Funds ranged between $___________ and $___________. (3) As of January 31, 2000, Ms. Driscoll's total aggregate holdings in each series of the Trust listed above and all other funds in the Scudder Family of Funds and AARP Funds ranged between $___________ and $___________. (4) As of January 31, 2000, Mr. Fiedler's total aggregate holdings in each series of the Trust listed above and all other funds in the Scudder Family of Funds and AARP Funds ranged between $___________ and $___________. (5) As of January 31, 2000, Mr. Freeman's total aggregate holdings in each series of the Trust listed above and all other funds in the Scudder Family of Funds and AARP Funds ranged between $___________ and $___________. (6) As of January 31, 2000, Mr. Fox's total aggregate holdings in each series of the Trust listed above and all other funds in the Scudder Family of Funds and AARP Funds ranged between $___________ and $___________. (7) As of January 31, 2000, Mr. Lovejoy's total aggregate holdings in each series of the Trust listed above and all other funds in the Scudder Family of Funds and AARP Funds ranged between $___________ and $___________. (8) As of January 31, 2000, Mr. Marple's total aggregate holdings in each series of the Trust listed above and all other funds in the Scudder Family of Funds and AARP Funds ranged between $___________ and $___________. (9) As of January 31, 2000, Ms. Quirk's total aggregate holdings in each series of the Trust listed above and all other funds in the Scudder Family of Funds and AARP Funds ranged between $___________ and $___________. (10) As of January 31, 2000, Ms. Spero's total aggregate holdings in each series of the Trust listed above and all other funds in the Scudder Family of Funds and AARP Funds ranged between $___________ and $___________. (11) As of January 31, 2000, Ms. Stromberg's total aggregate holdings in each series of the Trust listed above and all other funds in the Scudder Family of Funds and AARP Funds ranged between $___________ and $___________. (12) As of January 31, 2000, Ms. Tempel's total aggregate holdings in each series of the Trust listed above and all other funds in the Scudder Family of Funds and AARP Funds ranged between $___________ and $___________. (13) As of January 31, 2000, Mr. Zaleznick's total aggregate holdings in each series of the Trust listed above and all other funds in the Scudder Family of Funds and AARP Funds ranged between $___________ and $___________. APPENDIX 2 Beneficial Ownership of Fund Shares -52- 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. 2-81105) and is incorporated by reference herein. PART B SCUDDER TAX FREE TRUST - -------------------------------------------------------------------------------- Statement of Additional Information [date] - -------------------------------------------------------------------------------- Acquisition of the Assets of By and in Exchange for Shares of Scudder Limited Term Tax Free Fund Scudder Medium Term Tax Free Fund (the "Acquired Fund"), a series (the "Acquiring Fund"), a series of Scudder Tax Free Trust (the "Trust") of the Trust Two International Place Two International Place Boston, MA 02110-4103 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 Trust contains material which may be of interest to investors but which is not included in the Prospectus/Proxy Statement of the 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. 2-81105) 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. 811-03632) and is incorporated by reference herein. 3. The Acquired Fund's prospectus dated October 1, 1999, which was previously filed with the Commission via EDGAR on September 29, 1999 (File No. 2-81105) and is incorporated by reference herein. 4. The Acquired Fund's statement of additional information dated October 1, 1999, which was previously filed with the Commission via EDGAR on September 29, 1999 (File No. 2-81105) and is incorporated by reference herein. 5. The Acquired 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 2, 1999 (File No. 811-03632) 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. -53- This Statement of Additional Information is not a prospectus. A Prospectus/Proxy Statement dated ____________________ relating to the Reorganization may be obtained by writing the Acquired Fund at 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- PRO FORMA PORTFOLIO OF INVESTMENTS AS OF OCTOBER 31, 1999 (UNAUDITED) Medium Term Limited Term Pro Forma Medium Term Limited Term Pro Forma Tax-Free Tax Free Combined Market Market Value Combined Principal Principal Principal Value($) ($) Market Amount ($) Amount($) Amount($) Value($) --------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL INVESTMENTS 2.6% - ------------------------------------------ ALASKA Valdez, AK, Marine Terminal Revenue, 1,000,000 1,000,000 1,000,000 1,000,000 Exxon Pipeline Project B, 3.750%, 12/1/2033 ARIZONA Maricopa County, AZ, Pollution Control 1,400,000 1,400,000 1,400,000 1,400,000 Revenue, Arizona Public Service Corporation, Series F, Daily Demand Note, 4.500%, 05/01/2029 FLORIDA Hillsborough County, FL, Industrial 2,000,000 2,000,000 2,000,000 2,000,000 Development Authority, 2.700%, 9/1/2025 ILLINOIS Chicago, IL, O'Hare International 1,000,000 1,000,000 1,000,000 1,000,000 Airport Revenue Bonds, American Airlines Project, Series 1983 A, Daily Demand Note, 5.000%, 12/01/2017 Chicago,IL, O'Hare International 1,800,000 1,800,000 1,800,000 1,800,000 Airport, American Airlines, 1983 Series B, Daily Demand Note, 4.750%, 12/1/2017 INDIANA Jasper County, IN, Pollution Control 1,000,000 1,000,000 1,000,000 1,000,000 Revenue, Northern Indiana Public Services, Series C, Daily Demand Bond, 4.500%, 04/01/2019 NEW YORK New York State Energy Research and 2,500,000 2,500,000 2,500,000 2,500,000 Development Authority, 2.800%, 12/1/2025 TEXAS Harris County, TX, Health Facilities, 3,500,000 2,500,000 6,000,000 3,500,000 2,500,000 6,000,000 Revenue, Saint Lukes Episcopal Hospital, Series A, 3.700%, 02/15/2027 Harris County, TX, Health Facilities, 1,000,000 1,000,000 1,000,000 1,000,000 Revenue, St Lukes Episcopal Hospital, Series B, 3.800%, 02/15/2027 ==================================== SHORT-TERM MUNICIPAL INVESTMENTS 7,800,000 9,900,000 17,700,000 ==================================== SHORT-TERM MUNICIPAL INVESTMENTS (COST OF $7,800,000 $9,900,000 AND $17,700,000 RESPECTIVELY) LONG-TERM MUNICIPAL INVESTMENTS 97.4% - ----------------------------------------- ALABAMA Alabama Street Docks Department, 1,000,000 1,000,000 1,062,690 1,062,690 Facilites Revenue, Series 1998, 6.000%, 10/01/2007 ALASKA Medium Term Limited Term Pro Forma Medium Term Limited Term Pro Forma Tax-Free Tax Free Combined Market Market Value Combined Principal Principal Principal Value($) ($) Market Amount ($) Amount($) Amount($) Value($) --------------------------------------------------------------------------------- North Slope Borough, AK, General 11,150,000 11,150,000 7,912,263 7,912,263 Obligation, Capital Appreciation, Series 1995 A, Zero Coupon, 06/30/2006 North Slope