<PAGE>
As filed with the Securities and Exchange Commission
on January 5, 2001
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, MA 02110-4103
(Address of Principal Executive Offices) (Zip Code)
John Millette
Scudder Kemper Investments, Inc.
Two International Place
Boston, MA 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. Joseph R. Fleming, Esq.
Scudder Kemper Investments, Inc. Dechert
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 February 4, 2001
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.
<PAGE>
PART A
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
Please take notice that a Special Meeting of Shareholders (the "Meeting")
of Kemper Intermediate Municipal Bond Fund (the "Fund"), a series of Kemper
National Tax-Free Income Series (the "Trust"), will be held at the offices of
Scudder Kemper Investments, Inc., 13th Floor, Two International Place, Boston,
MA 02110-4103, on May 24, 2001, at 4:00 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 (the "Plan"). Under the Plan, (i) all or substantially
all of the assets and all of the liabilities of the Fund would
be transferred to Scudder Medium Term Tax Free Fund, (ii) each
shareholder of the Fund would receive shares of Scudder Medium
Term Tax Free Fund of a corresponding class to those held by
the shareholder in the Fund in an amount equal to the value of
their holdings in the Fund, and (iii) the Fund would then be
terminated.
Proposal 3: To ratify the selection of Ernst & Young LLP as the
independent auditors for the Fund for the Fund's current
fiscal year.
The persons named as proxies will vote in their discretion on any other
business that may properly come before the Meeting or any adjournments or
postponements thereof.
Holders of record of shares of the Fund at the close of business on March
5, 2001 are entitled to vote at the Meeting and at any adjournments or
postponements 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 Trust's (for a trust-wide vote) or the Fund's (for a fund-
wide vote) shares present in person or by proxy at the Meeting. The persons
named as proxies will vote FOR any such adjournment those proxies which they are
entitled to vote in favor of that Proposal and will vote AGAINST any such
adjournment those proxies to be voted against that Proposal.
By Order of the Board,
/s/ Philip J. Collora
Philip J. Collora
Secretary
March 6, 2001
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE (OR TO TAKE ADVANTAGE OF
THE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES DESCRIBED ON THE PROXY CARD(S)).
YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S) (OR YOUR VOTING BY OTHER
AVAILABLE MEANS) MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS.
IF YOU WISH TO ATTEND THE MEETING AND VOTE YOUR SHARES IN PERSON AT THAT TIME,
YOU WILL STILL BE ABLE TO DO SO.
-1-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION.................................................................. __
PROPOSAL 1: ELECTION OF TRUSTEES............................................. __
PROPOSAL 2: APPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION................................................... __
SYNOPSIS......................................................... __
PRINCIPAL RISK FACTORS........................................... __
THE PROPOSED TRANSACTION......................................... __
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT
AUDITORS......................................................... __
ADDITIONAL INFORMATION........................................................ __
</TABLE>
<PAGE>
PROXY STATEMENT/PROSPECTUS
March [ ], 2001
Relating to the acquisition of the assets of
KEMPER INTERMEDIATE MUNICIPAL BOND FUND,
a separate series of
KEMPER NATIONAL TAX-FREE INCOME SERIES (the "Acquired Trust")
222 South Riverside Plaza
Chicago, Illinois 60606
(800) [ ]
------------------------
by and in exchange for shares of beneficial interest of
SCUDDER MEDIUM TERM TAX FREE FUND,
a separate series of
SCUDDER TAX FREE TRUST (the "Acquiring Trust")
Two International Place
Boston, Massachusetts 02110-4103
(800) [ ]
------------------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of
Kemper Intermediate Municipal Bond Fund (the "Fund") in connection with three
proposals. Proposal 1 describes the election of Trustees and Proposal 3 proposes
the ratification of the selection of the Fund's auditors.
In Proposal 2, shareholders are asked to vote on an Agreement and Plan of
Reorganization (the "Plan") pursuant to which all or substantially all of the
assets of the Fund would be acquired by Scudder Medium Term Tax Free Fund, a
fund with similar investment characteristics and managed by the same investment
manager as the Fund, in exchange for shares of beneficial interest of Scudder
Medium Term Tax Free Fund and the assumption by Scudder Medium Term Tax Free
Fund of all of the liabilities of the Fund, as described more fully below (the
"Reorganization"). Shares of Scudder Medium Term Tax Free Fund received would
then be distributed to the shareholders of the Fund in complete liquidation of
the Fund. As a result of the Reorganization, shareholders of the Fund will
become shareholders of Scudder Medium Term Tax Free Fund and will receive shares
of Scudder Medium Term Tax Free Fund in an amount equal to the value of their
holdings in the Fund as of the close of business on the business day preceding
the closing of the Reorganization (the "Valuation Date"). The closing of the
Reorganization (the "Closing") is contingent upon shareholder approval of the
Plan. A copy of the Plan is attached as Exhibit A. The Reorganization is
expected to occur on or about June 11, 2001.
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.
Proposals 1 and 2 arise out of a restructuring program proposed by Scudder
Kemper Investments, Inc. ("Scudder Kemper" or the "Investment Manager"), the
investment manager of both the Fund and Scudder Medium Term Tax Free Fund,
described in more detail below. The restructuring program is designed to respond
to changing industry conditions and investor needs. Scudder Kemper seeks to
consolidate its fund line-up and offer all of the open-end funds it advises
under the "Scudder" name. In
-1-
<PAGE>
addition, Scudder Kemper anticipates changing its name to "Zurich Scudder
Investments, Inc." Scudder Kemper believes that the combination of its open-end,
directly-distributed funds (the "Scudder Funds") with the funds in the Kemper
Family of Funds (the "Kemper Funds") will permit it to streamline its
administrative infrastructure and focus its distribution efforts. The
restructuring program will not result in any reduction in the services currently
offered to Kemper Funds shareholders.
In the descriptions of the Proposals below, the word "fund" is sometimes
used to mean an investment company or series thereof in general, and not the
Fund whose proxy statement this is. In addition, for simplicity, actions are
described in this Proxy Statement/Prospectus as being taken by either the Fund
or Scudder Medium Term Tax Free Fund (which are collectively referred to as the
"Funds" and each referred to as a "Fund"), although all actions are actually
taken either by the Acquired Trust or the Acquiring Trust (together with the
Acquired Trust, the "Trusts"), on behalf of the applicable Fund.
This Proxy Statement/Prospectus sets forth concisely the information about
Scudder Medium Term Tax Free 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
Scudder Medium Term Tax Free Fund, see Scudder Medium Term Tax Free Fund's
prospectus dated December 29, 2000, as supplemented from time to time, which is
included in the materials you received with this document and incorporated
herein by reference (meaning that it is legally part of this document). For a
more detailed discussion of the investment objective, policies, restrictions and
risks of the Fund, see the Fund's prospectus dated January 1, 2001, as
supplemented from time to time, which is also incorporated herein by reference
and a copy of which may be obtained upon request and without charge by calling
or writing the Fund at the telephone number or address listed above.
Also incorporated herein by reference is Scudder Medium Term Tax Free
Fund's statement of additional information dated December 29, 2000, as
supplemented from time to time, which may be obtained upon request and without
charge by calling or writing Scudder Medium Term Tax Free Fund at the telephone
number or address listed above. A Statement of Additional Information, dated
March [ ], 2001 containing additional information about the Reorganization 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 this Statement of Additional Information is
available upon request and without charge by calling or writing Scudder Medium
Term Tax Free Fund at the telephone number or address listed above. Shareholder
inquiries regarding Scudder Medium Term Tax Free Fund may be made by calling
(800) [ ] and shareholder inquiries regarding the Fund may be made by calling
(800) [ ]. The information contained in this document concerning each Fund has
been provided by, and is included herein in reliance upon, that Fund.
Scudder Medium Term Tax Free Fund and the Fund are diversified series of
shares of beneficial interest of the Acquiring Trust and the Acquired Trust,
respectively, which are open-end management investment companies organized as
Massachusetts business trusts.
The Board of Trustees that oversees the Fund is soliciting proxies from
shareholders of the Fund for the Special Meeting of Shareholders to be held on
May 24, 2001, at Scudder Kemper's offices, 13th Floor, Two International Place,
Boston, MA 02110-4103 at 4:00 p.m. (Eastern time), and at any and all
adjournments or postponements thereof (the "Meeting"). This Proxy
Statement/Prospectus, the Notice of Special Meeting and the proxy card(s) are
first being mailed to shareholders on or about March 6, 2001 or as soon as
practicable thereafter.
The Board of Trustees unanimously recommends that shareholders vote FOR the
nominees listed in Proposal 1, and FOR Proposals 2 and 3.
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<PAGE>
PROPOSAL 1: ELECTION OF TRUSTEES
At the Meeting, shareholders will be asked to elect eleven individuals to
constitute the Board of Trustees of the Acquired Trust. Shareholders are being
asked to elect these individuals to the Board of Trustees in case the Plan, as
described under Proposal 2, is not approved by shareholders. However, if the
Plan is approved, the current Board of Trustees of the Acquiring Trust will
oversee the operations of the combined fund (see "Synopsis - Other Differences
Between the Funds" under Proposal 2).
As discussed further below, Scudder Kemper commenced an initiative to
restructure and streamline the management and operations of the funds it
advises. In connection with that initiative, the Independent Trustees (as
defined below) of the two separate boards of Kemper Funds proposed to
consolidate into a single board. The eleven individuals who have been nominated
for election as Trustees of the Acquired Trust were nominated after careful
consideration by the present Board of Trustees. The nominees are listed below.
Seven of the nominees are currently Trustees of the Acquired Trust and three of
the nominees are currently trustees or directors of other Kemper Funds. One of
the nominees, although not currently a trustee or director of any Kemper Fund,
is a senior executive officer of Scudder Kemper. These eleven nominees are being
nominated for election as trustees or directors of most of the other Kemper
Funds. The proposed slate of nominees reflects an effort to consolidate the two
separate boards who have historically supervised different Kemper Funds. The
proposed consolidation is expected to provide administrative efficiencies to
both the Funds and Scudder Kemper.
The persons named as proxies on the enclosed proxy card(s) will vote for
the election of the nominees named below unless authority to vote for any or all
of the nominees is withheld in the proxy. Each Trustee so elected will serve as
a Trustee commencing on July 1, 2001 and until the next meeting of shareholders,
if any, called for the purpose of electing Trustees and until the election and
qualification of a successor or until such Trustee sooner dies, resigns or is
removed as provided in the governing documents of the Acquired Trust. Each of
the nominees has indicated that he or she is willing to serve as a Trustee. If
any or all of the nominees should become unavailable for election due to events
not now known or anticipated, the persons named as proxies will vote for such
other nominee or nominees as the current Trustees may recommend. The following
tables present information about the nominees and the Trustees not standing for
re-election. Each nominee's or Trustee's date of birth is in parentheses after
his or her name. Unless otherwise noted, (i) each of the nominees and Trustees
has engaged in the principal occupation(s) noted in the following tables for at
least the most recent five years, although not necessarily in the same capacity,
and (ii) the address of each nominee is c/o Scudder Kemper Investments, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60606.
Nominees for Election as Trustees:
------------------------------------------------------------------------------
Name (Date of Birth), Principal Occupation and Affiliations Year First
Became a Board
Member
------------------------------------------------------------------------------
John W. Ballantine (2/16/46),/(1)/ Retired; formerly, First 1999
Chicago NBD Corporation/The First National Bank of
Chicago: 1996-1998 Executive Vice President and Chief Risk
Management Officer; 1995-1996 Executive Vice President and
Head of International Banking; Director, First One Brook
Bancshares, Inc., Oak Brook Bank and Tokheim Corporation.
------------------------------------------------------------------------------
-3-
<PAGE>
------------------------------------------------------------------------------
Lewis A. Burnham (1/8/33),/(1)/ Retired; formerly, Partner, 1977
Business Resources Group; formerly, Executive Vice
President, Anchor Glass Container Corporation.
------------------------------------------------------------------------------
Linda C. Coughlin (1/1/52),*/(2)/ Managing Director, Scudder 2000
Kemper.
------------------------------------------------------------------------------
Donald L. Dunaway (3/8/37),/(1)/ Retired; formerly, Executive 1980
Vice President, A.O. Smith Corporation (diversified
manufacturer).
------------------------------------------------------------------------------
James R. Edgar (7/22/46),/(3)/ Distinguished Fellow, Nominee
University of Illinois Institute of Government and Public
Affairs; Director, Kemper Insurance Companies (not
affiliated with the Kemper Funds); formerly, Governor,
State of Illinois.
------------------------------------------------------------------------------
William F. Glavin (8/30/58),* Managing Director, Scudder Nominee
Kemper.
------------------------------------------------------------------------------
Robert B. Hoffman (12/11/36),/(1)/ Retired; formerly,
Chairman, Harnischfeger Industries, Inc. (machinery for
the mining and paper industries); formerly, Vice Chairman
and Chief Financial Officer, Monsanto Company 1981
(agricultural, pharmaceutical and nutritional/food
products); formerly, Vice President, Head of International
Operations, FMC Corporation (manufacturer of machinery and
chemicals); Director, Harnischfeger Industries, Inc.
------------------------------------------------------------------------------
Shirley D. Peterson (9/3/41),/(1)/ Retired; formerly,
President, Hood College; formerly, Partner, Steptoe &
Johnson (attorneys); prior thereto, Commissioner, Internal 1995
Revenue Service; prior thereto, Assistant Attorney General
(Tax), U.S. Department of Justice; Director, Bethlehem
Steel Corp.
------------------------------------------------------------------------------
Fred B. Renwick (2/1/30),/(3)/ Professor of Finance, New York Nominee
University, Stern School of Business; Director, the
Wartburg Foundation; Chairman, Investment Committee of
Morehouse College Board of Trustees; Director, American
Bible Society Investment Committee; previously member of
the Investment Committee of Atlanta University Board of
Trustees; formerly Director of Board of Pensions
Evangelical Lutheran Church in America.
------------------------------------------------------------------------------
William P. Sommers (7/22/33),/(1)/ Consultant and Director,
SRI Consulting; prior thereto, President and Chief
Executive Officer, SRI International (research and
development); prior thereto, Executive Vice President, 1979
Iameter (medical information and educational service
provider); prior thereto, Senior Vice President and
Director, Booz, Allen & Hamilton Inc. (management
consulting firm); Director, PSI Inc., Evergreen Solar,
Inc. and Litton Industries.
------------------------------------------------------------------------------
-4-
<PAGE>
------------------------------------------------------------------------------
John G. Weithers (8/8/33),/(3)/ Formerly, Chairman of the Nominee
Board and Chief Executive Officer, Chicago Stock Exchange;
Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University.
------------------------------------------------------------------------------
* Interested person of the Acquired Trust, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
/(1)/ Messrs. Ballantine, Burnham, Dunaway, Hoffman, Sommers and Ms.
Peterson serve as board members of 26 investment companies, with 45
portfolios managed by Scudder Kemper.
/(2)/ Ms. Coughlin serves as a board member of 52 investment companies with
97 portfolios managed by Scudder Kemper.
/(3)/ Messrs. Edgar, Renwick and Weithers serve as board members of 16
investment companies with 58 portfolios managed by Scudder Kemper.
Trustees Not Standing for Re-Election:
--------------------------------------------------------------------------------
Present Office with the Acquired Trust;
Principal Occupation or Employment
Name (Date of Birth) and Directorships
------------------- -----------------
--------------------------------------------------------------------------------
Donald R. Jones (1/17/30) Trustee; Retired; Director, Motorola, Inc.
(manufacturer of electronic equipment and
components); formerly, Executive Vice
President and Chief Financial Officer,
Motorola, Inc.
--------------------------------------------------------------------------------
Thomas W. Littauer (4/26/55)* Chairman, Trustee and Vice President;
Managing Director, Scudder Kemper; formerly,
Head of Broker Dealer Division of Putnam
Investment Management; formerly, President
of Client Management Services for Fidelity
Investments.
--------------------------------------------------------------------------------
* Interested person of the Acquired Trust, as defined in the 1940 Act.
Appendix 1 lists the number of shares of each series of the Acquired
Trust owned directly or beneficially by the Trustees and by the nominees for
election.
Responsibilities of the Board of Trustees -- Board and Committee Meetings
The primary responsibility of the Board is to represent the interests
of the shareholders of the Fund and to provide oversight of the management of
the Fund. The board that is proposed for election at this Meeting is comprised
of two individuals who are considered "interested" Trustees, and nine
individuals who have no affiliation with Scudder Kemper and who are not
considered "interested" 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. If the proposed Board of Trustees is approved by
shareholders, more
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<PAGE>
than 75% will be Independent Trustees. The Independent Trustees have been
selected and nominated solely by the current Independent Trustees of the
Acquired Trust.
The Trustees meet multiple times during the year to review the investment
performance of the Fund and other operational matters, including policies and
procedures designed to assure compliance with regulatory and other requirements.
Furthermore, the Independent Trustees review the fees paid to the Investment
Manager and its affiliates for investment advisory services and other
administrative and shareholder services. The Trustees have adopted specific
policies and guidelines that, among other things, seek to further enhance the
effectiveness of the Independent Trustees in performing their duties. Many of
these are similar to those suggested in the Investment Company Institute's 1999
Report of the Advisory Group on Best Practices for Fund Directors (the "Advisory
Group Report"). For example, the Independent Trustees select independent legal
counsel to work with them in reviewing fees, advisory and other contracts and
overseeing fund matters, and regularly meet privately with their counsel.
Currently, the Board of Trustees has an Audit Committee and a Nominating and
Governance Committee, the responsibilities of which are described below. In
addition, the Board has a Valuation Committee and a Contract Renewal Committee.
During calendar year 2000, the Board of Trustees met eight times. Each then
current Trustee attended 75% or more of the respective meetings of the Board and
the Committees (if a member thereof) held during calendar year 2000.
Audit Committee
The Audit Committee makes recommendations regarding the selection of
independent auditors for the Fund, confers with the independent auditors
regarding the Fund's financial statements, the results of audits and related
matters, and performs such other tasks as the full Board of Trustees deems
necessary or appropriate. As suggested by the Advisory Group Report, the Audit
Committee is comprised of only Independent Trustees, receives annual
representations from the auditors as to their independence, and has a written
charter that delineates the committee's duties and powers. Currently, the
members of the Audit Committee are Donald L. Dunaway (Chairman), Robert B.
Hoffman and Donald R. Jones. The Audit Committee held five meetings during
calendar year 2000.
Nominating and Governance Committee
The Board of Trustees has a Nominating and Governance Committee, comprised of
only Independent Trustees, that seeks and reviews candidates for consideration
as nominees for membership on the Board and oversees the administration of the
Acquired Trust's Governance Procedures and Guidelines. The Nominating and
Governance Committee has a written charter that delineates the committee's
duties and powers. Shareholders wishing to submit the name of a candidate for
consideration by the committee should submit their recommendation(s) to the
Secretary of the Fund. Currently, the members of the Nominating and Governance
Committee are Lewis A. Burnham (Chairman), John W. Ballantine, Shirley D.
Peterson and William P. Sommers. The Nominating and Governance Committee held
one meeting during calendar year 2000.
-6-
<PAGE>
Officers
The following persons are officers of the Acquired Trust:
<TABLE>
<CAPTION>
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Name (Date of Birth) Present Office with the Acquired Year First Became an Officer/1/
------------------- Trust; Principal Occupation or ----------------------------
Employment
----------
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mark S. Casady (9/21/60) President; Managing Director, 1998
Scudder Kemper; formerly,
Institutional Sales Manager
of an unaffiliated mutual
fund distributor.
--------------------------------------------------------------------------------------------------------
Philip J. Collora (11/15/45) Vice President and Secretary; 1989
Attorney, Senior Vice President,
Scudder Kemper.
--------------------------------------------------------------------------------------------------------
Thomas W. Littauer (4/26/55) Vice President, Chairman and 1998
Trustee; Managing Director,
Scudder Kemper; formerly, Head of
Broker Dealer Division of an
unaffiliated investment
management firm during 1997;
prior thereto, President of
Client Management Services of an
unaffiliated investment
management firm from 1991 to 1996.
--------------------------------------------------------------------------------------------------------
Kathryn L. Quirk (12/3/52) Vice President; Managing 1998
Director, Scudder Kemper.
--------------------------------------------------------------------------------------------------------
Philip G. Condon (8/15/50) Vice President; Managing 2000
Director, Scudder Kemper.
--------------------------------------------------------------------------------------------------------
Ashton P. Goodfield (10/3/63) Vice President; Senior Vice 2000
President, Scudder Kemper.
--------------------------------------------------------------------------------------------------------
Linda J. Wondrack (9/12/64) Vice President; Senior Vice 1998
President, Scudder Kemper.
--------------------------------------------------------------------------------------------------------
John R. Hebble (6/27/58) Treasurer; Senior Vice President, 1998
Scudder Kemper.
--------------------------------------------------------------------------------------------------------
Brenda Lyons (2/21/63) Assistant Treasurer; Senior Vice 1998
President, Scudder Kemper.
--------------------------------------------------------------------------------------------------------
Caroline Pearson (4/1/62) Assistant Secretary; Senior Vice 1998
President, Scudder Kemper;
formerly, Associate, Dechert
Price & Rhoads (law firm) from
1989-1997.
--------------------------------------------------------------------------------------------------------
Maureen E. Kane (2/14/62) Assistant Secretary; Vice 1998
--------------------------------------------------------------------------------------------------------
</TABLE>
______________________________
/1/ The President, Treasurer and Secretary each holds office until the first
meeting of Trustees in each calendar year and until his or her successor
has been duly elected and qualified, and all other officers hold offices as
the Trustees permit in accordance with the By-laws of the Acquired Trust.
-7-
<PAGE>
--------------------------------------------------------------------------------
President, Scudder Kemper;
formerly, Assistant Vice
President of an unaffiliated
investment management firm; prior
thereto, Associated Staff
Attorney of an unaffiliated
investment management firm, and
Associate, Peabody & Arnold (law
firm).
--------------------------------------------------------------------------------
Compensation of Trustees and Officers
The Fund pays the Independent Trustees a monthly retainer and an attendance
fee, plus expenses, for each Board meeting and committee meeting attended. As
reflected below, the Trustees currently serve as board members of various other
Kemper Funds. Scudder Kemper supervises the Fund's investments, pays the
compensation and expenses of its personnel who serve as Trustees and officers on
behalf of the Fund and receives a management fee for its services. Several of
the officers and Trustees are also officers, directors, employees or
stockholders of Scudder Kemper and participate in the fees paid to that firm,
although the Fund makes no direct payments to them.
To facilitate the restructuring of the boards of the Kemper Funds, certain
Independent Trustees agreed not to stand for re-election. Independent Trustees
of the Acquired Trust are not entitled to benefits under any pension or
retirement plan. However, the Board of each Kemper Fund determined that,
particularly given the benefits that would accrue to the Kemper Funds from the
restructuring of the boards, it was appropriate to provide the four Independent
Trustees who were not standing for re-election for various Kemper Funds a one-
time benefit. The cost of such benefit is being allocated among all the Kemper
Funds, with Scudder Kemper agreeing to bear one-half of the cost of such
benefit, given that Scudder Kemper also benefits from administrative
efficiencies of a consolidated board. Mr. Jones, an Independent Trustee of the
Acquired Trust who is not standing for re-election, will receive such a one-time
benefit. The amount received on behalf of each fund for which he serves as a
trustee ranges from $1,071 to $8,078.
The following Compensation Table provides in tabular form the following data:
Column (1) All Trustees who receive compensation from the Fund.
Column (2) Aggregate compensation received by each Trustee from the Fund
during calendar year 2000.
Column (3) Total compensation received by each Trustee from funds advised by
Scudder Kemper (collectively, the "Fund Complex") during calendar year 2000.
Compensation Table
--------------------------------------------------------------------------------
Aggregate Compensation Total Compensation From
Name of Trustee from Fund Fund Complex/(2)(3)/
--------------------------------------------------------------------------------
John W. Ballantine $ [_] $ [_]
--------------------------------------------------------------------------------
Lewis A. Burnham $ [_] $ [_]
--------------------------------------------------------------------------------
-8-
<PAGE>
-------------------------------------------------------------------------------
Donald L. Dunaway/(1)/ $ [_] $ [_]
-------------------------------------------------------------------------------
Robert B. Hoffman $ [_] $ [_]
-------------------------------------------------------------------------------
Donald R. Jones $ [_] $ [_]
-------------------------------------------------------------------------------
Shirley D. Peterson $ [_] $ [_]
-------------------------------------------------------------------------------
William P. Sommers $ [_] $ [_]
-------------------------------------------------------------------------------
/(1)/ Includes deferred fees. Pursuant to deferred compensation agreements with
the Acquired Trust, deferred amounts accrue interest monthly at a rate equal to
the yield of Zurich Money Funds -- Zurich Money Market Fund. Total deferred fees
(including interest thereon) payable from the Fund to Mr. Dunaway are $_______.
/(2)/ Includes compensation for service on the boards of [_] Kemper
trusts/corporations comprised of [_] funds. Each Trustee currently serves on the
boards of [_] Kemper trusts/corporations comprised of [_] funds.
/(3)/ Aggregate compensation does not reflect amounts paid to the Trustees for
special meetings in connection with the Scudder Kemper restructuring initiative.
Such amounts totaled [$_______, $_______, $_______, $_______, $_______, $_______
and $_______ for Messrs. Ballantine, Burnham, Dunaway, Hoffman, Jones, Sommers
and Ms. Peterson,] respectively.
The Board of Trustees unanimously recommends
that the shareholders of the Fund vote FOR each nominee.
PROPOSAL 2: APPROVAL OF AGREEMENT
AND PLAN OF REORGANIZATION
I. SYNOPSIS
Introduction
The Board of Trustees, including all of the Independent Trustees, approved
the Plan at a meeting held on November 29, 2000. Subject to its approval by the
shareholders of the Fund, the Plan provides for (a) the transfer of all or
substantially all of the assets and all of the liabilities of the Fund to
Scudder Medium Term Tax Free Fund in exchange for Class A, Class B and Class C
shares of Scudder Medium Term Tax Free Fund; (b) the distribution of such shares
to the shareholders of the Fund in complete liquidation of the Fund; and (c) the
termination of the Fund. As a result of the Reorganization, each shareholder of
the Fund will become a shareholder of Scudder Medium Term Tax Free Fund, a fund
with similar investment characteristics and managed by the same investment
manager as the Fund. Immediately after the Reorganization, each shareholder of
the Fund will hold shares of the class of shares of Scudder Medium Term Tax Free
Fund that corresponds to the class of shares of the Fund held by that
shareholder on the Valuation Date, having an aggregate net asset value equal to
the aggregate net asset value of such shareholder's shares of the Fund on the
Valuation Date.
Scudder Kemper is the investment manager of both Funds. If the
Reorganization is completed, the Fund's shareholders will continue to enjoy all
of the same shareholder privileges as they currently enjoy, such as access to
professional service representatives, exchange privileges and automatic dividend
reinvestment. Services provided to the Class A, Class B and Class C shareholders
of Scudder Medium Term Tax Free Fund following the Reorganization will be
identical to those currently provided to shareholders of the corresponding class
of the Fund. See "Purchases, Exchanges and Redemptions and Information."
-9-
<PAGE>
Background of the Reorganization
The Reorganization is part of a broader restructuring program 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 are 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 the
potential for increased confusion among investors. The group of funds advised by
Scudder Kemper has followed this pattern.
As a result, Scudder Kemper has sought ways to restructure and streamline
the management and operations of the funds it advises by consolidating all of
the retail mutual funds that it currently sponsors into a single product line
offered under the "Scudder" name. Scudder Kemper believes, and has advised the
boards, that further reducing the number of funds it advises and adding the
classes of shares currently offered on all Kemper Funds to the Scudder Funds
will benefit fund shareholders. Scudder Kemper has, therefore, proposed the
combination of many Scudder Funds and Kemper Funds that have similar or
compatible investment objectives and policies. Scudder Kemper believes that the
larger funds, along with the fewer number of funds, that result from these
combinations may help to enhance investment performance and increase efficiency
of operations. The restructuring program will not result in any changes in the
shareholder services currently offered to shareholders of the Kemper Funds.
Most of the Scudder Funds have recently adopted a new fee structure for
certain administrative services. Under this fee structure, in exchange for
payment by a fund of a single administrative fee rate, Scudder Kemper provides
or pays for substantially all services that the fund normally requires for its
operations, other than those provided under the fund's investment management
agreement and certain other expenses. This administrative fee enables investors
to determine with greater certainty the expense level that a fund will
experience, and, for the term of the administration agreement, transfers
substantially all of the risk of increased costs to Scudder Kemper. Likewise,
Scudder Kemper receives all of the benefits of economies of scale from increases
in asset size or decreased operating expenses. Scudder Medium Term Tax Free Fund
has implemented such an administrative fee, as described in "Administrative Fee"
below. As part of the restructuring effort, Scudder Kemper has proposed
extending this administrative fee structure to those funds currently offered
under the Kemper name.
The fund consolidations and the consolidation of the boards currently
overseeing the Kemper Funds (see Proposal 1 above) 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 May 24, 2000, the Independent
Trustees have conducted a thorough review of all aspects of the proposed
restructuring program. They have been assisted in this regard by their
independent counsel and by independent consultants with special expertise in
financial and mutual fund industry matters. In the course of discussions with
representatives of Scudder Kemper, the Independent Trustees have requested, and
Scudder Kemper has accepted, numerous changes designed to protect and enhance
the interests of shareholders. See "The Proposed Transaction - Board Approval of
the Proposed Transaction" below.
In determining whether to recommend that the shareholders of the Fund
approve the Reorganization, the Board of Trustees considered that:
-10-
<PAGE>
. As part of Scudder Kemper's overall restructuring, the Fund would be
duplicative of another similar fund advised by Scudder Kemper in the
same distribution channel.
. The combined fund would adopt an investment management fee schedule
that, at all asset levels, is lower than the current rate applicable to
either Fund.
. The fixed fee rate under the Administration Agreement for Class A, Class
B and Class C shares is expected to be lower than the estimated
operating expenses such classes of the Fund would otherwise pay.
. It is a condition of the Reorganization that each Fund receive an
opinion of tax counsel that the transaction would be a tax-free
transaction.
. Although the Fund agreed to pay a portion of the estimated costs of the
Reorganization allocated to Class A and Class B shares, management has
estimated that such allocated costs will be recoverable from lower
overall expense ratios within six months of completion of the
Reorganization. Scudder Kemper agreed to pay all of the estimated costs
of the Reorganization allocated to Class C shares, a portion of the
estimated costs of the Reorganization allocated to Class A and Class B
shares and all of the costs of the Reorganization that exceeds estimated
costs.
For these reasons, as more fully described below under "The Proposed
Transaction -- Board Approval of the Proposed Transaction," the Board of
Trustees, including the Independent Trustees, has concluded that:
. the Reorganization is in the best interests of the Fund and its
shareholders; and
. the interests of the existing shareholders of the Fund will not be
diluted as a result of the Reorganization.
Accordingly, the Trustees unanimously recommend approval of the Plan
effecting the Reorganization. If the Plan is not approved, the Fund will
continue in existence unless other action is taken by the Trustees.
Investment Objectives, Policies and Restrictions of the Funds
This Section will help you compare the investment objectives and policies
of the Fund and Scudder Medium Term Tax Free Fund. Please be aware that this is
only a summary. More complete information may be found in the Funds'
prospectuses.
The investment objectives, policies and restrictions of the Funds (and,
consequently, the risks of investing in either Fund) are similar. However, there
are some differences. The investment objective of Scudder Medium Term Tax Free
Fund is to seek a high level of income free from regular federal income taxes
and to seek to limit principal fluctuation. The investment objective of the Fund
is to seek as high a level of current interest income that is exempt from
federal income taxes as is consistent with preservation of capital. There can be
no assurance that either Fund will achieve its investment objective.
Both Funds have the same portfolio management team and are managed in a
substantially similar manner. Scudder Medium Term Tax Free Fund invests at least
80% of its net assets in securities of municipalities across the United States
and in other securities whose income is free from regular federal
-11-
<PAGE>
income tax and alternative minimum tax ("AMT"), while the Fund normally invests
at least 80% of its net assets in municipal securities whose income is free from
regular federal income tax.