Borough, AK, General 3,275,000 3,275,000 2,891,530 2,891,530 Obligation, Series 1992 A, Zero Coupon, 6/30/2002 North Slope Borough, AK, General 7,000,000 7,000,000 5,871,250 5,871,250 Obligation, Series 1992 A, Zero Coupon, 6/30/2003 North Slope Borough, AK, General 19,500,000 19,500,000 15,484,170 15,484,170 Obligation, Capital Appreciation, Series 1994 B, Zero Coupon, 06/30/2004 ARIZONA Central Arizona Water Conservation 1,000,000 1,000,000 1,054,630 1,054,630 District, Central Arizona Project, Prerefunded 11/1/2000, 7.500%, 11/1/2005 Central Arizona Water Conservation 1,195,000 1,195,000 1,257,319 1,257,319 District Contract Revenue, Prerefunded 5/01/2001, Series 1991 B, 6.500%, 11/1/11 Arizonia Health Facilities Authority, 2,000,000 2,000,000 2,110,080 2,110,080 Phoenix Baptist Hospital and Medical Center, ETM, Serries 1992, 6.100%, 09/01/2003 Maricopa County, AZ, Unified School 2,925,000 2,925,000 2,138,380 2,138,380 District #41, Series 1994 B Gilbert School, Zero Coupon, 01/01/2006 Maricopa County, AZ, School District 4,150,000 4,150,000 3,572,486 3,572,486 #28, Kyrene Elementary, Series 1993 B, Zero Coupon, 01/01/2003 Maricopa County, AZ, School District 2,000,000 2,000,000 1,681,480 1,681,480 #28, Kyrene Elementary, Series 1993 B, Zero Coupon, 07/01/2003 Maricopa County, AZ, Unified School 4,500,000 4,500,000 3,783,330 3,783,330 District #41, Capital Appreciation Bond, Series 1993, Zero Coupon, 07/01/2003 Maricopa County, AZ, Unified School 6,000,000 6,000,000 4,896,720 4,896,720 District #41, Capital Appreciation Bond, Series 1993, Zero Coupon, 01/01/2004 Maricopa County, AZ, Unified School 7,605,000 7,605,000 5,420,464 5,420,464 District #41, Capital Appreciation Bond, Series 1994, Zero Coupon, 07/01/2006 Maricopa County, AZ, Unified School 1,790,000 1,790,000 1,349,696 1,349,696 District #41, Gilbert School, Capital Appreciation Refunding, General Obligation, Series 1994, Zero Coupon, 07/01/2005 Salt River Project, AZ, Agricultural 1,500,000 1,500,000 1,568,820 1,568,820 Improvement and Power District, Electrical Systems Revenue, Series 1992 C 6.2%, 1/1/2012 ARKANSAS Rogers, AR, Sales & Use Tax Revenue, 2,500,000 2,500,000 2,533,925 2,533,925 Series 1996, 5.350%, 11/01/2011 Rogers, AR, Sales and Use Tax Revenue, 660,000 660,000 656,832 656,832 Series 1996, 5.000%, 11/01/2015 CALIFORNIA California Health Facilities Finance 3,150,000 3,150,000 3,362,688 3,362,688 Authority Revenue Bond, Summit Medical Center, Series 1996 A, 6.000%, 05/01/2006 Foothill/Eastern Transportation 1,000,000 1,000,000 785,610 785,610 Corridor Agency, CA, Toll Road Revenue, Senior Lien, Series A, Zero Coupon, 01/01/2005 Foothill Eastern Transportation 7,275,000 7,275,000 5,980,778 5,980,778 Corridor Agency, CA, Toll Road Revenue, Senior Lien, Series 1995 A, Medium Term Limited Term Pro Forma Medium Term Limited Term Pro Forma Tax-Free Tax Free Combined Market Market Value Combined Principal Principal Principal Value($) ($) Market Amount ($) Amount($) Amount($) Value($) ----------------------------------------------------------------------------- Step-up Coupon, 0% to 1/1/2005, 7.05% to 1/1/2009, 01/01/2009 Long Beach, CA, Aquarium of the 1,300,000 1,300,000 1,323,452 1,323,452 Pacific Project, 5.750%, Series 1995 A, 07/01/2005 Orange County, CA, Local 5,100,000 5,100,000 5,125,704 5,125,704 Transportation Authority, Sales Tax Revenue, Series 1994 M, Step-up Coupon, 5.10% to 2/15/1998, 4/30% to 2/15/2001, Sacramento, CA, Cogeneration Project Revenue, 1,000,000 1,000,000 1,084,490 1,084,490 Procter & Gamble Project, Series 1995, 7.0%, 7/1/2004 COLORADO Boulder County, CO, Industrial 3,500,000 1,250,000 4,750,000 3,597,860 1,284,950 4,882,810 Development, Revenue Refunding, May Department Stores, Colorado Project, Series 1992, 6.250%, 09/01/2007 CONNECTICUT Bristol, CT, Resource Recovery, Ogden 8,750,000 8,750,000 8,826,213 8,826,213 Martin System, Series 1995, 6.125%, 07/01/2003 Connecticut State Health & Educational 3,300,000 3,300,000 3,054,843 3,054,843 Facilities Authority, Windham Community Memorial Hospital, Series 1996 C, 5.750%, 07/01/2011 DELAWARE Delaware State Health Facilities 1,500,000 1,500,000 1,533,570 1,533,570 Authorities Revenue Bonds, Medical Center of Delaware, Series 1989, 7.000%, 10/01/2003 DISTRICT OF COLUMBIA District of Columbia, General 100,000 100,000 100,609 100,609 Obligation, Series 1993 A, ETM, 4.850%, 6/1/2004 District of Columbia, General 1,900,000 1,900,000 1,898,366 1,898,366 Obligation, Series 1993 A, 4.850%, 06/01/2004 District of Columbia, General 195,000 195,000 196,316 196,316 Obligation, Series 1993 A, ETM, 4.950%, 6/1/2005 District of Columbia, General 3,745,000 3,745,000 3,733,990 3,733,990 Obligation, Series 1993 A, 4.950%, 06/01/2005 District of Columbia, General 40,000 40,000 41,032 41,032 Obligation, Series D,, 5.250%, 12/1/2003 District of Columbia, General 960,000 960,000 977,424 977,424 Obligation, Series D,, 5.250%, 12/1/2023 District of Columbia , General 110,000 110,000 113,150 113,150 Obligation, Series A, 5.625%, 6/1/2002 District of Columbia , General 1,390,000 1,390,000 1,424,681 1,424,681 Obligation, Series A, 5.625%, 6/1/2002 District of Columbia, Prerefunded, 600,000 600,000 617,184 617,184 Series 1993 A, ETM, 5.625%, 06/01/2002 District of Columbia, Prerefunded 510,000 510,000 532,889 532,889 Series 1993 A, 5.800%, 06/01/2004 District of Columbia, Unrefunded 6,440,000 6,440,000 6,729,027 6,729,027 Balance, Series 1993 A, 5.800%, 06/01/2004 District of Columbia, Prerefunded, 265,000 265,000 278,674 278,674 Series 1993 A, ETM, 5.875%, 06/01/2005 District of Columbia, Unrefunded 3,385,000 3,385,000 3,526,019 3,526,019 Balance, Series 1993 A, 5.875%, 06/01/2005 District of Columbia, Certificate of 1,780,000 1,780,000 1,816,704 1,816,704 Medium Term Limited Term Pro Forma Medium Term Limited Term Pro Forma Tax-Free Tax Free Combined Market Market Value Combined Principal Principal Principal Value($) ($) Market Amount ($) Amount($) Amount($) Value($) ----------------------------------------------------------------------------- Participation, Series 1993 6.875%, 01/01/2003 District of Columbia, Redevelopment 1,550,000 1,550,000 1,571,716 1,571,716 Land Agency, DC Sports Arena, Special Tax, Series 1996, 5.625%, 11/1/2010 District of Columbia Water and Sewer 3,630,000 3,630,000 3,761,805 3,761,805 Authority, Public Utility Revenue, 6.000%, 10/01/2013 District of Columbia, Unrefunded 7,760,000 7,760,000 7,982,246 7,982,246 Balance, Series 1996 A, 5.625%, 06/01/2002 District of Columbia, General 7,100,000 7,100,000 6,618,620 6,618,620 Obligation, Refunding, Series 1989 B, Zero Coupon, 06/01/2001 District of Columbia, General 8,000,000 8,000,000 8,111,520 8,111,520 Obligation, Refunding, Series 1993 B, 5.300%, 06/01/2005 District of Columbia, General 2,000,000 2,000,000 2,045,940 2,045,940 Obligation, Series B, 5.500%, 6/1/2007 FLORIDA Dade County, FL, General Obligation 4,000,000 4,000,000 1,612,320 1,612,320 Series 1990 , Prerefunded 2/1/2006, Zero Coupon, 08/01/2014 Dade County, FL, General Obligation 6,000,000 6,000,000 1,773,120 1,773,120 Series 1990 , Prerefunded 2/1/2006, Zero Coupon, 08/01/2018 Dade County, FL, Port Authority 4,015,000 4,015,000 4,107,385 4,107,385 Revenue, Series 1968 C, 5.500%, 10/1/2007 Florida Department of Environmental 7,000,000 7,000,000 7,354,970 7,354,970 Protection, Revenue Bond, Series B, 6.000%, 07/01/2012 GEORGIA Georgia, General Obligation, Series 1995 A, 5,370,000 5,370,000 6,057,306 6,057,306 6.750%, 09/01/2010 Municipal Electric Authority of 1,000,000 1,000,000 1,026,060 1,026,060 Georgia, Power Revenue, 6.600%, 1/1/2001 HAWAII Hawaii State General Obligation, 7,050,000 7,050,000 6,707,229 6,707,229 Series 1993 C, 4.750%, 11/1/2008 Honolulu, HI, General Obligation, 4,130,000 4,130,000 4,174,150 4,174,150 5.500%, 11/01/2010 ILLINOIS Alton, IL, Health Facilites Revenue, 555,000 555,000 559,501 559,501 Series 1991, ETM, 6.700%, 02/15/2000 Berwyn, IL, Hospital Revenue, MacNeal 3,935,000 3,935,000 3,989,185 3,989,185 Memorial Hospital, Series 1995, 5.250%, 06/01/2004 Chicago, IL, General Obligation, 3,450,000 3,450,000 3,615,531 3,615,531 Tender Note, Series C, 6.250%, 10/31/2002 Chicago, Illinois, Water Revenue, 5,000,000 5,000,000 2,543,450 2,543,450 Capital Appreciation, Series 1997, Zero Coupon, 11/01/2011 Cook County, IL, General Obligation, 3,060,000 3,060,000 2,949,381 2,949,381 Series 1999 B, 5.125%, 11/15/2011 Cook County, IL, Comunity Unit School 2,180,000 2,180,000 1,423,387 1,423,387 District 401, Elmwood Park, Series 1997 Zero Coupon, 12/01/2007 Hoffman Estates, IL, Tax Increment 8,500,000 8,500,000 6,005,250 6,005,250 Medium Term Limited Term Pro Forma Medium Term Limited Term Pro Forma Tax-Free Tax Free Combined Market Market Value Combined Principal Principal Principal Value($) ($) Market Amount ($) Amount($) Amount($) Value($) ---------------------------------------------------------------------------- Revenue, Capital Appreciation, Junior Lien, Series 1991, Zero Coupon, 5/15/2006 Hoffman Estates, IL, Tax Increment 2,450,000 2,450,000 1,941,919 1,941,919 Revenue, Capital Appreciation, Junior Lien, Hoffman Estates, Revenue Bond, Series 1991, Zero Coupon, 05/15/2004 Illinois, General Obligation, Series 1994, 5,000,000 5,000,000 4,902,600 4,902,600 4.60%, 12/1/2005 Illinois Development Finance Authority 7,500,000 7,500,000 7,635,150 7,635,150 Refunding Revenue, Commonwealth Edison, Series 1994, 5.300%, 1/15/2004 Illinois Educational Facilities 2,130,000 2,130,000 1,883,048 1,883,048 Authority Revenue, Loyola University, Revenue Refunding, Series 1991 A, ETM, Zero Coupon, 07/01/2002 Illinois Health Facilities Authority, 1,240,000 1,240,000 1,271,967 1,271,967 Evangelical Hospitals, Series 1992 B, ETM, 6.100%, 04/15/2001 Illinois Health Facilities Authority 1,245,000 1,245,000 1,280,794 1,280,794 Revenue, Methodist Medical Center, Revenue Bond, 5.500%, 11/15/2004 Illinois Health Facilities Authority, 1,025,000 1,025,000 1,064,411 1,064,411 Revenue Refunding, Sherman Hospital Project, 6.500%, 08/01/2001 Illinois Health Facilities Authority, 1,500,000 1,500,000 1,518,420 1,518,420 Sisters Services, Series C,, 6.100%, 6/1/2000 Illinois Health Facilities Authority, 1,900,000 1,900,000 1,953,599 1,953,599 Sisters Services, Series C, 6.200%, 6/1/2001 Illinois State Toll Highway Authority, 3,200,000 3,200,000 3,152,640 3,152,640 Toll Highway Priority Revenue Bond, Series A, 5.500%, 01/01/2013 Kendall, Kane and Will Counties, IL, 1,345,000 1,345,000 1,145,012 1,145,012 School District, Zero Coupon, 3/1/2003 Macon and Decatur County, IL, Public 1,320,000 1,320,000 1,325,399 1,325,399 Building Commission, Certificate of Participation, General Obligation, 6.300%, 01/01/2000 Metropolitan Pier and Exposition 0,500,000 10,500,000 8,343,405 8,343,405 Authority of Illinois, McCormick Place Expansion Project, Coupon Receipts, Zero Coupon, 06/15/2004 Rosemont, IL, Tax Increment-2, 2,785,000 2,785,000 2,409,081 2,409,081 Secondary, Series B, Zero Coupon, 12/1/2002 Rosemont, IL, Tax Increment-3, 3,345,000 3,345,000 2,893,492 2,893,492 Secondary, Series C, Zero Coupon, 12/1/2002 INDIANA Indiana Health Facility Finance 1,000,000 1,000,000 1,032,150 1,032,150 Authority, Hospital Revenue, Ancilla Systems Inc., Series A, 5.875%, 7/1/2002 Indiana Housing Finance Authority, 295,000 420,000 715,000 295,929 421,323 717,252 Single Family Mortgage Revenue, Series 1995 C-1, 5.250%, 07/01/2012 Indianapolis, IN, Resource Recovery 6,000,000 6,000,000 6,565,920 6,565,920 Revenue, Ogden Martin Systems Inc. Project, 6.750%, 12/01/2007 Madison County, IN, Hospital 1,385,000 1,385,000 1,477,158 1,477,158 Authority, Holy Cross Health System, 6.700%, 12/01/2002 IOWA Medium Term Limited Term Pro Forma Medium Term Limited Term Pro Forma Tax-Free Tax Free Combined Market Market Value Combined Principal Principal Principal Value($) ($) Market Amount ($) Amount($) Amount($) Value($) ---------------------------------------------------------------------------- Cedar Rapids, IA, Hospital Facilities 490,000 490,000 506,033 506,033 Revenue, 5.650%, 05/15/2002 Cedar Rapids, IA, Hospital Facilities, 760,000 760,000 781,044 781,044 ST. Lukes Methodist Hospital, 5.650%, 8/15/2002 Iowa Certificate of Participation, 5,000,000 5,000,000 5,209,950 5,209,950 1992 Series A, 6.250%, 07/01/2002 KANSAS Kansas City, KS, Utility System 3,850,000 3,850,000 3,288,247 3,288,247 Revenue, Zero Coupon, 03/01/2003 Kansas City, KS, Utility System 2,750,000 2,750,000 2,347,208 2,347,208 Revenue, Zero Coupon, 03/01/2003 LOUISIANA Jefferson Parish, LA, School Board 5,055,000 5,055,000 5,404,604 5,404,604 Sales & Use Tax Revenue, Escrowed to Maturity, Series 1986A, 7.350%, 2/1/2003 Jefferson Parish, LA, School Board 6,135,000 6,135,000 6,353,345 6,353,345 Sales & Use Tax Revenue, ETM, Series 1986 A, 7.250%, 02/01/2001 Lousiana Housing Finance Agency, 1,185,000 1,185,000 1,147,933 1,147,933 Mortgage Revenue Refunding, Single Family, Series 1995 C-1, 5.125%, 12/1/2010 Louisiana State, General Obligation, 1,000,000 1,000,000 1,039,360 1,039,360 Series 1996 A, 6.000%, 08/01/2002 Orleans, LA, Levee District, Levee 1,755,000 1,755,000 1,778,236 1,778,236 Improvement Bonds, Series 1986, 5.950%, 11/01/2014 MASSACHUSETTS Massachusetts General Obligation, 4,000,000 4,000,000 3,905,240 3,905,240 Series C, 5.250%, 08/01/2012 Massachusetts General Obligation, 2,150,000 2,150,000 2,257,350 2,257,350 Refunding, Series B, 6.375%, 8/1/2002 Massachusetts General Obligation, 1,000,000 1,000,000 1,062,480 1,062,480 Series A, 6.400%, 08/01/2003 Massachusetts Housing Finance Agency, 2,000,000 2,000,000 2,050,820 2,050,820 1992 Series C, 6.250%, 05/15/2002 Massachusetts Housing Finance Agency, 3,420,000 3,420,000 3,528,551 3,528,551 1992 Series C, 6.250%, 11/15/2002 Massachusetts Industrial Finance 3,250,000 3,250,000 3,327,545 3,327,545 Agency, Resource Recovery, North Andover Solid Waste, Series A, 6.150%, 7/1/02 Massachusetts Industrial Finance 1,545,000 1,545,000 1,580,381 1,580,381 Agency, Sturdy Memorial Hospital, 7.900%, 06/01/2009 Massachusetts Water Resource 1,000,000 1,000,000 1,031,480 1,031,480 Authority, Series A, 7.250%, 