Each Fund can buy many types of municipal securities, including revenue
bonds (which are backed by revenues from a particular source), general
obligation bonds (which are typically backed by the issuer's ability to levy
taxes), municipal lease obligations (to a limited extent in the case of the
Fund) and investments representing an interest in municipal lease obligations.
In addition, each Fund may invest up to 20% of its net assets in securities
whose income is subject to the federal alternative minimum tax. Lastly, although
each Fund is permitted to use various types of derivatives (contracts whose
value is based on, for example, indices, commodities or securities), the
Investment Manager does not intend to use them as principal investments for
either Fund, and might not use them at all.
Scudder Medium Term Tax Free Fund normally invests at least 65% of its net
assets in municipal securities in the three highest quality ratings of Moody's
Investors Service, Inc., Standard & Poor's Ratings Services or Fitch IBCA, and
could put up to 35% of its net assets in bonds rated in the fourth credit grade,
which are still considered investment-grade. Normally, at least 90% of the
Fund's municipal securities are in the top four grades of credit quality, and up
to 10% of the Fund's municipal securities may be junk bonds, which are those
below the fourth credit grade (i.e., grade BB/Ba and below). While Scudder
Medium Term Tax Free Fund intends to maintain a dollar-weighted average maturity
(the maturity of the Fund's portfolio) between five and ten years, the Fund
generally keeps the dollar-weighted average maturity of its portfolio between
three and ten years. Additionally, Scudder Medium Term Tax Free Fund may not
purchase securities with maturities of greater than 15 years. As a temporary
defensive measure, each Fund may shift up to 100% of its assets into investments
such as taxable money market securities. This could prevent losses, but would
mean that the Fund would not be pursuing its objective.
The Funds differ in their manner of security selection. The Investment
Manager looks for securities that appear to offer the best total return
potential, in the case of Scudder Medium Term Tax Free Fund, and the best income
potential, with respect to the Fund, although for each Fund the Investment
Manager normally prefers securities that cannot be called in before maturity
(see "Comparative Considerations" below). In making buy and sell decisions for
each Fund, the Investment Manager typically weighs a number of factors against
each other, from economic outlooks and possible interest rate movements to
changes in supply and demand within the municipal bond market. With respect to
the Fund, the Investment Manager also considers specific security
characteristics.
The Funds' fundamental and non-fundamental investment restrictions, as set
forth under "Investment Restrictions" in each Fund's statement of additional
information, are identical, except that Scudder Medium Term Tax Free Fund will,
as a fundamental policy, have at least 80% of its net assets invested in
municipal securities during periods of normal market conditions and the Fund has
a stated non-fundamental investment restriction limiting the Fund's investments
in illiquid securities to no more than 15% of its net assets. Both Funds are,
however, subject to this non-fundamental restriction pursuant to applicable
regulation. Fundamental investment restrictions may not be changed without the
approval of Fund shareholders, while non-fundamental policies are changeable by
the applicable Board without shareholder approval. Investors should refer to
each Fund's statement of additional information for a more detailed description
of that Fund's investment policies and restrictions.
Portfolio Turnover
The portfolio turnover rate for Scudder Medium Term Tax Free 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),
-12-
<PAGE>
for the fiscal year ended May 31, 2000 was 21%. The portfolio turnover rate for
the Fund for the fiscal year ended September 30, 2000 was 17%.
Comparative Considerations
The portfolio characteristics of the combined fund after the Reorganization
will reflect the blended characteristics of the Fund and Scudder Medium Term Tax
Free Fund. The following characteristics are as of ____, 2000 for both Funds and
also reflect the blended characteristics of both Funds after the Reorganization
as of that same date.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Yield(1) Tax Avg. Avg. Portfolio Quality(4)
Equivalent Maturity Duration
Yield(2) (Years)(3) (Years)(3)
-------------------------------------------
AAA AA A BBB Unrated
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund
Scudder Medium
Term Tax Free
Fund
Pro forma
(Combined)(5)
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The yield provided for the Fund represents the yield for its Class A shares
and the yield provided for Scudder Medium Term Tax Free Fund represents the
yield for its Class S shares, for the 30 days ended ____________, 2000. The
yield is computed by dividing the net investment income per share earned during
a specified one month or 30-day period by the maximum offering price per share
on the last day of the period. In the case of the Class S shares of Scudder
Medium Term Tax Free Fund, the maximum offering price was calculated using the
up-front sales charge [and the current expense ratio] applicable to the Fund's
Class A shares. The pro forma yield reflects the Class A shares up-front sales
charge and estimated expense ratio of the combined fund, giving effect to the
Reorganization, and, therefore, is not necessarily indicative of the actual
yield to any particular shareholder. The yield for other classes of shares would
vary.
(2) Tax equivalent yield is calculated by dividing that portion of each Fund's
yield that is tax-exempt by 1 minus a stated income tax rate and adding the
quotient to that portion, if any, of the Fund's yield that is not tax-exempt.
The applicable income tax rate is 37.1% (the highest marginal federal income tax
rate) [for each Fund and the combined fund]. The tax equivalent yield of other
classes of shares would vary.
(3) Both dollar-weighted average maturity and duration reflect the sensitivity
of a Fund to interest rate fluctuations. The average dollar-weighted maturity of
a Fund is the dollar-weighted average of the stated maturities of all debt
instruments held by the Fund. Duration is the weighted present value of
principal and interest payments expressed in years and may more accurately
measure a Fund's sensitivity to incremental changes in interest rates than
average maturity. Other factors being equal (e.g., portfolio quality), a Fund
with a longer maturity and duration reacts more strongly to interest rate
changes than a Fund with a shorter maturity and duration. For example, a Fund
with a duration of five (5) years is expected to experience a price decrease of
roughly five percent (5%) for each percent increase in interest rates while a
comparable Fund with a duration of four (4) years is expected to experience a
price decrease of roughly four percent (4%) for the same change in interest
rates.
(4) Represents the higher of ratings by Moody's [,/and] S&P [and Fitch]. See
Annex A to the Statement of Additional Information for a general description of
Moody's [,/and] S&P's [and Fitch's] ratings of Municipal Obligations.
(5) Reflects the blended characteristics of the Fund and Scudder Medium Term
Tax Free Fund as of ______________, 2000.
Performance
The following table shows how the returns of the Fund and Scudder Medium
Term Tax Free Fund over different periods average out. For context, the table
also includes a broad-based market index (which, unlike the Funds, does not have
any fees or expenses). The performances of both Funds and the index vary over
time, and past performance is not necessarily indicative of future results. All
figures assume reinvestment of dividends and distributions.
-13-
<PAGE>
Average Annual Total Return
for the Periods Ended December 31, 2000
[Insert Table]
For management's discussion of Scudder Medium Term Tax Free Fund's
performance for the fiscal year ended May 31, 2000, please refer to Exhibit B.
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 each Fund's Trustees. The same
two individuals serve on the portfolio management team for each Fund. Scudder
Kemper is a Delaware corporation located at Two International Place, Boston,
Massachusetts 02110-4103.
Pursuant to separate contracts, each Fund pays the Investment Manager a
graduated investment management fee, although the fee rates and breakpoints
differ. The fee is graduated so that increases in a 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, 2000, Scudder Medium Term Tax Free Fund
had total net assets of $521,875,127. For the fiscal year ended May 31, 2000,
Scudder Medium Term Tax Free Fund paid the Investment Manager a fee of 0.59% of
its average daily net assets. As of September 30, 2000, the Fund had total net
assets of $20,571,250. For the fiscal year ended September 30, 2000, the Fund
paid the Investment Manager a fee of 0.55% of its average daily net assets.
Currently the fee schedules for the Fund and Scudder Medium Term Tax Free
Fund are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Fund Scudder Medium Term Tax Free Fund
-------------------------------------------------------------------------------------------------------------
Average Daily Net Assets Fee Rate Average Daily Net Assets Fee Rate
------------------------ -------- ------------------------ --------
<S> <C> <C> <C>
First $250 million 0.550% First $500 million 0.600%
Next $750 million 0.520% Next $500 million 0.500%
Next $1.5 billion 0.500% Over $1 billion 0.475%
Next $2.5 billion 0.480%
Next $2.5 billion 0.450%
Next $2.5 billion 0.430%
Next $2.5 billion 0.410%
Over $12.5 billion 0.400%
-------------------------------------------------------------------------------------------------------------
</TABLE>
Scudder Kemper has proposed that Scudder Managed Municipal Bonds adopt a
lower investment management fee schedule after the Reorganization, as shown in
the table below:
---------------------------------------------------
Combined Fund
---------------------------------------------------
Average Daily Net Assets Fee Rate
------------------------------------- ------------
First $250 million 0.550%
Next $750 million 0.520%
Next $1.5 billion 0.490%
Next $2.5 billion 0.470%
---------------------------------------------------
-14-
<PAGE>
---------------------------------------------------
Next $2.5 billion 0.450%
Next $2.5 billion 0.430%
Next $2.5 billion 0.410%
Over $12.5 billion 0.400%
---------------------------------------------------
The effectiveness of the new investment management agreement for Scudder
Medium Term Tax Free Fund and the Closing are contingent upon each other. Based
upon the Fund's average net assets for the twelve months ended November 30,
2000, the effective advisory fee rate for the Fund was 0.55% of average daily
net assets. Based upon each Fund's average net assets for the twelve months
ended November 30, 2000, the effective advisory fee rate for Scudder Medium Term
Tax Free Fund after the Reorganization would be 0.53% of average daily net
assets, giving effect to the proposed new investment management agreement.
Administrative Fee
Scudder Medium Term Tax Free Fund has entered into an administration
agreement with Scudder Kemper (the "Administration Agreement"), pursuant to
which Scudder Kemper provides or pays others to provide substantially all of the
administrative services required by the Class A, Class B and Class C shares of
Scudder Medium Term Tax Free Fund (other than those provided by Scudder Kemper
under its investment management agreement with that Fund) in exchange for the
payment by Scudder Medium Term Tax Free Fund of an annual administrative
services fee (the "Administrative Fee") equal to 0.175%, 0.225% and 0.200% of
average daily net assets attributable to the Class A, Class B and Class C
shares, respectively. The fees for the services provided by Kemper Distributors,
Inc. ("KDI") under its current services agreement and underwriting and
distribution agreement with Scudder Medium Term Tax Free Fund are not covered
by, and are in addition to, the Administrative Fee. One effect of this
arrangement is to make Scudder Medium Term Tax Free Fund's future expense ratio
more predictable. On the other hand, the administrative fee rate does not
decrease with economies of scale from increases in asset size or decreased
operating expenses. The details of this arrangement (including expenses that are
not covered) are set out below.
Various service providers (the "Service Providers"), some of which are
affiliated with Scudder Kemper, provide certain services to Scudder Medium Term
Tax Free Fund pursuant to separate agreements. These Service Providers may
differ from current Service Providers of the Fund. Scudder Fund Accounting
Corporation, a subsidiary of Scudder Kemper, computes net asset value for
Scudder Medium Term Tax Free Fund and maintains its accounting records. Kemper
Service Company, also a subsidiary of Scudder Kemper, is the transfer,
shareholder servicing and dividend-paying agent for the Class A, Class B and
Class C shares of Scudder Medium Term Tax Free 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 ("State Street") holds the
portfolio securities of Scudder Medium Term Tax Free Fund, pursuant to a
custodian agreement. Other Service Providers include the independent public
accountants and legal counsel for Scudder Medium Term Tax Free Fund.
Under the Administration Agreement, each Service Provider provides the
services to Scudder Medium Term Tax Free Fund described above, except that
Scudder Kemper pays these entities for the provision of their services to
Scudder Medium Term Tax Free Fund and pays most other fund expenses, including
insurance, registration, printing and postage fees. In return, Scudder Medium
Term Tax Free Fund pays Scudder Kemper the Administrative Fee.
-15-
<PAGE>
The Administration Agreement will remain in effect with respect to the
Class A, Class B and Class C shares for an initial term ending September 30,
2003, subject to earlier termination by the trustees that oversee Scudder Medium
Term Tax Free Fund. The Administration Agreement shall continue in effect on an
annual basis after September 30, 2003, provided that such continuance is
approved at least annually by a majority of the trustees, including the
Independent Trustees, that oversee Scudder Medium Term Tax Free Fund. The fee
payable by Scudder Medium Term Tax Free Fund to Scudder Kemper pursuant to the
Administration Agreement will be reduced by the amount of any credit received
from Scudder Medium Term Tax Free Fund's custodian for cash balances.
Certain expenses of Scudder Medium Term Tax Free Fund are not 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). Scudder Medium Term Tax Free Fund continues to pay the fees required
by its investment management agreement with Scudder Kemper. In addition, it pays
the fees under its services agreement and underwriting and distribution services
agreement with KDI, as described in "Distribution and Service Fees" below.
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 Class A, Class B and Class C shares of Scudder Medium Term Tax
Free Fund, and compares these with the expenses of the Fund. [Comparative
statement regarding expenses to be inserted.] Unless otherwise noted, the
information is based on each Fund's expenses and average daily net assets during
the twelve months ended November 30, 2000 and on a pro forma basis as of that
date and for the twelve month period then ended, assuming the Reorganization had
been in effect for the period.
Expense Comparison Table
Class A Shares
<TABLE>
<CAPTION>
Scudder
Medium Term Pro Forma
Fund Tax Free Fund (Combined)(1)
---- ------------- ----------
Shareholder Fees
----------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on 2.75% 2.75% 2.75%
Purchases (as % of offering price)
Maximum Contingent Deferred Sales Charge None None None
(Load) (as % of redemption proceeds)(2)
Annual Fund Operating Expenses
------------------------------
(unaudited) (as a % of average net assets)
------------------------------------------
Management Fees 0.55% 0.59% 0.53%
Rule 12b-1/ASF Fees 0.23% 0.25% 0.23%
Other Expenses 0.36% 0.18% (3) 0.18%
</TABLE>
-16-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Total Annual Fund Operating Expenses 1.14% 1.02% 0.94%
Expense Example of Total Operating
----------------------------------
Expenses at the End of the Period(4)
------------------------------------
One Year $ 388 $ 376 $ 368
Three Years $ 627 $ 591 $ 566
Five Years $ 885 $ 823 $ 781
Ten Years $1,623 $ 1,489 $1,398
</TABLE>
_________________
Notes to Expense Comparison Table:
----------------------------------
(1) The Pro Forma column reflects expenses estimated for the Reorganized Fund
subsequent to the Reorganization and reflects the effect of the
Reorganization, including the implementation of a new investment management
agreement and the adoption of a distribution plan.
(2) Class A shares purchased under the Large Order NAV Purchase Privilege have
a 1% contingent deferred sales charge if sold during the first year after
purchase and 0.50% if sold during the second year after purchase.
(3) Restated to reflect the implementation of Scudder Medium Term Tax Free
Fund's Administrative Fee.
(4) Expense examples reflect what an investor would pay on a $10,000
investment, assuming a 5% annual return, the reinvestment of all dividends,
total operating expenses remain the same and redemptions at the end of each
period.
Expense Comparison Table
Class B Shares
<TABLE>
<CAPTION>
Scudder
Medium Term Pro Forma
Fund Tax Free Fund (Combined)(1)
---- -------------- -------------
<S> <C> <C> <C>
Shareholder Fees
----------------
Maximum Sales Charge (Load) Imposed on None None None
Purchases (as % of offering price)
Maximum Contingent Deferred Sales Charge 4.00% 4.00% 4.00%
(Load) (as % of redemption proceeds)(2)
Annual Fund Operating Expenses (unaudited)
-----------------------------------------
(as a % of average net assets)
------------------------------
Management Fees 0.55% 0.59% 0.53%
Rule 12b-1/ASF Fees 1.00% 1.00% 1.00%
Other Expenses 0.36% 0.23%(3) 0.23%
</TABLE>
-17-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Total Annual Fund Operating Expenses 1.91% 1.82% 1.76%
Expense Example of Total Operating Expenses
-------------------------------------------
Assuming Redemption at the End of the
-------------------------------------
Period(4)
---------
One Year $ 594 $ 585 $ 579
Three Years $ 900 $ 873 $ 854
Five Years $1,232 $1,185 $1,154
Ten Years $1,848 $1,734 $1,657
Expense Example of Total Operating Expenses
-------------------------------------------
Assuming No Redemption at the End of the
----------------------------------------
Period(4)
---------
One Year $ 194 $ 185 $ 179
Three Years $ 600 $ 573 $ 554
Five Years $1,032 $ 985 $ 954
Ten Years $1,848 $ 1,734 $1,657
</TABLE>
___________
Notes to Expense Comparison Table:
----------------------------------
(1) The Pro Forma column reflects expenses estimated for the Reorganized Fund
subsequent to the Reorganization and reflects the effect of the
Reorganization, including the implementation of a new investment management
agreement and the adoption of a distribution plan.