4/1/2001 Massachusetts Water Resourse 2,940,000 2,940,000 3,142,801 3,142,801 Authority, 6.000%, 08/01/2020 New England Education Loan Marketing 2,000,000 2,000,000 2,034,760 2,034,760 Corporation, Massachusetts Student Loan Revenue Refunding, Series D, 6.200%, 09/01/2000 MICHIGAN Detroit, MI, City School District, 1,000,000 1,000,000 963,470 963,470 Refunded, Series C, 5.250%, 05/01/2013 Forest Hills, Michigan Public Schools, 1,525,000 1,525,000 1,433,592 1,433,592 Medium Term Limited Term Pro Forma Medium Term Limited Term Pro Forma Tax-Free Tax Free Combined Market Market Value Combined Principal Principal Principal Value($) ($) Market Amount ($) Amount($) Amount($) Value($) ---------------------------------------------------------------------------- 5/1/2013 Michigan Municipal Bond Authority, 4,750,000 4,750,000 3,386,655 3,386,655 Local Government Loan Program, School Improvement, Zero Coupon, 06/15/2006 Romulus Township, MI, School District, 12,400,000 12,400,000 3,084,004 3,084,004 Series II, Zero Coupon, Prerefunded 5/1/2007, 05/01/2022 MISSISSIPPI Mississippi Higher Education 1,200,000 1,200,000 1,233,864 1,233,864 Assistance Corp., Student Loan Revenue, 1992 Series A, 6.200%, 1/1/2002 NEVADA Clark County, NV, School District, 5,000,000 5,000,000 4,779,300 4,779,300 General Obligation, 5.250%, 06/15/2013 Clark County, NV, School District, 7,000,000 7,000,000 7,616,980 7,616,980 General Obligation, Building and Renovation, Series B, 6.500%, 6/15/2007 Nevada State Housing Division, Single 1,225,000 1,225,000 1,240,190 1,240,190 Family Mortgage Revenue, Series R, 5.950%, 10/01/2011 NEW HAMPSHIRE New Hampshire, Higher Education & 1,300,000 1,300,000 1,204,944 1,204,944 Health Authority Revenue, 5.750%, 8/1/2011 NEW JERSEY New Jersey Economic Development 2,500,000 2,500,000 2,733,000 2,733,000 Authority, Series A, 7.000%, 7/1/2004 New Jersey Economic Development 2,000,000 2,000,000 2,060,220 2,060,220 Authority, Series A, 5.375%, 5/1/2006 New Jersey State Turnpike Authority, 1,220,000 1,220,000 1,235,762 1,235,762 Series C, Revenue Bond, 5.200%, 1/1/2008 NEW YORK Metropolitan Transportation Authority 1,200,000 1,200,000 1,221,984 1,221,984 of New York, Commuter Facilities Revenue, 6.750%, 07/01/2000 Metropolitan Transportation Authority 2,270,000 2,270,000 2,311,586 2,311,586 of New York, Transit Facilities Revenue, Service Contract, 6.750%, 7/1/2000 Metropolitan Transportation Authority 1,280,000 1,280,000 1,329,971 1,329,971 of New York, Commuter Facilities Revenue, 6.900%, 07/01/2001 Metropolitan Transportation Authority 2,415,000 2,415,000 2,509,282 2,509,282 of New York, Transit Facilities Revenue, Service Contract Lease Revenues, 6.900%, 07/01/2001 Metropolitan Transportation Authority 1,975,000 1,975,000 2,039,049 2,039,049 of New York, Transit Facilities Revenue, Service Contract, Series O, 5.750%, 07/01/2007 New York City, General Obligation, 2,560,000 2,560,000 2,708,710 2,708,710 Series A, 6.000%, 08/01/2005 New York City, General Obligation, 50,000 50,000 52,878 52,878 Series C, 6.300%, 08/01/2003 New York City, NY, General Obligation, 1,000,000 1,000,000 961,240 961,240 Series 1991 A, 3.000%, 08/15/2002 New York City, NY, General Obligation, 1,315,000 1,315,000 1,404,381 1,404,381 Medium Term Limited Term Pro Forma Medium Term Limited Term Pro Forma Tax-Free Tax Free Combined Market Market Value Combined Principal Principal Principal Value($) ($) Market Amount ($) Amount($) Amount($) Value($) ---------------------------------------------------------------------------- Series 1995 D, 6.500%, 02/15/2005 New York City, NY, General Obligation, 2,500,000 2,500,000 2,681,400 2,681,400 Series 1995 E, 6.600%, 08/01/2004 New York City, NY, General Obligation, 1,500,000 1,500,000 1,618,275 1,618,275 Series 1996 A, 6.750%, 08/01/2004 New York City, NY, General Obligation, 5,000,000 5,000,000 5,493,750 5,493,750 Series 1996 G, 6.750%, 02/01/2009 New York City, NY, General Obligation, 7,000,000 6,000,000 13,000,000 7,477,260 6,409,080 13,886,340 Series 1995 B, 6.750%, 08/15/2003 New York City, NY, General Obligation, 2,000,000 2,000,000 2,209,840 2,209,840 Series 1996 A, 7.000%, 08/01/2006 New York City, NY, General Obligation, 1,575,000 1,575,000 1,683,565 1,683,565 Series 1996 I, 6.500%, 03/15/2005 New York City, NY, General Obligation, 1,000,000 1,000,000 1,062,040 1,062,040 Series 1997 I, 6.250%, 04/15/2006 New York City, NY, General Obligation, 7,650,000 7,650,000 8,326,796 8,326,796 Series A, 7.000%, 08/01/2004 New York City, NY, General Obligation 9,995,000 9,995,000 10,723,436 10,723,436 Prefunded, Series B, 6.600%, 10/1/2003 New York City, NY, General Obligation 205,000 205,000 217,819 217,819 Unrefunded Balance, Series B, 6.600%, 10/1/2003 New York City, NY, General Obligation, 2,900,000 2,900,000 3,266,792 3,266,792 Series B, 7.250%, 08/15/2007 New York State, Revenue Bonds Dorm 1,900,000 1,900,000 1,961,902 1,961,902 Authorization, 7.000%, 05/15/2016 New York State Dormitory Authority, 8,000,000 8,000,000 8,172,400 8,172,400 City University System, Consolidated Revenue Lease, Series A, 5.500%, 7/1/2003 New York State Dormitory Authority, 1,750,000 1,750,000 1,828,593 1,828,593 Cons City University System, 5.750%, 7/1/2006 New York State Dormitory Authority, 220,000 220,000 223,956 223,956 College and University Pooled Capital Program, 7.800%, 12/01/2005 New York State Dormitory Authority, 1,000,000 1,000,000 1,067,800 1,067,800 State University Educational Facility, Series A, 6.500%, 05/15/2004 New York State Energy Research and 5,200,000 5,200,000 5,498,428 5,498,428 Development Authority, Pollution Control Revenue, Electric and Gas, 5.900%, 12/01/2006 New York State Medical Care 4,920,000 760,000 5,680,000 5,065,976 782,549 5,848,525 Facilities, Finance Agency Revenue, Mount Sinai Hospital, 5.950%, 8/15/2009 New York State Thruway Authority, 3,155,000 3,155,000 2,846,725 2,846,725 Special Obligation, Zero Coupon, 1/1/2002 New York State Urban Development Corp. 3,500,000 3,500,000 3,577,035 3,577,035 Revenue, Correctional Facilities, Series A, 5.300%, 01/01/2005 New York State Urban Development 1,445,000 1,445,000 1,505,863 1,505,863 Corporation Project, Onondaga County Convention Center, 6.000%, 01/01/2004 New York State Urban Development 1,535,000 1,535,000 1,602,647 1,602,647 Corporation Project, Onondaga County Convention Center, 6.000%, 01/01/2005 New York, NY, Prerefunded, Series B, 1,605,000 1,605,000 1,692,055 1,692,055 6.400%, 10/01/2002 New York, NY, Unrefunded Balance, 3,300,000 3,300,000 3,458,697 3,458,697 Series B, 6.400%, 10/01/2002 Medium Term Limited Term Pro Forma Medium Term Limited Term Pro Forma Tax-Free Tax Free Combined Market Market Value Combined Principal Principal Principal Value($) ($) Market Amount ($) Amount($) Amount($) Value($) ---------------------------------------------------------------------------- New York, NY, General Obligation, 505,000 505,000 521,741 521,741 Unlimited Prerefunded, Series H, 6.900%, 02/01/2001 Syracuse, NY, Industrial Development 1,200,000 1,200,000 1,207,404 1,207,404 Agency, Pilot