(2) Contingent deferred sales charges on Class B shares sold during the first
six years of ownership are 4% in the first year, 3% in the second and third
year, 2% in the fourth and fifth year, and 1% in the sixth year.
(3) Restated to reflect the implementation of Scudder Medium Term Tax Free
Fund's Administrative Fee.
(4) Expense examples reflect what an investor would pay on a $10,000
investment, assuming a 5% annual return, the reinvestment of all dividends
and total operating expenses remain the same. Assumes conversion to Class
A shares six years after purchase.
Expense Comparison Table
Class C Shares
<TABLE>
<CAPTION>
Scudder
Medium Term Pro Forma
Fund Tax Free Fund (Combined)(1)
---- ------------- -------------
<S> <C> <C> <C>
Shareholder Fees
----------------
Maximum Sales Charge (Load) Imposed on None None None
Purchases (as % of offering price)
</TABLE>
-18-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Maximum Contingent Deferred Sales Charge 1.00% 1.00% 1.00%
(Load) (as % of redemption proceeds)(2)
Annual Fund Operating Expenses
------------------------------
(unaudited) (as a % of average net assets)
------------------------------------------
Management Fees 0.55% 0.59% 0.53%
Rule 12b-1/ASF Fees 1.00% 1.00% 1.00%
Other Expenses 0.37% 0.20%(3) 0.20%
Total Annual Fund Operating Expenses 1.92% 1.79% 1.73%
Expense Example of Total Operating Expenses
-------------------------------------------
Assuming Redemption at the End of the
-------------------------------------
Period(4)
------
One Year $ 295 $ 282 $ 276
Three Years $ 603 $ 563 $ 545
Five Years $1,037 $ 970 $ 939
Ten Years $2,243 $2,105 $2,041
Expense Example of Total Operating Expenses
-------------------------------------------
Assuming No Redemption at the End of the
----------------------------------------
Period(4)
------
One Year $ 195 $ 182 $ 176
Three Years $ 603 $ 563 $ 545
Five Years $1,037 $ 970 $ 939
Ten Years $2,243 $2,105 $2,041
</TABLE>
___________
Notes to Expense Comparison Table:
----------------------------------
(1) The Pro Forma column reflects expenses estimated for the Reorganized Fund
subsequent to the Reorganization and reflects the effect of the
Reorganization, including implementation of a new investment management
agreement and the adoption of a distribution plan.
(2) Contingent deferred sales charge on Class C shares is 1% for shares sold
during the first year after purchase.
(3) Restated to reflect the implementation of Scudder Medium Term Tax Free
Fund's Administrative Fee.
(4) Expense examples reflect what an investor would pay on a $10,000
investment, assuming a 5% annual return, the reinvestment of all dividends
and total operating expenses remain the same.
Distribution and Services Fees
Pursuant to an underwriting and distribution services agreement with
Scudder Medium Term Tax Free Fund, KDI, 222 South Riverside Plaza, Chicago,
Illinois 60606, an affiliate of the Investment
-19-
<PAGE>
Manager, acts as the principal underwriter and distributor of the Class A, Class
B and Class C shares of that Fund and acts as agent of the Fund in the
continuing offer of such shares. Scudder Medium Term Tax Free Fund has adopted
distribution plans on behalf of the Class A, Class B and Class C shares in
accordance with Rule 12b-1 under the 1940 Act that are substantially identical
to the existing distribution plans adopted by the Fund, with one exception. As
under the current distribution plans for the Fund, Scudder Medium Term Tax Free
Fund pays KDI an asset-based fee at an annual rate of 0.75% of Class B and Class
C shares. The distribution plans for Scudder Medium Term Tax Free Fund, however,
unlike the distribution plans for the Fund, also authorize the payment to KDI of
the 0.25% services fee with respect to the Class A, Class B and Class C shares
pursuant to the services agreement described below. Neither KDI nor the Trustees
of the Fund believe that the services performed by KDI under the services
agreement have been primarily intended to result in sales of fund shares (i.e.,
"distribution" services) as defined in Rule 12b-1, but rather are post-sale
administrative and other services provided to existing shareholders.
Nonetheless, to avoid legal uncertainties due to the ambiguity of the language
contained in Rule 12b-1 and eliminate any doubt that may arise in the future
regarding whether the services performed by KDI under the services agreement are
"distribution" services, the distribution plans for Scudder Medium Term Tax Free
Fund authorize the payment of the services fee. The fact that the services fee
is authorized by Scudder Medium Term Tax Free Fund's distribution plans does not
change the fee rate or affect the nature or quality of the services provided by
KDI.
Pursuant to the services agreement with Scudder Medium Term Tax Free Fund,
which is substantially identical to the current services agreement with the
Fund, KDI receives a services fee of up to 0.25% per year with respect to the
Class A, Class B and Class C shares of Scudder Medium Term Tax Free Fund. KDI
uses the services fee to compensate financial services firms ("firms") for
providing personal services and maintenance of accounts for their customers that
hold those classes of shares of Scudder Medium Term Tax Free Fund, and may
retain any portion of the fee not paid to firms to compensate itself for
administrative functions performed for the Fund. All fee amounts are payable
monthly and are based on the average daily net assets of each Fund attributable
to the relevant class of shares.
Purchases, Exchanges and Redemptions
Both Funds are part of the Scudder Kemper complex of mutual funds. The
procedures for purchases, exchanges, and redemptions of Class A, Class B and
Class C shares of Scudder Medium Term Tax Free Fund are identical to those of
the Fund. Shares of Scudder Medium Term Tax Free Fund are exchangeable for
shares of the same class of most other open-end funds advised by Scudder Kemper
offering such shares.
Corresponding classes of shares of Scudder Medium Term Tax Free Fund have
identical sales charges to those of the Fund. Scudder Medium Term Tax Free Fund
has a maximum initial sales charge of 2.75% on Class A shares. Shareholders who
purchase $1 million or more of Class A shares pay no initial sales charge but
may have to pay a contingent deferred sales charge (a "CDSC") of up to 1% if the
shares are sold within 2 years of the date on which they were purchased. Class B
shares are sold without a front-end sales charge, but may be subject to a CDSC
upon redemption, depending on the length of time the shares are held. The CDSC
begins at 4% for shares sold in the first year, declines to 1% in the sixth year
and is eliminated after the sixth year. After six years, Class B shares
automatically convert to Class A shares. Class C shares are sold without a
front-end sales charge, but may be subject to a CDSC of up to 1% if the shares
are sold within one year of purchase.
Class A, Class B and Class C shares of Scudder Medium Term Tax Free Fund
received in the Reorganization will be issued at net asset value, without a
sales charge, and no CDSC will be imposed on any shares of the Fund exchanged
for shares of Scudder Medium Term Tax Free Fund as a result of the
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Reorganization. However, following the Reorganization, any CDSC that applies to
shares of the Fund will continue to apply to shares of Scudder Medium Term Tax
Free Fund received in the Reorganization, using the original purchase date for
such shares to calculate the holding period, rather than the date such shares
are received in the Reorganization.
Services available to shareholders of Class A, Class B and Class C shares of
Scudder Medium Term Tax Free Fund are identical to those available to
shareholders of the corresponding classes of the Fund and include the purchase
and redemption of shares through an automated telephone system and over the
Internet, telephone redemptions, and exchanges by telephone to most other
Scudder Kemper funds that offer Class A, Class B and Class C shares, and
reinvestment privileges. Please see the Fund's prospectus for additional
information.
Dividends and Other Distributions
Each Fund intends to declare dividends from its net investment income daily
and distribute them monthly. Each Fund intends to distribute net realized
capital gains after utilization of capital loss carry forwards, if any, in
November or December of each year. An additional distribution may be made if
necessary. Shareholders of each Fund can have their dividends and distributions
automatically invested in additional shares of the same class of that Fund, or a
different fund in the same family of funds, at net asset value and credited to
the shareholder's account on the payment date or, at the shareholder's election,
paid in cash. For retirement plans, reinvestment is the only option.
If the Plan is approved by the Fund's shareholders, the Fund will pay its
shareholders a distribution of all undistributed net investment income and
undistributed realized net capital gains immediately prior to the Closing.
Other Differences Between the Funds.
Charter Documents.
Each of the Acquired Trust and the Acquiring Trust is established as a
Massachusetts business trust pursuant to separate Declarations of Trust.
Although the organizational documents of the Acquired Trust and the Acquiring
Trust are similar, some differences do exist. The more significant differences
are listed below.
. A vote of a majority of the Acquired Trust's outstanding shares is
required to remove a trustee from office; a vote of two-thirds of the
Acquiring Trust's outstanding shares is required to remove a trustee from
office.
. A special meeting of Fund shareholders may be called by shareholders
holding at least 25% of the Fund's shares then outstanding (or 10% of the
Acquired Trust's Shares if the purpose is to determine the removal of a
Trustee); 10% of Scudder Medium Term Tax Free Fund's shares then outstanding
are required to call a special meeting of its shareholders.
Trustees and Officers.
The Trustees of the Acquired Trust, currently and as proposed under Proposal
1, are different from those of the Acquiring Trust. As described in Scudder
Medium Term Tax Free Fund's prospectus that has been included in the materials
that you received with this document, the following individuals comprise the
Board of Trustees of the Acquiring Trust: Henry P. Becton, Jr., Linda C.
Coughlin, Dawn-Marie Driscoll, Edgar R. Fiedler, Keith R. Fox, Joan E. Spero,
Jean Gleason Stromberg, Jean C. Tempel and Steven Zaleznick. In addition, the
officers of the Acquired Trust and Acquiring Trust are different. (See Proposal
1 and the Statement of Additional Information for further information.)
Fiscal Year.
The Fund's fiscal year-end is September 30. Scudder Medium Term Tax Free
Fund's fiscal year-end is May 31.
Auditors.
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The Fund's auditors are Ernst & Young LLP. Scudder Medium Term Tax Free
Fund's auditors are PricewaterhouseCoopers LLP.
Tax Consequences
As a condition to the Reorganization, each 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 Fund or its shareholders as a direct result of the
Reorganization. See "The Proposed Transaction -- Federal Income Tax
Consequences."
* * *
The preceding is only 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.
II. PRINCIPAL RISK FACTORS
Because of their similar investment objectives, policies and strategies,
the principal risks presented by Scudder Medium Term Tax Free Fund are similar
to those presented by the Fund. The main risks applicable to each Fund include,
among others, interest rate risk, credit quality risk and management risk (i.e.,
securities selection by the Investment Manager). Interest rate risk is generally
greater for funds investing in fixed income securities with longer maturities
and longer durations (a measure of sensitivity to interest rate movements).
Investments in lower rated securities, including "junk bonds," entail relatively
greater risk of loss of income and principal than investments in higher rated
securities, and may fluctuate more in value. This risk could affect either Fund,
but could be more pronounced for the Fund to the extent it invests a portion of
its assets in junk bonds. Lastly, the Funds are not insured or guaranteed by the
FDIC or any other government agency. Share prices will go up and down, so be
aware that you could lose money.
For a further discussion of the investment techniques and risk factors
applicable to each Fund, see "Investment Objectives, Policies and Restrictions
of the Funds" above, and the prospectuses and statements of additional
information for the Funds.
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 Fund to Scudder Medium Term Tax Free Fund in exchange
for that number of full and fractional Class A, Class B and Class C shares
having an aggregate net asset value equal to the aggregate net asset value of
the shares of the corresponding classes of the Fund as of the close of business
on the Valuation Date. Scudder Medium Term Tax Free Fund will assume all of the
liabilities of the Fund. The Fund will distribute the Class A, Class B and Class
C shares received in the exchange to the shareholders of the corresponding
classes of the Fund in complete liquidation of the Fund. The Fund will then be
terminated.
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Upon completion of the Reorganization, each shareholder of the Fund will
own that number of full and fractional Class A, Class B and Class C Shares
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares of the corresponding class held in the Fund as of the
close of business on the Valuation Date. Such shares will be held in an account
with Scudder Medium Term Tax Free Fund identical in all material respects to the
account currently maintained by the Fund for such shareholder. In the interest
of economy and convenience, Class A, Class B and Class C shares issued to the
Fund's shareholders in the Reorganization will be in uncertificated form. If
Class A, Class B or Class C shares of the Fund are represented by certificates
prior to the Closing, such certificates should be returned to the Fund's
shareholder servicing agent. Any Class A, Class B or Class C shares of Scudder
Medium Term Tax Free Fund distributed in the Reorganization to shareholders in
exchange for certificated shares of the Fund may not be transferred, exchanged
or redeemed without delivery of such certificates.
Until the Closing, shareholders of the Fund will continue to be able to
redeem their shares at the net asset value next determined after receipt by the
Fund's transfer agent of a redemption request in proper form. Redemption and
purchase requests received on or after the Valuation Date by the transfer agent
will be treated as requests received for the redemption or purchase of Class A,
Class B or Class C shares of Scudder Medium Term Tax Free Fund received by the
shareholder in connection with the Reorganization.
The obligations of each Trust, on behalf of the respective Funds, under the
Plan are subject to various conditions, as stated therein, which includes
Scudder Medium Term Tax Free Fund's adoption of a new investment management
agreement and securities valuation procedures identical to the Fund's
procedures. The Plan also 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. Each Fund is in the process of making the
necessary filings. To provide for unforeseen events, the Plan may be terminated:
(i) by the mutual agreement of the parties; (ii) by either party if the Closing
has not occurred by _____ __, 2001, unless such date is extended by mutual
agreement of the parties; or (iii) by either party if the other party has
materially breached its obligations under the Plan or made a material
misrepresentation in the Plan or in connection with the Reorganization. The Plan
may also be amended by mutual agreement in writing. However, no amendment may be
made following the shareholder meeting if such amendment would have the effect
of changing the provisions for determining the number of shares of Scudder
Medium Term Tax Free Fund to be issued to the Fund in the Plan to the detriment
of the Fund's shareholders without their approval. For a complete description of
the terms and conditions of the Reorganization, please refer to the Plan at
Exhibit A.
Board Approval of the Proposed Transaction
As discussed above, the Reorganization is part of a Scudder Kemper
initiative that is intended to restructure and streamline the management and
operations of the funds Scudder Kemper advises. Scudder Kemper first proposed
the Reorganization to the Trustees of the Fund at a meeting held on May 24,
2000, see "Synopsis--Background of the Reorganization" above. This initiative
includes five major components:
(i) A change in branding to offer virtually all funds advised by Scudder
Kemper under the Scudder Investments name, with a concentration on
intermediary distribution;
(ii) The combination of funds with similar investment objectives and
policies, including in particular the combination of the Kemper Funds
with similar Scudder Funds currently offered to the general public;
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<PAGE>
(iii) The liquidation of certain small funds which have not achieved
market acceptance and which are unlikely to reach an efficient
operating size;
(iv) The implementation of an administration agreement for the Kemper
Funds similar to that recently adopted by the Scudder Funds
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
(v) The consolidation of certain boards overseeing funds advised by
Scudder Kemper.
The Independent Trustees of the Fund reviewed the potential implications of
these proposals for the Fund as well as the various other funds for which they
serve as board members. 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 May 24 meeting, the Independent
Trustees met in person or by telephone on numerous occasions (including
committee meetings) to review and discuss these proposals, both among themselves
and with representatives of Scudder Kemper, including the "interested" Trustees.
In the course of their review, the Independent Trustees requested and received
substantial additional information and suggested numerous changes to Scudder
Kemper's proposals.