Revenue Bonds, Series 1995, 5.125%, 10/15/2002 NORTH CAROLINA North Carolina Municipal Power Agency 1,150,000 1,150,000 1,177,911 1,177,911 #1, Catawaba Electric Revenue, 5.750%, 1/1/2002 North Carolina, Municipal Power Agency 2,550,000 2,550,000 2,639,021 2,639,021 No. 1, Catawba Electric Revenue, Series 1992, 5.900%, 01/01/2003 NORTH DAKOTA Bismarck, ND, Hospital Revenue, 2,850,000 2,850,000 2,792,202 2,792,202 Hospital Revenue, St. Alexius Medical Center, Series 1991, Zero Coupon, 5/1/2000 Grand Forks, ND, Health Care 1,160,000 1,160,000 1,207,908 1,207,908 Facilities, United Hospital Obligation Group, Series A, 6.000%, 12/01/2002 OHIO Franklin County, OH, Health Care 1,000,000 1,000,000 929,560 929,560 Facilities Revenue, 5.400%, 07/01/2010 Franklin County, OH, Health Care 1,000,000 1,000,000 947,550 947,550 Facilties Revenue, 5.150%, 07/01/2007 Hamilton County, OH, Health System 4,495,000 4,495,000 4,771,577 4,771,577 Revenue, Franciscan Sisters of the Poor Health System, Providence Hospital, Series 1992, 6.375%, 7/1/2004 Ohio State Building Authority, Adult 3,325,000 3,325,000 3,351,999 3,351,999 Correctional Facilities, Series A, 5.500%, 10/01/2011 OREGON Chemeketa, OR, Community College 2,170,000 2,170,000 2,167,830 2,167,830 General Obligation, 5.500%, 06/01/2013 PENNSYLVANIA Armstrong County, PA, Hospital 3,090,000 3,090,000 3,238,166 3,238,166 Authority, St. Frances Medical Center, Series A, 6.200%, 06/01/2003 Montgomery County, PA, Redevelopment 2,685,000 2,685,000 2,703,177 2,703,177 Authority, Multi Family Housing Revenue Refunding, KBF Associates, LP Project, 6.000%, 07/01/2004 Schuykill County, PA, Redevelopment 1,105,000 1,105,000 1,122,050 1,122,050 Authority, Lease Rental, Series A, 6.550%, 06/01/2000 Scranton-Lackawanna, PA, Health & 2,725,000 2,725,000 2,766,066 2,766,066 Welfare Authority, 5.500%, 07/01/2008 Somerset County, PA, General 2,000,000 2,000,000 2,048,640 2,048,640 Authority, Commonwealth Lease Revenue, ETM, 6.450%, 10/15/2000 SOUTH CAROLINA South Carolina Jobs Economic 3,000,000 3,000,000 2,979,870 2,979,870 Develepment Authority, Hospital Facilities Revenue, Anderson Area Medical Center, 5.500%, 02/01/2011 South Carolina Jobs-Economic 3,420,000 3,420,000 3,473,728 3,473,728 Development Authority, Franciscan Sisters of the Poor Health System Medium Term Limited Term Pro Forma Medium Term Limited Term Pro Forma Tax-Free Tax Free Combined Market Market Value Combined Principal Principal Principal Value($) ($) Market Amount ($) Amount($) Amount($) Value($) ---------------------------------------------------------------------------- Inc., St. Francis Hospital, 6.375%, 7/1/2004 Sumter County, SC, Hospital Facility 485,000 485,000 485,553 485,553 Revenue Refunding, Toumey Medical Center,, Prerefunded, 6.375%, 11/15/1999 Sumter County, SC, Hospital Facility 515,000 515,000 515,551 515,551 Revenue Refunding, Tuomey Medical Center, Unrefunded Balance, 6.375%, 11/15/1999 TENNESSEE Johnson City, TN, Health and 2,270,000 2,270,000 2,237,675 2,237,675 Educational, Refunding Bond, Medical Center Hospital, 5.500%, 07/01/2013 Nashville and Davidson Counties, TN, 3,310,000 3,310,000 3,196,831 3,196,831 Water and Sewer Revenue, 5.250%, 1/1/2013 TEXAS Austin, TX, Combined Utility System 6,775,000 6,775,000 3,936,201 3,936,201 Revenue, Zero Coupon, 11/15/2009 Austin, TX, Independent School 1,000,000 1,000,000 1,065,290 1,065,290 District, Guaranteed General Obligation, 8.125%, 08/01/2001 Austin, TX, Utility System Revenue, 365,000 365,000 379,932 379,932 Series A, 6.300%, 11/15/2001 Austin, TX, Utility System Revenue, 635,000 635,000 659,943 659,943 Series A, 6.300%, 11/15/2001 Brownsville, TX, Utility System 1,000,000 1,000,000 1,057,480 1,057,480 Revenue Refunding, Series 1995, 6.000%, 09/01/2008 Brownsville, TX, Utility System 2,700,000 2,700,000 2,853,846 2,853,846 Revenue Refunding, Series 1995, 6.000%, 09/01/2009 Denison, TX, Hospital Authority, 1,000,000 1,000,000 927,100 927,100 Revenue Bond, Texoma Medical Center Inc. Project, 6.125%, 08/15/2012 Ector County, TX, Hospital District 1,000,000 1,000,000 1,022,060 1,022,060 Revenue, Series 1997, 5.500%, 4/15/2003 Harris County, TX, Toll Road 3,915,000 3,915,000 2,760,349 2,760,349 Authority, Toll Road Revenue, Subordinate Lien, Series A, Zero Coupon, 08/15/2006 Harris County, TX, Toll Road 1,050,000 1,050,000 697,893 697,893 Authority, Toll Road Revenue, Subordinate Lien, Series A, Zero Coupon, 08/15/2007 Lower Colorado River Authority, TX, 1,320,000 1,320,000 1,346,096 1,346,096 5.500%, 05/15/2008 Lower Colorado River Authority, TX, 1,000,000 1,000,000 1,057,030 1,057,030 6.000%, 05/15/2007 Richardson, TX, Hospital Authority, 665,000 340,000 1,005,000 718,991 367,605 1,086,596 Prerefunded, Richardson Medical Center, 6.500%, 12/01/2012 Richardson, TX, Hospital Authority, 1,065,000 535,000 1,600,000 1,055,309 530,132 1,585,441 Unrefunded Balance, Richardson Medical Center, 6.500%, 12/01/2012 San Antonio, TX, Electric & Gas 5,000,000 5,000,000 4,916,250 4,916,250 Revenue Bond, Refunded, Series A, 5.250%, 02/01/2011 Texas Department of Housing & 785,000 785,000 793,203 793,203 Community Affairs, Single-Family Mortgage Revenue, Series B, 5.500%, 3/1/2011 Texas Municipal Power Agency, Zero 8,385,000 8,385,000 5,560,177 5,560,177 Medium Term Limited Term Pro Forma Medium Term Limited Term Pro Forma Tax-Free Tax Free Combined Market Market Value Combined Principal Principal Principal Value($) ($) Market Amount ($) Amount($) Amount($) Value($) ---------------------------------------------------------------------------- Coupon, 09/01/2007 Texas Public Finance Authority, 5,860,000 5,860,000 3,552,918 3,552,918 Building Revenue Refunding, Zero Coupon, 02/01/2009 Travis County, TX, Health Services, 5,000,000 5,000,000 5,189,700 5,189,700 Series 1999a, 6.250%, 11/15/2013 Travis County, TX, Health Servies, 2,000,000 2,000,000 2,075,500 2,075,500 5.750%, 11/15/2007 UTAH Intermountain Power Agency, UT, Power 10,495,000 10,495,000 9,740,724 9,740,724 Supply Revenue, Series B, Zero Coupon, 7/1/2001 Intermountain Power Agency, UT, Power 2,500,000 2,500,000 2,206,975 2,206,975 Supply Revenue, Series B, Zero Coupon, 7/1/2002 Intermountain Power Agency, UT, Power 8,000,000 8,000,000 8,570,080 8,570,080 Supply Revenue, Series B, 6.250%, 7/1/2006 Salt Lake County, UT, Water 3,200,000 3,200,000 2,651,680 2,651,680 Conservation District, Series A, Zero Coupon, 10/01/2003 VIRGIN ISLANDS Virgin Islands, Revenue Bonds, Public 3,000,000 1,000,000 4,000,000 3,026,970 1,008,990 4,035,960 Finance Authority, 5.500%, 10/01/2005 Virgin Islands, Water and Public 2,000,000 2,000,000 1,953,200 1,953,200 Finance Authority, 5.250%, 07/01/2009 Virgin Islands, General Obligation, 1,035,000 1,035,000 1,064,580 1,064,580 Public Finance Authority Revenue, Matching Fund Loan Notes, Series A, 6.800%, 10/01/2000 WASHINGTON Clark County, WA, School District, 1,820,000 1,820,000 1,734,132 1,734,132 General Obligation, 5.000%, 12/01/2011 Clark County, WA, Public Utility 12,150,000 12,150,000 12,798,932 12,798,932 District #1, Generating System Revenue Bonds, 6.000%, 01/01/2007 King County, WA, Public Hospital 1,940,000 1,940,000 2,035,332 2,035,332 District, Hospital Facility, Revenue Refunding Bond, Valley Medical Center, 6.000%, 09/01/2009 Lewis County, WA, Public Utility 1,430,000 1,430,000 1,528,713 1,528,713 District 1, Cowlitz Falls Hydroelectric Project, Series 1991, Prerefunded 10/1/2001, 7.000%, 10/1/2022 Snohomish County, WA, Public Utility 2,000,000 2,000,000 2,008,240 2,008,240 District #1, 1991 Series B, 6.400%, 1/1/2000 Thurston County, WA ,School District, 4,000,000 4,000,000 2,172,800 2,172,800 General Obligation, Series B, 12/1/2010 Washington Public Power Supply System, 8,000,000 8,000,000 6,342,880 6,342,880 Nuclear Project #3, Refunding Revenue, Series B, Zero Coupon, 07/01/2004 Washington Public Power Supply System, 1,300,000 1,300,000 1,327,898 1,327,898 Nuclear Project #2, Refunding Revenue, Series C, 7.300%, 07/01/2000 Washington Public Power Supply System, 4,330,000 4,330,000 4,308,567 4,308,567 Nuclear Project #2, Refunding Revenue, Series A, 4.900%, 07/01/2005 Washington Public Power Supply System, 3,000,000 3,000,000 2,989,440 2,989,440 Nuclear Project #2, Refunding Revenue, Series A, 5.250%, 07/01/2008 Medium Term Limited Term Pro Forma Medium Term Limited Term Pro Forma Tax-Free Tax Free Combined Market Market Value Combined Principal Principal Principal Value($) ($) Market Amount ($) Amount($) Amount($) Value($) --------------------------------------------------------------------------- Washington Public Power Supply System, 2,120,000 2,120,000 2,199,458 2,199,458 Nuclear Project #2, Refunding Revenue, Series A, 5.800%, 07/01/2007 Washington Public Power Supply System, 1,550,000 1,550,000 1,592,300 1,592,300 Nuclear Project #2, Refunding Revenue, Series 1992A, 5.700%, 07/01/2002 Washington Public Power Supply System, 2,950,000 2,950,000 3,107,294 3,107,294 Nuclear Project #1, Revenue Refunding Bond, 6.000%, 07/01/2005 Washington Public Power Supply System, 6,000,000 1,000,000 7,000,000 6,180,060 1,030,010 7,210,070 Nuclear Project #2, Refunding Revenue, Series A, 6.300%, 07/01/2001 Washington Public Power Supply System, 1,310,000 1,310,000 1,341,885 1,341,885 Nuclear Project #3, Refunding Revenue, Series B, 7.150%, 07/01/2001 Washington Public Power Supply System, 5,275,000 5,275,000 5,346,846 5,346,846 Nuclear Project #1, Refunding Revenue, Series B, 5.150%, 07/01/2002 Washington Public Power Supply System, 6,085,000 6,085,000 6,167,878 6,167,878 Nuclear Project #2, Refunding Revenue, Series B, 5.150%, 07/01/2002 Washington Public Power Supply System, 3,165,000 3,165,000 3,208,107 3,208,107 Nuclear Project #3, Refunding Revenue, Series B, 5.150%, 07/01/2002 Washington Public Power Supply System, 3,000,000 3,000,000 3,050,820 3,050,820 Nuclear Project #3, Refunding Revenue, Series B, 5.250%, 07/01/2003 Washington State, Higher Education 1,500,000 1,500,000 1,414,605 1,414,605 Facilities Revenue Bond, 4.950%, 4/1/2011 WEST VIRGINIA South Charleston, WV, Pollution 2,000,000 2,000,000 2,209,900 2,209,900 Control Revenue, Union Carbide, 7.625%, 08/01/2005 Wayne County, WV, Industrial 495,000 495,000 567,399 567,399 Development, Atlantic Richfield Company Project, 11.750%, 12/01/2001 WISCONSIN Milwaukee, WI, Metropolitan Sewer 1,000,000 1,000,000 1,045,470 1,045,470 District Revenue, Series A, 6.700%, 10/1/2001 Milwaukee County, WI, General 3,500,000 3,500,000 1,901,200 1,901,200 Obligation, Capital Aprreciation, Series A, 12/01/2010 Wisconsin Health & Education 1,000,000 1,000,000 1,033,210 1,033,210 Facilities Authority, Columbia Hospital Inc., 6.125%, 11/15/2001 Wisconsin Health and Education 1,745,000 1,745,000 1,816,824 1,816,824 Facilities Authority, St. Luke's Medical Center, 6.600%, 08/15/2001 Wisconsin Health & Educational 1,675,000 1,675,000 1,742,938 1,742,938 Facilities Authority, Wheaton Franciscan Services, 5.800%, 8/15/2004 Wisconsin Health & Educational 1,400,000 1,400,000 1,470,266 1,470,266 Facilities Authority, Mercy Health System Corporation, 6.000%, 08/15/2005 Wisconsin Health & Educational 1,000,000 1,000,000 1,036,510 1,036,510 Facilities Authority, Wheaton Franciscan Hospital, 6.000%, 8/15/2002 Wisconsin Health & Educational 1,480,000 1,480,000 1,566,062 1,566,062 Facilities Authority, Mercy Health System Corporation, 6.125%, 08/15/2006 Wisconsin Health & Educational 1,000,000 1,000,000 1,066,490 1,066,490 Medium Term Limited Term Pro Forma Medium Term Limited Term Pro Forma Tax-Free Tax Free Combined Market Market Value Combined Principal Principal Principal Value($) ($) Market Amount ($) Amount($) Amount($) Value($) -------------------------------------------------------------------------- Facilities Authority, Mercy Health System Corporation, 6.250%, 08/15/2007 ============================================ LONG-TERM MUNICIPAL INVESTMENTS TOTAL 572,351,809 81,657,757 654,009,566 ============================================ LONG-TERM MUNICIPAL INVESTMENTS (COST OF $560,466,273 $80,209,188 AND $640,675,461 RESPECTIVELY) ============================================ TOTAL INVESTMENT PORTFOLIO- 100% 580,151,809 91,557,757 671,709,566 ============================================ INVESTMENT PORTFOLIO (TOTAL COST OF $568,266,273 $90,109,188 AND $658,375,461 RESPECTIVELY) PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 1999 (UNAUDITED) MEDIUM TERM LIMITED PRO FORMA PRO FORMA TAX FREE FUND TERM TAX FREE ADJUSTMENTS COMBINED --------------------- -------------------- ------------------- -------------------- Investments, at value $ 580,151,809 $ 91,557,757 $ 671,709,566 Cash 2,048,607 231,517 2,280,124 Other assets less liabilities 4,814,044 (3,807,154) $ (32,698) (2) 974,192 --------------------- -------------------- ------------------- -------------------- Net assets $ 587,014,460 $ 87,982,120 $ (32,698) $ 674,963,882 ===================== ==================== =================== ==================== Shares outstanding 53,956,645 7,421,852 663,724 62,042,221 Net asset value per share $ 10.88 $ 11.85 $ 10.88 PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS FOR THE TWELVE MONTH PERIOD ENDED OCTOBER 31, 1999 (UNAUDITED) MEDIUM TERM LIMITED PRO FORMA PRO FORMA TAX FREE FUND TERM TAX FREE ADJUSTMENTS COMBINED ----------------------------------------------------------------------------- Investment Income: Interest income $ 34,073,182 5,446,070 $ -- $ 39,519,252 ----------------------------------------------------------------------------- Total Investment Income 34,073,182 5,446,070 39,519,252 Expenses Management fees 3,734,139 673,611 (112,263) (3) 4,295,487 48,856 15,277 (15,277) (4) 48,856 All other expenses 832,310 326,986 (20,650) (5) 1,138,646 ----------------------------------------------------------------------------- Total expenses before reductions 4,615,305 1,015,874 (148,190) 5,482,989 Expense reductions - (173,750) 173,750 (6) - ----------------------------------------------------------------------------- Expenses, net 4,615,305 842,124 25,560 5,482,989 ----------------------------------------------------------------------------- Net investment income (loss) 29,457,877 4,603,946 (25,560) 34,036,263 ----------------------------------------------------------------------------- Net Realized and Unrealized Gain (loss) on Investments: Net realized gain (loss) from investments (1,330,325) 135,407 -- (1,194,918) Net unrealized appreciation (depreciation) of investments (33,937,207) (3,724,036) -- (37,661,243) ----------------------------------------------------------------------------- Net increase (decrease) in net assets from operations $ (5,809,655) $ 1,015,317 $ (25,560) $ (4,819,898) ============================================================================= 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 Medium Term Tax Free Fund and Scudder Limited Term 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 $21,642 and $11,056 to be borne by the Acquiring Fund and the Acquired Fund, respectively. 