Following the conclusion of this process, the Trustees of the Fund, the
board members of other funds involved and Scudder Kemper reached general
agreement on the elements of a restructuring plan that they believed were in the
best interests of shareholders and, where required, agreed to submit elements of
the plan for approval to shareholders of those funds.
On November 29, 2000, the Board of Trustees, including the Independent
Trustees, unanimously approved the terms of the Reorganization and certain
related proposals. The Trustees have also unanimously agreed to recommend that
the Reorganization be approved by the Fund's shareholders.
In determining whether to recommend that the shareholders of the Fund
approve the Reorganization, the Board of Trustees considered that:
. As part of Scudder Kemper's overall restructuring, the Fund would be
duplicative of another similar fund advised by Scudder Kemper in the
same distribution channel.
. The combined fund would adopt an investment management fee schedule
that, at all asset levels, is lower than the current rate applicable to
either Fund.
. The fixed fee rate under the Administration Agreement for Class A, Class
B and Class C shares is expected to be lower than the estimated
operating expenses such classes of the Fund would otherwise pay.
. It is a condition of the Reorganization that each Fund receive an
opinion of tax counsel that the transaction would be a tax-free
transaction.
. Although the Fund agreed to pay a portion of the estimated costs of the
Reorganization allocated to Class A and Class B shares, management has
estimated that such allocated costs will be recoverable from lower
overall expense ratios within six months of completion of the
Reorganization. Scudder Kemper agreed to pay all of the estimated costs
of the Reorganization allocated to Class C shares, a portion of the
estimated costs of the Reorganization allocated to Class A and Class B
shares and all of the costs of the Reorganization that exceeds estimated
costs.
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<PAGE>
As part of their deliberations, the Trustees considered, among other
things: (a) the fees and expense ratios of the Funds, including comparisons
between the expenses of the Fund and the estimated operating expenses of Scudder
Medium Term Tax Free Fund after the Reorganization, and between the estimated
operating expenses of Scudder Medium Term Tax Free 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 Funds' investment
objectives, policies, restrictions and portfolios; (d) the service features
available to shareholders of each Fund; (e) prospects for Scudder Medium Term
Tax Free Fund to attract additional assets; and (f) the investment performance
and tax equivalent yield of each Fund.
As part of their analysis, the Trustees considered direct and indirect
costs to shareholders including: (a) the direct costs of the Reorganization to
be borne by existing shareholders; (b) the potential costs of any necessary
rebalancing of the Fund's portfolio; and (c) the potential tax consequences to
shareholders as a result of differences in the Funds' realized or unrealized
capital gains or losses and capital loss carry forwards.
Costs. The anticipated costs of the Reorganization allocable to the Fund
are $6,670, which includes board meeting fees, legal, accounting and other
consultant fees, and proxy solicitation costs. The amount of these costs
allocated to Class A and Class B shares of the Fund are $1,729 out of $3,339
(51.8%) and $70 out of $2000 (3.50%), respectively. Scudder Kemper is bearing
the remaining costs for Class A and Class B shares, all costs for Class C shares
and any cost overruns (except that Scudder Medium Term Tax Free Fund is bearing
the SEC and state registration and notice fees which are estimated to be
$_________).
The estimated costs of the Reorganization borne by the Fund have been
expensed, resulting in a reduction of net asset value per share of $[ ] and $[ ]
for Class A and Class B shares, respectively. Management of the Fund expects
that reduced operating expenses resulting from the Reorganization should allow
for recovery of the allocated costs of the Reorganization within six months
after the Closing.
Portfolio Transaction Costs. To consider the potential costs of any
necessary rebalancing of the Fund's portfolio as a result of the Reorganization,
the Independent Trustees asked for, and Scudder Kemper provided, an estimate of
the expected turnover of the securities of the Fund, as a percentage of the
assets of the combined fund, as a result of the Reorganization. Scudder Kemper
estimated such turnover to be 1% which would result in estimated brokerage
expenses and/or transaction costs of $0.0001 (less than $0.01 per share of the
Fund), which the Trustees considered were immaterial. These estimates were based
upon current market conditions at the time and any actual costs will be
dependent upon liquidity and market conditions at the Closing. In a "bear"
market, for example, such costs could be substantially higher and could result
in capital losses.
Potential Tax Consequences. Although the Reorganizations will be achieved
on a federally tax-free basis (see "The Proposed Transaction -- Federal Income
Tax Consequences" below), there are differences in the Funds' realized or
unrealized capital gains or losses and capital loss carry forwards, which at
[_], 200[_] were as follows (although they may differ at the time of the
Closing):
[Charts to be inserted]
As noted above, under the terms of the Plan, shareholders of the Fund will
receive shares of Scudder Medium Term Tax Free Fund in an amount equal to the
relative net asset value of their Fund shares. The Trustees considered whether
an adjustment in this formula should be made for the above tax differentials.
The Trustees determined that no adjustment should be made because the potential
tax consequences were not material, quantifiable or predictable because of (1)
uncertainties as to the amounts
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of any actual future realization of capital gains or losses in view of future
changes in portfolio values, (2) the exemption of some shareholders from federal
income taxation, and (3) the differing consequences of federal and various other
income taxation upon a distribution received by each shareholder whose tax
liability (if any) is determined by the net effect of a multitude of
considerations that are individual to the shareholder. Shareholders should,
however, review their own tax situation to determine what effect, if any, these
potential tax differences may have on them.
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.
Based on all the foregoing, the Board concluded that the Fund's
participation in the Reorganization would be in the best interests of the Fund
and would not dilute the interests of the Fund's shareholders. The Board of
Trustees, including the Independent Trustees, unanimously recommends that
shareholders of the Fund approve the Reorganization.
Description of the Securities to Be Issued
Scudder Medium Term Tax Free Fund is a series of the Acquiring Trust, a
Massachusetts business trust established under a Declaration of Trust dated
December 28, 1982, as amended. The Acquiring Trust's authorized capital consists
of an unlimited number of shares of beneficial interest, par value $0.01 per
share. The Trustees of the Acquiring Trust are authorized to divide the shares
of the Acquiring Trust into separate series. Scudder Medium Term Tax Free Fund
is currently the only active series of the Acquiring Trust. The Trustees of the
Acquiring Trust are also authorized to further divide the shares of the series
of the Acquiring Trust into classes. The shares of Scudder Medium Term Tax Free
Fund are currently divided into five classes, Class S, Class AARP, Class A,
Class B and Class C. Although shareholders of different classes of a series have
an interest in the same portfolio of assets, shareholders of different classes
bear different expense levels because distribution costs and certain other
expenses approved by the Trustees of the Acquiring Trust are borne directly by
the class incurring such expenses.
Each share of each class of Scudder Medium Term Tax Free Fund represents an
interest in Scudder Medium Term Tax Free Fund that is equal to and proportionate
with each other share of that class of Scudder Medium Term Tax Free Fund.
Scudder Medium Term Tax Free Fund shareholders are entitled to one vote per
share held on matters on which they are entitled to vote. In the areas of
shareholder voting and the powers and conduct of the Trustees, there are no
material differences between the rights of shareholders of the Fund and the
rights of shareholders of Scudder Medium Term Tax Free Fund.
Federal Income Tax Consequences
The Reorganization is conditioned upon the receipt by 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 Scudder Medium Term Tax Free Fund of
all or substantially all of the assets of the Fund in exchange solely for Class
A, Class B and Class C shares and the assumption by Scudder Medium Term Tax Free
Fund of all of the liabilities of the Fund, followed by the distribution of such
shares to the Fund's shareholders in exchange for their shares of the Fund in
complete liquidation of the Fund, will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Code, and Scudder Medium Term Tax Free Fund
and the 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 Fund
upon the transfer of all or substantially all of its assets to Scudder Medium
Term Tax Free
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<PAGE>
Fund in exchange solely for Class A, Class B and Class C shares and the
assumption by Scudder Medium Term Tax Free Fund of all of the liabilities of the
Fund or upon the distribution of the Class A, Class B and Class C shares to
shareholders of the Fund in exchange for their shares of the Fund; (iii) the
basis of the assets of the Fund in the hands of Scudder Medium Term Tax Free
Fund will be the same as the basis of such assets of the Fund immediately prior
to the transfer; (iv) the holding period of the assets of the Fund in the hands
of Scudder Medium Term Tax Free Fund will include the period during which such
assets were held by the Fund; (v) no gain or loss will be recognized by Scudder
Medium Term Tax Free Fund upon the receipt of the assets of the Fund in exchange
for Class A, Class B and Class C shares and the assumption by Scudder Medium
Term Tax Free Fund of all of the liabilities of the Fund; (vi) no gain or loss
will be recognized by the shareholders of the Fund upon the receipt of the Class
A, Class B and Class C shares solely in exchange for their shares of the Fund as
part of the transaction; (vii) the basis of the Class A, Class B and Class C
shares received by each shareholder of the Fund will be the same as the basis of
the shares of the Fund exchanged therefor; and (viii) the holding period of
Class A, Class B and Class C shares received by each shareholder of the Fund
will include the holding period during which the shares of the Fund exchanged
therefor were held, provided that at the time of the exchange the shares of the
Fund were held as capital assets in the hands of such shareholder of the Fund.
After the Closing, Scudder Medium Term Tax Free Fund may dispose of
certain securities received by it from the Fund in connection with the
Reorganization, which may result in transaction costs and capital gains.
While the Fund 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.
Legal Matters
Certain legal matters concerning the federal income tax consequences
of the Reorganization will be passed on by Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, New York 10019. Certain legal matters concerning the issuance
of shares of Scudder Medium Term Tax Free Fund will be passed on by Dechert, Ten
Post Office Square, South, Boston, Massachusetts 02109.
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Capitalization
The following table shows on an unaudited basis the capitalization of
Scudder Medium Term Tax Free Fund and the Fund as of November 30, 2000 and on a
pro forma basis as of that date, giving effect to the Reorganization(1):
<TABLE>
<CAPTION>
Scudder Medium Term Pro Forma Pro Forma
Tax Free Fund Fund Adjustments (Combined)
<S> <C> <C> <C> <C>
Net Assets
Class S Shares $594,437,290 /(3)/ $ 594,437,290
Class AARP Shares $ 20,779 /(3)/ $ 20,779
Class A Shares $15,058,332 /(4)/ $ 15,058,332
Class B Shares $ 4,557,728 /(4)/ $ 4,557,728
Class C Shares $ 1,018,138 /(4)/ $ 1,018,138
------------ ----------- -------- -----------------
Total Net Assets $594,458,069 $20,634,198 615,092,267 /(2)/
============ =========== ======== =================
Shares Outstanding
Class S Shares 54,082,507 54,082,507
Class AARP Shares 1,890 1,890
Class A Shares 1,506,271 (136,086) 1,370,185
Class B Shares 455,980 (41,264) 414,716
Class C Shares 101,827 (9,185) 92,642
Net Asset Value per Share
Class S Shares $ 10.99 $ 10.99
Class AARP Shares $ 10.99 $ 10.99
Class A Shares $ 10.00 $ 10.99
Class B Shares $ 10.00 $ 10.99
Class C Shares $ 10.00 $ 10.99
</TABLE>
(1) Assumes the Reorganization had been consummated on November 30, 2000, and
is for informational purposes only. No assurance can be given as to how
many shares of Scudder Medium Term Tax Free Fund will be received by the
shareholders of the Fund on the date the Reorganization takes place, and
the foregoing should not be relied upon to reflect the number of shares of
Scudder Medium Term Tax Free Fund that actually will be received on or
after such date.
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<PAGE>
(2) Pro forma (combined) net assets do not reflect expense reductions that
would result from the implementation of Scudder Medium Term Tax Free Fund's
Administrative Fee.
(3) Represents one-time proxy, legal, accounting and other costs of the
Reorganization to be borne by Scudder Medium Term Tax Free Fund.
(4) Represents one-time proxy, legal, accounting and other costs of the
Reorganization to be borne by the Fund.
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The Board of Trustees unanimously recommends that the shareholders of the
Fund vote in favor of this Proposal 2.
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT AUDITORS
The Board of Trustees, including all of the Independent Trustees, has
selected Ernst & Young LLP to act as independent auditors of the Fund for the
Fund's current fiscal year and recommends that shareholders ratify such
selection. However, if the Plan is approved, as described under Proposal 2,
PricewaterhouseCoopers LLP will serve as the independent auditors for the
combined fund. One or more representatives of Ernst & Young 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 unanimously recommends that shareholders of the
Fund vote in favor of this Proposal 3.
ADDITIONAL INFORMATION
Information about the Funds
Additional information about the Trusts, the Funds and the
Reorganization has been filed with the SEC and may be obtained without charge by
writing to Scudder Investor Services, Inc., Two International Place, Boston, MA
02110-4103, or by calling 1-800-[ ].
The Trusts are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and the 1940 Act, and in accordance
therewith, file reports, proxy material and other information about each of the
Funds with the SEC. Such reports, proxy material and other information filed by
the Acquiring Trust, and those filed by the Acquired Trust, can be inspected and
copied at the Public Reference Room maintained by the SEC 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 prospectuses and
statements of additional information for the Funds, materials that are
incorporated by reference into the prospectuses and statements of additional
information, and other information about the Trusts and the Funds.
General
Proxy Solicitation. Proxy solicitation costs will be considered
Reorganization expenses and will be allocated accordingly. See "The Proposed
Transaction - Board Approval of the Proposed Transaction." In addition to
solicitation by mail, certain officers and representatives of the Acquired
Trust, officers and employees of Scudder Kemper and certain financial services
firms and their representatives, who will receive no extra compensation for
their services, may solicit proxies by telephone, telegram or personally.
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Any shareholder of the Fund giving a proxy has the power to revoke it
by mail (addressed to the Secretary at the principal executive office of the
Fund, c/o Scudder Kemper Investments, Inc., at the address for the 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
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 at least 30% of the shares of the Acquired Trust (for a trust-
wide vote) or the Fund (for a fund-wide vote) entitled to be cast shall be
necessary and sufficient to constitute a quorum for the transaction of business.
In the event that the necessary quorum to transact business or the vote required
to approve any Proposal is not obtained at the Meeting, the persons named as
proxies may propose one or more adjournments of the Meeting in accordance with
applicable law to permit further solicitation of proxies with respect to that
Proposal. Any such adjournment as to a matter will require the affirmative vote
of the holders of a majority of the Acquired Trust's (for a trust-wide vote) or
the Fund's (for a fund-wide vote) shares present in person or by proxy at the
Meeting. The persons named as proxies will vote in favor of any such
adjournment those proxies which they are entitled to vote in favor of that
Proposal and will vote against any such adjournment those proxies to be voted
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 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.
The election of the Trustees under Proposal 1 requires the affirmative
vote of a plurality of the shares of the Acquired Trust voting on such election.
Approval of Proposal 2 requires the affirmative vote of the holders of a
majority of the 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 Fund voting at the Meeting. Abstentions and broker non-votes will not be
counted in favor of, but will have no other effect on, Proposals 1 and 3, and
will have the effect of a "no" vote on Proposal 2.
Holders of record of the shares of the Fund at the close of business
on March 5, 2001 will be entitled to one vote per share on all business of the
Meeting. As of February 5, 2001, there were [ ] Class A shares, [ ]
Class B shares and [ ] Class C shares of the Fund outstanding.
[As of December 31, 2000, the officers and Trustees of the Acquiring
Trust as a group owned beneficially less than 1% of the outstanding shares of
each class of Scudder Medium Term Tax Free Fund.] Appendix 2 hereto sets forth
the beneficial owners of more than 5% of each [class of each] Fund's shares[, as
well as the beneficial owners of more than 5% of the shares of each class of
each other series of the Acquired Trust]. To the best of each Fund's knowledge,
as of December 31, 2000, no person owned beneficially more than 5% of [any class
of] either Fund's outstanding shares [or the shares of any other series of the
Acquired Trust], 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 $[ ]. As
the Meeting date approaches, certain shareholders of the 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
Fund. Proxies that are obtained telephonically will be recorded in accordance
with the procedures described below. The Trustees believe that these procedures
-31-
<PAGE>
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 and address,
or the last four digits of the shareholder's social security or employer
identification number, or both, and to confirm that the shareholder has received
the proxy materials in the mail. If the shareholder is a corporation or other
entity, the SCC representative is required to ask for the person's title and
confirmation that the person is authorized to direct the voting of the shares.