3. Represents reduction in management fees resulting from the application of Scudder Medium Term Tax Free Fund's lower management fee. 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. PART C. OTHER INFORMATION Item 15. Indemnification. A policy of insurance covering Scudder Kemper Investments, Inc., its subsidiaries including Scudder Investor Services, Inc., and all of the registered investment companies advised by Scudder Kemper Investments, Inc. insures the Registrant's trustees and officers and others against liability arising by reason of an alleged breach of duty caused by any negligent act, error or accidental omission in the scope of their duties. Article IV, Sections 4.1 - 4.3 of the Registrant's Declaration of Trust provide as follows: Section 4.1. No Personal Liability of Shareholders, Trustees, Etc. No Shareholder shall be subject to any personal liability whatsoever to any Person in connection with Trust Property or the acts, obligations or affairs of the Trust. No Trustee, officer, employee or agent of the Trust shall be subject to any personal liability whatsoever to any Person, other than to the Trust or its Shareholders, in connection with Trust Property or the affairs of the Trust, save only that arising from bad faith, willful misfeasance, gross negligence or reckless disregard of his duties with respect to such Person; and all such Persons shall look solely to the Trust Property for satisfaction of claims of any nature arising in connection with the affairs of the Trust. If any Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is made a party to any suit or proceeding to enforce any such liability of the Trust, he shall not, on account thereof, be held to any personal liability. The Trust shall indemnify and hold each Shareholder harmless from and against all claims and liabilities, to which such Shareholder may become subject by reason of his being or having been a Shareholder, and shall reimburse such Shareholder for all legal and other expenses reasonably incurred by him in connection with any such claim or liability. The indemnification and reimbursement required by the preceding sentence shall be made only out of the assets of the one or more Series of which the Shareholder who is entitled to indemnification or reimbursement was a Shareholder at the time the act or event occurred which gave rise to the claim against or liability of said Shareholder. The rights accruing to a Shareholder under this Section 4.1 shall not impair any other right to which such Shareholder may be lawfully entitled, nor shall anything herein contained restrict the right of the Trust to indemnify or reimburse a Shareholder in any appropriate situation even though not specifically provided herein. Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer, employee or agent of the Trust shall be liable to the Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee, or agent thereof for any action or failure to act (including without limitation the failure to compel in any way any former or acting Trustee to redress any breach of trust) except for his own bad faith, willful misfeasance, gross negligence or reckless disregard of the duties involved in the conduct of his office. Section 4.3. Mandatory Indemnification. (a) Subject to the exceptions and limitations contained in paragraph (b) below: (i) every person who is, or has been, a Trustee or officer of the Trust shall be indemnified by the Trust to the fullest extent permitted by law against all liability and against all expenses reasonably incurred or paid by him in connection with any claim, -55- action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer and against amounts paid or incurred by him in the settlement thereof; (ii) the words "claim," "action," "suit," or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal, administrative or other, including appeals), actual or threatened; and the words "liability" and "expenses" shall include, without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities. (b) No indemnification shall be provided hereunder to a Trustee or officer: (i) against any liability to the Trust, a Series thereof, or the Shareholders by reason of a final adjudication by a court or other body before which a proceeding was brought that he engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office; (ii) with respect to any matter as to which he shall have been finally adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust; (iii) in the event of a settlement or other disposition not involving a final adjudication as provided in paragraph (b)(i) or (b)(ii) resulting in a payment by a Trustee or officer, unless there has been a determination that such Trustee or officer did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office: (A) by the court or other body approving the settlement or other disposition; or (B) based upon a review of readily available facts (as opposed to a full trial-type inquiry) by (x) vote of a majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter) or (y) written opinion of independent legal counsel. (c) The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not affect any other rights to which any Trustee or officer may now or hereafter be entitled, shall continue as to a person who has ceased to be such Trustee or officer and shall insure to the benefit of the heirs, executors, administrators and assigns of such a person. Nothing contained herein shall affect any rights to indemnification to which personnel of the Trust other than Trustees and officers may be entitled by contract or otherwise under law. (d) Expenses of preparation and presentation of a defense to any claim, action, suit or proceeding of the character described in paragraph (a) of this Section 4.3 may be advanced by the Trust prior to final disposition thereof upon receipt of an undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that he is not entitled to indemnification under this Section 4.3, provided that either: -56- (i) such undertaking is secured by a surety bond or some other appropriate security provided by the recipient, or the Trust shall be insured against losses arising out