If the information solicited agrees with the information provided to SCC, then
the SCC representative has the responsibility to explain the process, read the
Proposals on the proxy card(s), and ask for the shareholder's instructions on
the Proposals. Although the SCC representative is permitted to answer questions
about the process, he or she is not permitted to recommend to the shareholder
how to vote, other than to read any recommendation set forth in the Proxy
Statement/Prospectus. 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.
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.
If a shareholder wishes to participate in the Meeting, but does not
wish to give a proxy by telephone or electronically, the shareholder may still
submit the proxy card(s) originally sent with the Proxy Statement/Prospectus or
attend in person. Should shareholders require additional information regarding
the proxy or replacement proxy card(s), they may contact SCC toll-free at 1-800-
[ ]. Any proxy given by a shareholder is revocable until voted at the
Meeting.
Shareholder Proposals for Subsequent Meetings. Shareholders wishing
to submit proposals for inclusion in a proxy statement for a shareholder meeting
subsequent to the Meeting, if any, should send their written proposals to the
Secretary of the Acquired Trust, c/o Scudder Kemper Investments, Inc., 222 South
Riverside Plaza, Chicago, Illinois 60606, 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. The Board is not aware of
any matters that will be presented for action at the Meeting other than the
matters described in this material. Should any other matters requiring a vote
of shareholders arise, the proxy in the accompanying form will confer upon the
person or persons entitled to vote the shares represented by such proxy the
discretionary authority to vote the shares as to any such other matters in
accordance with their best judgment in the interest of the Acquired Trust and/or
the 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,
-32-
<PAGE>
/s/ Philip J. Collora
Philip J. Collora
Secretary
-33-
<PAGE>
INDEX OF EXHIBITS AND APPENDICES
EXHIBIT A: FORM OF AGREEMENT AND PLAN OF REORGANIZATION....................
EXHIBIT B: MANAGEMENT'S DISCUSSION OF SCUDDER MEDIUM TERM TAX FREE FUND'S
PERFORMANCE.....................................................
APPENDIX 1: TRUSTEE AND NOMINEE SHAREHOLDINGS...............................
APPENDIX 2: BENEFICIAL OWNERS OF FUND SHARES................................
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<PAGE>
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this [ ] day of [ ], 2001, by and among Scudder Tax Free Trust (the
"Acquiring Trust"), a Massachusetts business trust, on behalf of Scudder Medium
Term Tax Free Fund (the "Acquiring Fund"), a separate series of the Acquiring
Trust, Kemper National Tax-Free Income Series (the "Acquired Trust" and,
together with the Acquiring Trust, each a "Trust" and collectively the
"Trusts"), a Massachusetts business trust, on behalf of Kemper Intermediate
Municipal Bond Fund (the "Acquired Fund" and, together with the Acquiring Fund,
each a "Fund" and collectively the "Funds"), a separate series of the Acquired
Trust, and Scudder Kemper Investments, Inc. ("Scudder Kemper"), investment
adviser to the Funds (for purposes of Paragraph 10.2 of the Agreement only).
The principal place of business of the Acquiring Trust is Two International
Place, Boston, Massachusetts 02110-4103. The principal place of business of the
Acquired Trust is 222 South Riverside Plaza, Chicago, Illinois 60606.
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 A, Class B and Class C 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 Class A, Class B and
Class C 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 Class A, Class B and Class C Acquiring Fund Shares
determined by dividing the value of the Acquired Fund's assets net of any
liabilities of the Acquired Fund with respect to the Class A, Class B and Class
C shares of the Acquired Fund, 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 of the corresponding class, 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, including, but not limited to, any deferred compensation to the
Acquired Fund board members. All Acquiring Fund Shares delivered to the
Acquired Fund shall be delivered at net asset value without sales load,
commission or other similar fee being imposed. Such transactions shall take
place at the closing provided for in section 3.1 (the "Closing").
<PAGE>
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 the Acquired Fund immediately before the Closing (excluding for
these purposes assets used to pay the dividends and other distributions paid
pursuant to section 1.4).
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in section 3.6.
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
with respect to each class of its shares (the "Acquired Fund Shareholders"),
determined as of the Valuation Time (as defined in section 2.1), on a pro rata
basis within that class, the Acquiring Fund Shares of the same class received by
the Acquired Fund pursuant to section 1.1 and will completely liquidate. Such
distribution and liquidation will be accomplished with respect to each class of
the Acquired Fund 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 Acquiring Fund shall have no obligation to inquire as to
the validity, propriety or correctness of such records, but shall assume that
such transaction is valid, proper and correct. The aggregate net asset value of
Class A, Class B and Class C Acquiring Fund Shares to be so credited to the
Class A, Class B and Class C Acquired Fund Shareholders shall, with respect to
each class, be equal to the aggregate net asset value of the Acquired Fund
shares of the same class 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 Class A, Class B and Class C 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.
<PAGE>
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, shall be
available to the Acquiring Fund from and after the Closing Date and shall be
turned over to the Acquiring Fund as soon as practicable following the Closing
Date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. (the "NYSE") on the business day
immediately preceding the Closing Date, as defined in section 3.1 (the
"Valuation Time") after the declaration and payment of any dividends and/or
other distributions on that date, using the valuation procedures set forth in
the Acquiring Trust's Declaration of Trust, as amended, and then-current
prospectus or statement of additional information, copies of which have been
delivered to the Acquired Fund.
2.2. The net asset value of a Class A, Class B or Class C Acquiring
Fund Share shall be the net asset value per share computed with respect to that
class as of the Valuation Time using the valuation procedures referred to in
section 2.1. Notwithstanding anything to the contrary contained in this
Agreement, in the event that, as of the Valuation Time, there are no Class A,
Class B and/or Class C Acquiring Fund Shares issued and outstanding, then, for
purposes of this Agreement, the per share net asset value of a Class A, Class B
and/or Class C share, as applicable, shall be equal to the net asset value of
one Class S Acquiring Fund Share.
2.3. The number of the Class A, Class B and Class C Acquiring Fund
Shares to be issued (including fractional shares, if any) in exchange for the
Assets shall be determined with respect to each such class by dividing the value
of the Assets with respect to Class A, Class B and Class C shares of the
Acquired Fund, as the case may be, determined in accordance with section 2.1 by
the net asset value of an Acquiring Fund Share of the same class 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 June 11, 2001, 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, 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
<PAGE>
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. Kemper Service Company, as transfer agent for the Acquired Fund, 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 Class A, Class B and Class C 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.
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 Class A, Class B and Class C shares of the Acquiring
Fund or the Acquired Fund 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.
3.6. The liabilities of the Acquired Fund shall include all of the
Acquired Fund's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Closing Date, and whether or not specifically referred to in this Agreement
including but not limited to any deferred compensation to the Acquired Fund's
board members.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Trust, on behalf of the Acquired Fund, represents
and warrants to the Acquiring Fund as follows:
(a) The Acquired Trust is a voluntary association with transferable
shares commonly referred to as a Massachusetts business trust duly organized and
validly existing under the laws of The Commonwealth of Massachusetts with power
under the Acquired Trust's Declaration of Trust, as amended, to own all of its
properties and assets and to carry on its business as it is now being conducted
and, subject to approval of shareholders of the Acquired Fund, to carry out the
Agreement. The Acquired
<PAGE>
Fund is a separate series of the Acquired Trust duly designated in accordance
with the applicable provisions of the Acquired Trust's Declaration of Trust. The
Acquired Trust and Acquired Fund are qualified to do business in all
jurisdictions in which they are required to be so qualified, except
jurisdictions in which the failure to so qualify would not have material adverse
effect on the Acquired Trust or Acquired Fund. The Acquired Fund has all
material federal, state and local authorizations necessary to own all of the
properties and assets and to carry on its business as now being conducted,
except authorizations which the failure to so obtain would not have a material
adverse effect on the Acquired Fund;
(b) The Acquired Trust is registered with the Commission as an open-
end management investment company under the 1940 Act, and such registration is
in full force and effect and the Acquired Fund is in compliance in all material
respects with the 1940 Act and the rules and regulations thereunder;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund of
the transactions contemplated herein, except such as have been obtained under
the Securities Act of 1933, as amended (the "1933 Act"), the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the 1940 Act and such as may be
required by state securities laws;
(d) Other than with respect to contracts entered into in connection
with the portfolio management of the Acquired Fund which shall terminate on or
prior to the Closing Date, the Acquired Trust is not, and the execution,
delivery and performance of this Agreement by the Acquired Trust will not result
(i) in violation of Massachusetts law or of the Acquired Trust's Declaration of
Trust, as amended, or By-Laws, (ii) in a violation or breach of, or constitute a
default under, any material agreement, indenture, instrument, contract, lease or
other undertaking 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, or (iii) in the creation or imposition of any lien, charge or encumbrance
on any property or assets of the Acquired Fund;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Acquired Fund or any properties or
assets held by it. The Acquired Fund knows of no facts which might form the
basis for the institution of such proceedings which would materially and
adversely affect its business and is not a party to or subject to the provisions
of any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate the
transactions herein contemplated;
(f) The Statements of Assets and Liabilities, Operations, and Changes
in Net Assets, the Financial Highlights, and the Investment Portfolio of the
Acquired Fund at and for the fiscal year ended September 30, 2000, have been
audited by Ernst & Young LLP, independent auditors, and are in accordance with
GAAP consistently applied, and such statements (a copy of each of which has been
furnished to the Acquiring Fund) present fairly, in all material respects, the
financial position of the Acquired Fund as of such date in accordance with GAAP,
and there are no known contingent liabilities of the Acquired Fund required to
be reflected on a balance sheet (including the notes thereto) in accordance with
GAAP as of such date not disclosed therein;
<PAGE>
(g) Since September 30, 2000, 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 and not
subject to preemptive or dissenter's rights (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 Kemper Service Company, 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 Acquired Trust (including the
determinations required by Rule 17a-8(a) under the 1940 Act), and, subject to
the approval of the Acquired Fund Shareholders, this Agreement constitutes a
valid and binding obligation of the Acquired Trust, on behalf of the Acquired
Fund, enforceable in accordance with its
<PAGE>
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, (i) comply in all material
respects with the provisions and Regulations of the 1933 Act, 1934 Act and 1940
Act, as applicable, and (ii) 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 Acquiring Trust, on behalf of the Acquiring Fund, represents
and warrants to the Acquired Fund as follows:
(a) The Acquiring Trust is a voluntary association with transferable
shares commonly referred to as a Massachusetts business trust duly organized and
validly existing under the laws of The Commonwealth of Massachusetts with power
under the Acquiring Trust's Declaration of Trust, as amended, to own all of its
properties and assets and to carry on its business as it is now being conducted
and, subject to the approval of shareholders of the Acquired Fund, to carry out
the Agreement. The Acquiring Fund is a separate series of the Acquiring Trust
duly designated in accordance with the applicable provisions of the Acquiring
Trust's Declaration of Trust. The Acquiring Trust and Acquiring Fund are
qualified to do business in all jurisdictions in which they are required to be
so qualified, except jurisdictions in which the failure to so qualify would not
have material adverse effect on the Acquiring Trust or Acquiring Fund. The
Acquiring Fund has all material federal, state and local authorizations
necessary to own all of the properties and assets and to carry on its business
as now being conducted, except authorizations which the failure to so obtain
would not have a material adverse effect on the Acquiring Fund;
(b) The Acquiring Trust is registered with the Commission as an open-
end management investment company under the 1940 Act, and such registration is
in full force and effect and
<PAGE>
the Acquiring Fund is in compliance in all material respects with the 1940 Act
and the rules and regulations thereunder;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required by state
securities laws;
(d) The Acquiring Trust is not, and the execution, delivery and
performance of this Agreement by the Acquiring Trust will not result (i) in
violation of Massachusetts law or of the Acquiring Trust's Declaration of Trust,
as amended, or By-Laws, or (ii) in a violation or breach of, or constitute a
default under, 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, or (iii) in the creation or imposition of any lien, charge or
encumbrance on any property or assets of the Acquiring Fund;
(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, 2000, 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, 2000, 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
<PAGE>
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, and not
subject to preemptive or dissenter's rights (recognizing that, under
Massachusetts law, Acquiring Fund Shareholders, under certain circumstances,
could be held personally liable for the obligations of the Acquiring Fund). The
Acquiring Fund does not have outstanding any options, warrants or other rights
to subscribe for or purchase any of the Acquiring Fund shares, nor is there
outstanding any security convertible into any of the Acquiring Fund shares;
(k) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to
the terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued and
outstanding Acquiring Fund Shares, and will be fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquiring Fund Shareholders, under
certain circumstances, could be held personally liable for the obligations of
the Acquiring Fund);
(l) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired Fund
has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action on
the part of the Board members of the Acquiring Trust (including the
determinations required by Rule 17a-8(a) under the 1940 Act) and this Agreement
will constitute a valid and binding obligation of the Acquiring Trust, on behalf
of the Acquiring Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for use
in any other document filed or to be filed with any federal, state or local
regulatory authority (including the NASD), which may be necessary in connection
with the transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(o) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not include any untrue statement of a
<PAGE>
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, (i) comply in all material
respects with the provisions and Regulations of the 1933 Act, 1934 Act, and 1940
Act and (ii) 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. No party shall take any action that would, or reasonably would
be expected to, result in any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect. The Acquired
Fund and Acquiring Fund covenant and agree to coordinate the respective
portfolios of the Acquired Fund and Acquiring Fund from the date of the
Agreement up to and including the Closing Date in order that at Closing, when
the Assets are added to the Acquiring Fund's portfolio, the resulting portfolio
will meet the Acquiring Fund's investment objective, policies and restrictions,
as set forth in the Acquiring Fund's Prospectus, a copy of which has been
delivered to the Acquired Fund.
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 May 24, 2001.
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.
<PAGE>
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.
5.6. Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all actions, and do or
cause to be done, all things reasonably necessary, proper, and/or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.7. Each Fund covenants to prepare in compliance with the 1933 Act, the
1934 Act and the 1940 Act the Registration Statement on Form N-14 (the
"Registration Statement") in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. The Acquired Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the Proxy Statement referred to
in section 4.1(o), all to be included in the Registration Statement, in
compliance in all material respects with the 1933 Act, the 1934 Act and the 1940
Act.
5.8. The Acquired Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquiring Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action as the Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Fund's title to and possession of all the assets and otherwise to
carry out the intent and purpose of this Agreement.
5.9. The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and such
of the state securities laws as it deems appropriate in order to continue its
operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund may take such
actions it reasonably deems advisable after the Closing Date as circumstances
change.
5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause to
be executed and delivered all such assignments, assumption agreements, releases,
and other instruments, and will take or cause to be taken such further action,
as the Acquired Fund may reasonably deem necessary or desirable in order to (i)
vest and confirm to the Acquired Fund title to and possession of all Acquiring
Fund shares to be transferred to the Acquired Fund pursuant to this Agreement
and (ii) assume the liabilities from the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired
Fund shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.12. The Acquiring Fund and the Acquired Fund shall each use its
reasonable best efforts to fulfill or obtain the fulfillment of the conditions
precedent to effect the transactions contemplated by this Agreement as promptly
as practicable.
5.13. The intention of the parties is that the transaction will qualify as
a reorganization within the meaning of Section 368(a) of the Code. Neither the
Trusts, the Acquiring Fund nor the Acquired
<PAGE>
Fund shall take any action, or cause any action to be taken (including, without
limitation, the filing of any tax return) that is inconsistent with such
treatment or results in the failure of the transaction to qualify as a
reorganization within the meaning of Section 368(a) of the Code. At or prior to
the Closing Date, the Trusts, the Acquiring Fund and the Acquired Fund will take
such action, or cause such action to be taken, as is reasonably necessary to
enable Willkie Farr & Gallagher to render the tax opinion contemplated herein in
section 8.5.