of any such advances; or (ii) a majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees act on the matter) or an independent legal counsel in a written opinion shall determine, based upon a review of readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the recipient ultimately will be found entitled to indemnification. As used in this Section 4.3, a "Disinterested Trustee" is one who is not (i) an "Interested Person" of the Trust (including anyone who has been exempted from being an "Interested Person" by any rule, regulation or order of the Commission), or (ii) involved in the claim, action, suit or proceeding. Item 16. Exhibits. (1) (a)(1) Amended and Restated Declaration of Trust, dated December 8, 1987, is incorporated by reference to the Registrant's Registration Statement on Form N-1A, as amended (the "Registration Statement"). (a)(2) Amendment, dated May 1, 1992, to the Amended and Restated Declaration of Trust, dated December 8, 1987, is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (a)(3) Establishment and Designation of Additional Series of shares, dated April 1, 1985, is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (a)(4) Redesignation of Series, dated October 9, 1990, is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (2) (b)(1) By-laws, dated December 28, 1982, is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (b)(2) Amendment, dated August 13, 1991, to the By-laws of the Registrant is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (b)(3) Amendment, dated December 10, 1991, to the By-laws of the Registrant is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (3) Inapplicable (4) Agreement and Plan of Reorganization filed as Exhibit A to Part A hereof. (5) Inapplicable. -57- (6) (d)(1) Investment Management Agreement between the Registrant, on behalf of Scudder Limited Term Tax Free Fund, and Scudder Kemper Investments, Inc., dated September 7, 1998, is incorporated by reference to Post-Effective Amendment No. 30 to the Registration Statement. (d)(2) Investment Management Agreement between the Registrant, on behalf of Scudder Medium Term Tax Free Fund, and Scudder Kemper Investments, Inc., dated September 7, 1998, is incorporated by reference to Post-Effective Amendment No. 30 to the Registration Statement. (7) Underwriting Agreement between the Registrant and Scudder Investor Services, Inc., dated September 7, 1998, is incorporated by reference to Post-Effective Amendment No. 30 to the Registration Statement. (8) Inapplicable. (9) (g)(1) Custodian Contract with State Street Bank and Trust Company ("State Street Bank"), dated April 12, 1983, is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (g)(2) Amendment to the Custodian Agreement between the Registrant and State Street Bank, dated August 9, 1988, is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (g)(3) Amendment to the Custodian Agreement between the Registrant and State Street Bank, dated December 11, 1990, is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (g)(4) Fee schedule for Exhibit (g)(1) is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (g)(5) Subcustodian Agreement between State Street Bank and Morgan Guaranty Trust Company of New York, dated November 25, 1985, is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (g)(6) Subcustodian Agreement between Irving Trust Company and State Street Bank, dated November 30, 1987, is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (g)(7) Subcustodian Agreement between Chemical Bank and State Street Bank dated May 31, 1988, is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (g)(8) Subcustodian Agreement between Security Pacific Bank and Trust Company (New York) and State Street Bank, dated February 18, 1988, -58- is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (g)(9) Subcustodian Agreement between Bankers Trust Company and State Street Bank, dated August 15, 1989, filed May 1, 1990 is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (10) Inapplicable. (11) Opinion and Consent of Dechert Price & Rhoads filed herein. (12) Opinion and Consent of Willkie Farr & Gallagher to be filed by post-effective amendment. (13) (h)(1) Transfer Agency and Service Agreement between the Registrant and Scudder Service Corporation, dated October 2, 1989, is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (h)(2) Fee schedule for Exhibit (h)(1) is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (h)(3) Fund Accounting Services Agreement between the Registrant, on behalf of Scudder Limited Term Tax Free Fund, and Scudder Fund Accounting Corporation, dated February 15, 1994, is incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement. (h)(4) Fund Accounting Services Agreement between the Registrant, on behalf of Scudder Medium Term Tax Free Fund, and Scudder Fund Accounting Corporation, dated February 21, 1995, is incorporated by reference to Post-Effective Amendment No. 21 to the Registration Statement. (14) Consent of PricewaterhouseCoopers LLP filed herein. (15) Inapplicable. (16) Powers of Attorney filed herein. (17) Form of Proxy filed herein. Item 17. Undertakings. (1) The undersigned registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c], the reoffering prospectus will contain the information called for by the applicable registration form for C-8 350 reofferings by persons -59- who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. -60- SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, Scudder Tax Free Trust has duly caused this Registration Statement on Form N-14 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston and the Commonwealth of Massachusetts on the 3rd day of March, 2000. SCUDDER TAX FREE TRUST By: /s/ Linda C. Coughlin --------------------------- Title: President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form N-14 has been signed below by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ Linda C. Coughlin President & Trustee March 3, 2000 - ---------------------- Linda C. Coughlin /s/ Henry P. Becton, Jr.* Trustee March 3, 2000 - ------------------------- Henry P. Becton, Jr. /s/ Dawn-Marie Driscoll* Trustee March 3, 2000 - ------------------------ Dawn-Marie Driscoll /s/ Peter B. Freeman* Trustee March 3, 2000 - --------------------- Peter B. Freeman /s/ George M. Lovejoy, Jr.* Trustee March 3, 2000 - --------------------------- George M. Lovejoy, Jr. /s/ Wesley W. Marple, Jr.* Trustee March 3, 2000 - -------------------------- Wesley W. Marple, Jr. /s/ Kathryn L. Quirk* Trustee, Vice President March 3, 2000 - --------------------- & Assistant Secretary Kathryn L. Quirk /s/ Jean C. Tempel* Trustee March 3, 2000 - ------------------- Jean C. Tempel /s/ John R. Hebble Treasurer (Principal Financial March 3, 2000 - ------------------- and Accounting Officer) John R. Hebble -61- *By: /s/ Sheldon A. Jones March 3, 2000 -------------------- Sheldon A. Jones Attorney-in-fact *Executed pursuant to powers of attorney filed with the Registrant's Registration Statement on Form N-14 as filed with the Commission electronically herewith. -62-