5.14. At or immediately prior to the Closing, the Acquired Fund may
declare and pay to its stockholders a dividend or other distribution in an
amount large enough so that it will have distributed substantially all (and in
any event not less than 98%) 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.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of the Acquiring Trust, on behalf
of the Acquiring Fund, contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be affected
by the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than the Acquired Fund, its adviser or any of their affiliates) against the
Acquiring Fund or its investment adviser(s), Board members or officers arising
out of this Agreement and (ii) no facts known to the Acquiring Fund which the
Acquiring Fund reasonably believes might result in such litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Trust, on behalf of
the 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, in a form reasonably satisfactory to the Acquired Fund, and dated as
of the Closing Date, to the effect that:
(a) The Acquiring Trust has been duly formed and is an existing
business trust; (b) the Acquiring Fund has the power to carry on its business as
presently conducted in accordance with the description thereof in the Acquiring
Fund's registration statement under the 1940 Act; (c) the Agreement has been
duly authorized, executed and delivered by the Acquiring Trust, on behalf of the
Acquiring Fund, and constitutes a valid and legally binding obligation of the
Acquiring Trust, on behalf of the Acquiring Fund, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity principles; (d) the execution
and delivery of the Agreement did not, and the exchange of the Acquired Fund's
assets for Acquiring Fund Shares pursuant to the Agreement will not, violate the
Acquiring Trust's Declaration of Trust, as amended, or By-laws; and (e) to the
knowledge of
<PAGE>
such counsel, and without any independent investigation, (i) the Acquiring Trust
is not subject to any litigation or other proceedings that might have a
materially adverse effect on the operations of the Acquiring Trust, (ii) the
Acquiring Trust is duly registered as an investment company with the Commission
and is not subject to any stop order; and (iii) 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.
The delivery of such opinion is conditioned upon receipt by Dechert
of customary representations it shall reasonably request of each of the
Acquiring Trust and the Acquired Trust.
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
6.5. The Acquiring Fund shall have (i) adopted a new investment management
agreement[, (ii)/and entered into an administrative services agreement with
Scudder Kemper and (iii)] adopted security valuation procedures identical to the
Acquired Fund's, each in a form reasonably satisfactory to the Acquired Fund.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of the Acquired Trust, on behalf
of the Acquired Fund, contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be affected
by the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than the Acquiring Fund, its adviser or any of their affiliates) against the
Acquired Fund or its investment adviser(s), Board members or officers arising
out of this Agreement and (ii) no facts known to the Acquired Fund which the
Acquired Fund reasonably believes might result in such litigation.
7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing Date,
certified by the Treasurer of the Acquired Fund.
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Trust, on behalf
of the Acquiring Fund, and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquired Trust with respect to the
Acquired Fund made in this Agreement are true and correct on and as of the
Closing Date, except as they may be affected by the transactions contemplated by
this Agreement, and as to such other matters as the Acquiring Fund shall
reasonably request.
<PAGE>
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Dechert, in a form reasonably satisfactory to the Acquiring Fund, and dated
as of the Closing Date, to the effect that:
(a) The Acquired Trust has been duly formed and is an existing
business trust; (b) the Acquired Fund has the power to carry on its business as
presently conducted in accordance with the description thereof in the Acquired
Trust's registration statement under the 1940 Act; (c) the Agreement has been
duly authorized, executed and delivered by the Acquired Trust, on behalf of the
Acquired Fund, and constitutes a valid and legally binding obligation of the
Acquired Trust, on behalf of the Acquired Fund, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity principles; (d) the execution
and delivery of the Agreement did not, and the exchange of the Acquired Fund's
assets for Acquiring Fund Shares pursuant to the Agreement will not, violate the
Acquired Trust's Declaration of Trust, as amended, or By-laws; and (e) to the
knowledge of such counsel, and without any independent investigation, (i) the
Acquired Trust is not subject to any litigation or other proceedings that might
have a materially adverse effect on the operations of the Acquired Trust, (ii)
the Acquired Trust is duly registered as an investment company with the
Commission and is not subject to any stop order, and (iii) all regulatory
consents, authorizations, approvals or filings required to be obtained or made
by the Acquired Fund under the federal laws of the United States or the laws of
The Commonwealth of Massachusetts for the exchange of the Acquired Fund's assets
for Acquiring Fund Shares, pursuant to the Agreement have been obtained or made.
The delivery of such opinion is conditioned upon receipt by Dechert
of customary representations it shall reasonably request of each of the
Acquiring Trust and the Acquired Trust.
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.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below have not been met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of the Acquired Trust's
Declaration of Trust, as amended, and By-Laws, applicable Massachusetts law and
the 1940 Act, and certified copies of the resolutions evidencing such approval
shall have been delivered to the Acquiring Fund. Notwithstanding anything herein
to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
conditions set forth in this section 8.1.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions contemplated
herein.
<PAGE>
8.3. All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5. The parties shall have received an opinion of Willkie Farr &
Gallagher addressed to each of the Acquiring Fund and the Acquired Fund, in a
form reasonably satisfactory to each such party to this Agreement, substantially
to the effect that, based upon certain facts, assumptions and representations of
the parties, for federal income tax purposes: (i) the transfer to the Acquiring
Fund of all or substantially all of the assets of the Acquired Fund in exchange
solely for Acquiring Fund Shares and the assumption by the Acquiring Fund of all
of the liabilities of the Acquired Fund, followed by the distribution of such
shares to the Acquired Fund Shareholders in exchange for their shares of the
Acquired Fund in complete liquidation of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Code, and the
Acquiring Fund and the Acquired Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by the Acquired Fund upon the transfer of all or substantially all of
its assets to the Acquiring Fund in exchange solely for Acquiring Fund Shares
and the assumption by the Acquiring Fund of all of the liabilities of the
Acquired Fund; (iii) the basis of the assets of the Acquired Fund in the hands
of the Acquiring Fund will be the same as the basis of such assets of the
Acquired Fund immediately prior to the transfer; (iv) the holding period of the
assets of the Acquired Fund in the hands of the Acquiring Fund will include the
period during which such assets were held by the Acquired Fund; (v) no gain or
loss will be recognized by the Acquiring Fund upon the receipt of the assets of
the Acquired Fund in exchange for Acquiring Fund Shares and the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund; (vi) no gain
or loss will be recognized by Acquired Fund Shareholders upon the receipt of the
Acquiring Fund Shares solely in exchange for their shares of the Acquired Fund
as part of the transaction; (vii) the basis of the Acquiring Fund Shares
received by Acquired Fund Shareholders will be the same as the basis of the
shares of the Acquired Fund exchanged therefor; and (viii) the holding period of
Acquiring Fund Shares received by Acquired Fund Shareholders will include the
holding period during which the shares of the Acquired Fund exchanged therefor
were held, provided that at the time of the exchange the shares of the Acquired
Fund were held as capital assets in the hands of Acquired Fund Shareholders. The
delivery of such opinion is conditioned upon receipt by Willkie Farr & Gallagher
of representations it shall request of each of the Acquiring Trust and Acquired
Trust. Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Acquired Fund may waive the condition set forth in this section
8.5.
9. INDEMNIFICATION
9.1. The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's Board members and officers from and against
any and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquired Fund or any of its
Board members or
<PAGE>
officers may become subject, insofar as any such loss, claim, damage, liability
or expense (or actions with respect thereto) arises out of or is based on any
breach by the Acquiring Fund of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
9.2. The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's Board members and officers from and
against any and all losses, claims, damages, liabilities or expenses (including,
without limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquiring Fund or any of its
Board members or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
10. FEES AND EXPENSES
10.1. Each of the Acquiring Trust, on behalf of the Acquiring Fund, and
the Acquired Trust, on behalf of the Acquired Fund, represents and warrants to
the other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
10.2. The anticipated costs of the Reorganization allocable to the
Acquired Fund are $6,670, which includes board meeting fees, legal, accounting
and other consultant fees, and proxy solicitation costs. The amount of these
costs allocated to Class A and Class B shares of the Acquired Fund are $1,729
out of $3,339 (51.8%) and $70 out of $2000 (3.50%), respectively. Scudder Kemper
is bearing the remaining costs for Class A and Class B shares, all costs for
Class C shares and any overruns [(except that the Acquiring Fund is bearing the
SEC and state registration and notice fees which are estimated to be
$_________)]. Any such expenses which are so borne by Scudder Kemper will be
solely and directly related to the Reorganization within the meaning of Revenue
Ruling 73-54, 1973-1 C.B. 187. [Acquired Fund Shareholders will pay their own
expenses, if any, incurred in connection with the Reorganization.]
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The Acquiring Fund and the Acquired Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing and the obligations of each of the
Acquiring Fund and Acquired Fund in sections 9.1 and 9.2 shall survive the
Closing.
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
[ ], 2001, 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
<PAGE>
on the part of any party or their respective Board members or officers, except
for any such material breach or intentional misrepresentation, as to each of
which all remedies at law or in equity of the party adversely affected shall
survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by any authorized officer of the Acquired
Fund and any authorized officer of the Acquiring Fund; provided, however, that
following the meeting of the Acquired Fund Shareholders called by the Acquired
Fund pursuant to section 5.3 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund Shareholders under this Agreement
to the detriment of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, 222 South Riverside Plaza, Chicago, Illinois 60606, with a copy
to Dechert, Ten Post Office Square South, Boston, MA 02109-4603, Attention:
Joseph R. Fleming, Esq., or to the Acquiring Fund, Two International Place,
Boston, Massachusetts 02110-4103, with a copy to Dechert, Ten Post Office Square
South, Boston, MA 02109-4603, Attention: Joseph R. Fleming, Esq., or to any
other address that the Acquired Fund or the Acquiring Fund shall have last
designated by notice to the other party.
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 each Trust mean and refer to the
Board members of each 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 each Trust
conducts its business. It is expressly agreed that the obligations of each Trust
hereunder shall not be binding upon any of the Board members, shareholders,
nominees, officers, agents, or employees of the Trusts or the Funds personally,
but bind only the respective property of the Funds, as provided in each
<PAGE>
Trust's Declaration of Trust. Moreover, no series of either Trust other than the
Funds shall be responsible for the obligations of the Trusts hereunder, and all
persons shall look only to the assets of the Funds to satisfy the obligations of
the Trusts hereunder. The execution and the delivery of this Agreement have been
authorized by each Trust's Board members, on behalf of the applicable Fund, and
this Agreement has been signed by authorized officers of each Fund acting as
such, and neither such authorization by such Board members, nor such execution
and delivery by such officers, shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the respective property of the Funds, as provided in each Trust's
Declaration of Trust.
Notwithstanding anything to the contrary contained in this Agreement, the
obligations, agreements, representations and warranties with respect to each
Fund shall constitute the obligations, agreements, representations and
warranties of that Fund only (the "Obligated Fund"), and in no event shall any
other series of the Trusts or the assets of any such series be held liable with
respect to the breach or other default by the Obligated Fund of its obligations,
agreements, representations and warranties as set forth herein.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of The Commonwealth of Massachusetts, without regard
to its principles of conflicts of laws.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by an authorized officer and its seal to be affixed thereto and
attested by its Secretary or Assistant Secretary.
Attest: SCUDDER TAX FREE TRUST
on behalf of Scudder Medium Term Tax Free Fund
_________________________
Secretary
_______________________________
By:____________________________
Its:___________________________
Attest: KEMPER NATIONAL TAX-FREE INCOME SERIES
on behalf of Kemper Intermediate Municipal
Bond Fund
_________________________
Secretary
_______________________________
By:____________________________
Its:___________________________
AGREED TO AND ACKNOWLEDGED
ONLY WITH RESPECT TO
PARAGRAPH 10.2 HERETO
SCUDDER KEMPER INVESTMENTS, INC.
_____________________________________
By:__________________________________
Its:_________________________________
<PAGE>
EXHIBIT B
Management's Discussion of Scudder Medium Term Tax Free Fund's Performance
<PAGE>
Performance Update
--------------------------------------------------------------------------------
May 31, 2000
--------------------------------------------------------------------------------
Growth of a $10,000 Investment
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder Medium Lehman Brothers
Term Tax Free Fund Municipal Bond Index*
'90 10000 10000
'91 10862 11008
'92 11933 12090
'93 13276 13537
'94 13719 13871
'95 14721 15135
'96 15400 15820
'97 16449 17139
'98 17712 18748
'99 18383 19624
'00 18347 19452
Yearly periods ended May 31
--------------------------------------------------------------------------------
Fund Index Comparison
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
Growth of Average
Period ended 5/31/2000 $10,000 Cumulative Annual
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Scudder Medium Term Tax Free Fund
----------------------------------------------------------------------------------------------------------
1 year $ 9,980 -.20% -.20%
-----------------------------------------------------------------------------------------------------------
5 year $ 12,463 24.63% 4.50%
-----------------------------------------------------------------------------------------------------------
10 year** $ 18,347 83.47% 6.26%
-----------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index*
-----------------------------------------------------------------------------------------------------------
1 year $ 9,912 -.88% -.88%
-----------------------------------------------------------------------------------------------------------
5 year $ 12,853 28.53% 5.14%
-----------------------------------------------------------------------------------------------------------
10 year $ 19,452 94.52% 6.87%
-----------------------------------------------------------------------------------------------------------
</TABLE>
* The unmanaged Lehman Brothers Municipal Bond Index is a market
value-weighted measure of the long-term, investment grade tax-exempt
bond market consisting of municipal bonds with a maturity of at least
two years. 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.
** On November 1, 1990, the Fund adopted its present name and objectives.
Prior to that date, the Fund was known as the 1990 Portfolio of the
Scudder Tax Free Target Fund and its objective was to provide high
tax-free income and current liquidity. Since adopting its current
objectives, the cumulative and average annual total returns are 79.64%
and 6.30%, respectively.
6 . Scudder Medium Term Tax Free Fund
<PAGE>
All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares,
when redeemed, may be worth more or less than when purchased. If the
Adviser had not maintained the Fund's expenses, the total returns for
the Fund would have been lower.
Scudder Medium Term Tax Free Fund . 7
<PAGE>
Portfolio Management Discussion
--------------------------------------------------------------------------------
May 31, 2000
Dear Shareholders,
Scudder Medium Term Tax Free Fund achieved its objectives and ranked in the top
quartile of similar funds for total return performance during the 12 months
ended May 31, 2000. The fund's most recent fiscal year comprised one of the most
difficult periods for fixed-income investments since 1994, however, as the
Federal Reserve Board Open Market Committee (FOMC) raised short-term interest
rates 175 basis points (1.75%) to 6.50%. Reflecting this adverse environment,
the fund posted a -0.20% total return for the 12 months ended May 31, 2000. This
return placed the fund 30th out of 125 peers over the period as compiled by
Lipper Analytical Services, Inc. The fund's solid competitive results also
placed it in the top 25% of similar funds for the three-, five-, and 10-year
periods as shown in the table below.
During the 12-month period, the Federal Reserve's resolve to head off inflation,
coupled with weak investor demand for municipal bond funds, led to negative
returns. Strong U.S. economic growth, the lowest unemployment rate in 30 years,
and brisk consumer spending prompted the Fed to tighten monetary policy.
For the fund, the overriding challenge was to preserve capital. We are pleased
to report that the fund's return outpaced the -1.04% average return of similar
municipal
--------------------------------------------------------------------------------
Solid Competitive Results
(Average annual returns for periods ended May 31, 2000)
--------------------------------------------------------------------------------
Scudder Lipper
Medium Term Average Number
Tax Free Fund Annual of Funds Percentile
Period Return Return Rank Tracked Ranking
--------------------------------------------------------------------------------
1 Year -0.20% -1.04% 30 of 125 Top 24%
3 Years 3.71% 3.35% 29 of 115 Top 25%
5 Years 4.50% 4.12% 21 of 100 Top 21%
10 Years 6.26% 5.84% 4 of 24 Top 16%
--------------------------------------------------------------------------------
Past performance does not guarantee future results.
Scudder Medium Term Tax Free Fund . 9
<PAGE>
bond funds during the 12 months ended May 31, 2000. In addition, Scudder Medium
Term Tax Free Fund received a five-star (highest) rating from Morningstar as of
November 30 (see page 2 for additional information). Please turn to the
Performance Update on page 5 for more information on the fund's long-term
progress, including comparisons with the unmanaged Lehman Brothers Municipal
Bond Index.
The Treasury Initiates A Buyback
Contrasting with the pressures on fixed income markets generated by FOMC
interest rate increases, in February the U.S. Treasury announced plans to buy
back some long-term debt and hold fewer debt auctions. This development
generated a welcome rally following five months of negative fixed-income
performance. The Treasury said that it plans to buy back government bonds and
reduce auctions all along the maturity spectrum.
Intermediate- and long-term bonds typically provide higher yields than
securities maturing in a year or less since they involve more interest-rate
risk. This pattern held true for both Treasuries and municipal bonds in the
autumn and winter of 1999. However, as 2000 began, the Treasury yield curve
inverted, so that by May 31, 2000, one-year Treasury bills offered higher yields
than 30-year bonds. While the municipal yield curve flattened during the period,
it did not invert. Longer-maturity municipal bond yields reached a historically
attractive ratio -- providing nearly all of the yield of comparable-maturity
Treasuries.
Fund Strategy
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. Over the course of the period, higher interest rates created
challenges, but also provided opportunities to reposition the fund's portfolio
to what we believe is a
10 . Scudder Medium Term Tax Free Fund
<PAGE>
favorable stance over the near term. Accordingly, our recent portfolio strategy
has been to:
1) purchase bonds at the shorter end of our permissible range. Over the
period, the fund sold bonds where the municipal yield curve was
historically flat, and purchased bonds in the six- to eight-year range.
Our focus on shorter maturities helped the fund to outperform its peer
group.
2) swap securities to improve coupon position. We purchase premium coupon
bonds and sell bonds priced near par to avoid holding bonds that lose
value as they become subject to the market discount tax for potential
buyers. We also buy bonds after they become market discounts (i.e.,
when they are cheap) and have the opportunity for strong performance
when the market rallies. To offset recognized capital gains, we sell
bonds that are valued at a loss where possible.
In addition, the fund has maintained its cautious stance on the market with
respect to interest rate risk. As of May 31, the fund's average duration was
4.80 years. (Duration gives relative weight to both principal and interest
payments through the life of a bond and has replaced average maturity as the
standard measure of interest rate sensitivity among professional investors.
Generally, the shorter the duration, the less sensitive a portfolio will be to
changes in interest rates.)
Longer-term, we continue to emphasize call protection when purchasing bonds for
the fund's portfolio. (Generally a bond is called in by its issuer so that it
can be refinanced at a lower prevailing rate.) Our call-protection strategy
provides a more reliable income stream for the fund than would exist if the
portfolio held a significant proportion of bonds that could be called in before
their stated maturities.
Lastly, the fund's overall level of portfolio quality remains high, with over
75% of the fund's portfolio rated AAA or AA, or of equivalent quality. And
diversification remains an important strategy for the fund, allowing us to
spread risk over a large number of sectors, maturities, and
Scudder Medium Term Tax Free Fund . 11
<PAGE>
geographic areas. As of May 31, the fund held securities issued in 32 states
plus the District of Columbia and the Virgin Islands. The Portfolio Summary on
page 8 provides more information about the fund's holdings, including quality,
maturity, and sector representation.
Our Outlook
Given recent government statistics that suggest U.S. economic growth has begun
to moderate and the fact that the Federal Reserve raised its short-term
interest-rate target in May by 50 basis points, municipal bonds may benefit from
a more stable interest rate environment over the coming months. We believe the
municipal bond market provides attractive value, with municipal yields still
close to those of comparable Treasuries, and tax-equivalent yields near
double-digit levels for investors in the highest tax brackets. In January 2000,
The Bond Buyer's Revenue Bond Index (comprised of long-maturity, A-rated bonds)
reached 6.35%, the highest level since August 1995.
In terms of fund strategy, if the yield curve remains relatively flat, we will
continue to seek competitive returns by purchasing six- to eight-year premium
cushion bonds and noncallable bonds. And rather than attempting to make
investment decisions based on short-term market movements, we will search for
the most attractively valued bonds as we seek a high level of tax-free income
for our shareholders.
Sincerely,
Your Portfolio Management Team
/s/ Ashton P. Goodfield /s/ Philip G. Condon
Ashton P. Goodfield Philip G. Condon
12 . Scudder Medium Term Tax Free Fund
<PAGE>
APPENDIX 1
Trustee and Nominee Shareholdings
<PAGE>
APPENDIX 2
Beneficial Owners of Fund Shares
<PAGE>
This Proxy Statement/Prospectus is accompanied by Scudder Medium Term
Tax Free Fund's prospectus offering Class A, Class B and Class C shares dated
December 29, 2000, which was previously filed with the Securities and Exchange
Commission (the "Commission") via EDGAR on January 4, 2001 (File No. 811-
03632), and is incorporated by reference herein.
Kemper Intermediate Municipal Bond Fund's prospectus dated January 1,
2001, which was previously filed with the Commission via EDGAR on December 29,
2000 (File No. 811-02353), is incorporated by reference herein.
Scudder Medium Term Tax Free Fund's statement of additional
information offering Class A, Class B and Class C shares dated December 29,
2000, which was previously filed with the Commission via EDGAR on January 4,
2001 (File No. 811-03632), is incorporated by reference herein.
<PAGE>
PART B
SCUDDER TAX FREE TRUST
------------------------------------------------------------
Statement of Additional Information
March [ ], 2001
------------------------------------------------------------
Acquisition of the Assets of By and in Exchange for Shares of
Kemper Intermediate Municipal Bond Fund, Scudder Medium Term Tax Free Fund,
a series of a series of
Kemper National Tax-Free Income Series Scudder Tax Free Trust (the "Acquiring
222 South Riverside Plaza Trust")
Chicago, IL 60606 Two International Place
Boston, MA 02110-4103
This Statement of Additional Information is available to the shareholders
of Kemper Intermediate Municipal Bond Fund in connection with a proposed
transaction whereby Scudder Medium Term Tax Free Fund will acquire all or
substantially all of the assets and all of the liabilities of Kemper
Intermediate Municipal Bond Fund in exchange for shares of the Scudder Medium
Term Tax Free Fund (the "Reorganization").
This Statement of Additional Information of the Acquiring Trust contains
material which may be of interest to investors but which is not included in the
Proxy Statement/Prospectus of the Acquiring Trust relating to the
Reorganization. This Statement of Additional Information consists of this cover
page and the following documents:
1. Scudder Medium Term Tax Free Fund's statement of additional information
offering Class A, Class B and Class C shares dated December 29, 2000, which was
previously filed with the Securities and Exchange Commission (the "Commission")
via EDGAR on January 4, 2001 (File No. 811-03632) and is incorporated by
reference herein.
2. Scudder Medium Term Tax Free Fund's annual report to shareholders for the
fiscal year ended May 31, 2000, which was previously filed with the Commission
via EDGAR on August 2, 2000 (File No. 811-03632) and is incorporated by
reference herein.
3. Kemper Intermediate Municipal Bond Fund's prospectus dated January 1, 2001,
which was previously filed with the Commission via EDGAR on December 29, 2000
(File No. 811-02353) and is incorporated by reference herein.
4. Kemper Intermediate Municipal Bond Fund's statement of additional
information dated January 1, 2001, which was previously filed with the
Commission via EDGAR on December 29, 2000 (File No. 811-02353) and is
incorporated by reference herein.
5. Kemper Intermediate Municipal Bond Fund's annual report to shareholders for
the fiscal year ended September 30, 2000, which was previously filed with the
Commission via EDGAR on December 1, 2000 (File No. 811-02353) and is
incorporated by reference herein.
<PAGE>
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated March [ ], 2001 relating to the Reorganization may
be obtained by writing Kemper Intermediate Municipal Bond Fund at 222 South
Riverside Drive, Chicago, IL 60606 or by calling [ ] at 1-800-[ ].
This Statement of Additional Information should be read in conjunction with
the Proxy Statement/Prospectus.
<PAGE>
ANNEX A
Ratings of Municipal Obligations
The six highest ratings of Moody's for municipal bonds are Aaa, Aa, A,
Baa, Ba and B. Bonds rated Aaa are judged by Moody's to be of the best quality.
Bonds rated Aa are judged to be of high quality by all standards. Together with
the Aaa group, they comprise what are generally known as high grade bonds.
Together with securities rated A and Baa, they comprise investment grade
securities. Moody's states that Aa bonds are rated lower than the best bonds
because margins of protection or other elements make long-term risks appear
somewhat larger than for Aaa municipal bonds. Municipal bonds which are rated A
by Moody's possess many favorable investment attributes and are considered
"upper medium grade obligations." Factors giving security to principal and
interest of A rated municipal bonds are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Securities rated Baa are considered medium grade, with factors giving security
to principal and interest adequate at present but may be unreliable over any
period of time. Such bonds have speculative elements as well as investment
grade characteristics. Securities rated Ba or below by Moody's are considered
below investment grade. Moody's judges municipal bonds rated Ba to have
speculative elements, with very moderate protection of interest and principal
payments and thereby not well safeguarded under any future conditions.
Municipal bonds rated B by Moody's generally lack characteristics of desirable
investments. Long-term assurance of the contract terms of B-rated municipal
bonds, such as interest and principal payments, may be small. Securities rated
Ba or below are commonly referred to as "junk" bonds and as such they carry a
high margin of risk.
Moody's ratings for municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition
of the differences between short-term and long-term credit risk. Loans bearing
the designation MIG1 are of the best quality, enjoying strong protection by
establishing cash flows of funds for their servicing or by established and
broad-based access to the market for refinancing, or both. Loans bearing the
designation MIG2 are of high quality, with margins of protection ample although
not as large as in the preceding group.
The six highest ratings of S&P for municipal bonds are AAA (Prime), AA
(High grade), A (Good grade), BBB (Investment grade), BB (Below investment
grade) and B. Bonds rated AAA have the highest rating assigned by S&P to a
municipal obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions. Bonds rated BBB have an adequate
capacity to pay interest and to repay principal. Adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds of this category than for bonds of higher
rated categories. Securities rated BB or below by S&P are considered below
investment grade. Debt rated BB by S&P faces major ongoing uncertainties or
exposure to adverse conditions which could lead to inadequate capacity to meet
timely interest and principal payments. Municipal bonds rated B have a greater
vulnerability to default but currently have the capacity to meet interest
payments and principal repayments. Securities rated BB or below are commonly
referred to as "junk" bonds and as such they carry a high margin of risk.
S&P's top ratings for municipal notes are SP1 and SP2. The designation SP1
indicates a very strong capacity to pay principal and interest. A "+" is added
for those issues determined to possess overwhelming safety characteristics. An
SP2 designation indicates a satisfactory capacity to pay principal and interest.
<PAGE>
The six highest ratings of Fitch for municipal bonds are AAA, AA, A, BBB,
BB and B. Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated F1+. Bonds rated A are considered to be investment grade and
of high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher ratings.
Bonds rated BBB are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse effects on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings. Securities
rated BB or below by Fitch are considered below investment grade. Fitch
considers bonds rated BB to be speculative because the issuer's ability to pay
interest and repay principal may be affected over time by adverse economic
changes, although financial alternatives can be identified to assist the issuer
in meeting its obligations. While bonds rated B are currently meeting debt
service requirements, they are considered highly speculative in light of the
issuer's limited margin of safety. Securities rated BB or below are commonly
referred to as "junk" bonds and as such they carry a high margin of risk.
Commercial Paper Ratings
Commercial paper rated A1 or better by S&P has the following
characteristics: Liquidity ratios are adequate to meet cash requirements. Long-
term senior debt is rated "A" or better, although in some cases "BBB" credits
may be allowed. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
The rating F1 is the highest rating assigned by Fitch. Among the factors
considered by Fitch in assigning this rating are: (1) the issuer's liquidity;
(2) its standing in the industry; (3) the size of its debt; (4) its ability to
service its debt; (5) its profitability; (6) its return on equity; (7) its
alternative sources of financing; and (8) its ability to access the capital
markets. Analysis of the relative strength or weakness of these factors and
others determines whether an issuer's commercial paper is rated F-1.
Relative strength or weakness of the above factors determine how the
issuer's commercial paper is rated within the above categories.
<PAGE>
Recently comparatively short-term obligations have been introduced in the
municipal market. S&P, Moody's and Fitch rate such obligations. While the
factors considered in municipal credit evaluations differ somewhat from those
relevant to corporate credits, the rating designations and definitions used with
respect to such obligations by S&P and Moody's are the same, respectively, as
those used in their corporate commercial paper ratings.
<PAGE>
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 (Exhibits (a)(1)(a)(a)(5) hereto, which are incorporated herein
by reference) provides 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,
<PAGE>
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 inure 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:
(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
<PAGE>
(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.
(a)(5) Establishment and Designation of Classes of Shares of
Beneficial Interest, $.01 Par Value, Scudder Medium
Term Tax Free Fund - Class S Shares and Scudder Medium
Term Tax Free Fund - AARP Shares, dated April 19,
2000, is incorporated by reference to Post-Effective
Amendment No. 34 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.
(b)(4) Amendment, dated February 7, 2000, to the By-laws of
the Registrant is incorporated by reference to Post-
Effective Amendment No. 35 to the Registration
Statement.
<PAGE>
(3) Inapplicable.
(4) Form of Agreement and Plan of Reorganization is filed
herein as Exhibit A to Part A.
(5) Inapplicable.
(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.
(d)(3) Form of Amended and Restated Investment Management
Agreement between the Registrant, on behalf of Scudder
Medium Term Tax Free Fund, and Scudder Kemper
Investments, Inc., dated July 31, 2000, is
incorporated by reference to Post-Effective Amendment
No. 35 to the Registration Statement.
(7) (e)(1) 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.
(e)(2) Underwriting Agreement between the Registrant and
Scudder Investor Services, Inc., dated May 8, 2000, is
incorporated by reference to Post-Effective Amendment
No. 34 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
<PAGE>
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, 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 and filed
May 1, 1990, is incorporated by reference to Post-
Effective Amendment No. 27 to the Registration
Statement.
(10) (n)(1) Amended and Restated Plan With Respect to Scudder
Medium Term Tax Free Fund Pursuant to Rule 18f-3,
dated May 8, 2000 is incorporated by reference to
Post-Effective Amendment No. 34 to the Registration
Statement.
(n)(2) Scudder Funds Amended and Restated Multi-Distribution
System Plan is filed herewith.
(11) Opinion and Consent of Dechert is filed herewith.
(12) Opinion and Consent of Willkie Farr & Gallagher is 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.
<PAGE>
(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.
(h)(5) Form of Administrative Service Agreement (and Fee
Schedule thereto) between the Registrant, on behalf of
Scudder Medium Term Tax Free Fund, and Scudder Kemper
Investments, Inc., dated October 2, 2000, is
incorporated by reference to Post-Effective Amendment
No. 35 to the Registration Statement.
(14) Consents of Independent Accountants are filed
herewith.
(15) Inapplicable.
(16) Powers of Attorney are filed herewith.
(17) Form of Proxy is filed herewith.
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 of 1933 (the "1933
Act") [17 CFR 230.145c], the reoffering prospectus will contain
the information called for by the applicable registration form
for reofferings by persons 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.
(3) The undersigned Registrant undertakes to file, by post-effective
amendment, an opinion of counsel supporting the tax consequences
of the proposed reorganization within a reasonable time after
receipt of such opinion.
<PAGE>
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 5/th/ day of January, 2001.
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 and Trustee January 5, 2001
---------------------------
Linda C. Coughlin
/s/ Henry P. Becton, Jr. * Trustee January 5, 2001
---------------------------
Henry P. Becton, Jr.
/s/ Dawn-Marie Driscoll * Trustee January 5, 2001
---------------------------
Dawn-Marie Driscoll
/s/ Edgar R. Fiedler * Trustee January 5, 2001
---------------------------
Edgar R. Fiedler
/s/ Keith R. Fox * Trustee January 5, 2001
---------------------------
Keith R. Fox
/s/ Joan E. Spero * Trustee January 5, 2001
---------------------------
Joan E. Spero
/s/ Jean Gleason Stromberg* Trustee January 5, 2001
---------------------------
Jean Gleason Stromberg
/s/ Jean C. Tempel * Trustee January 5, 2001
---------------------------
Jean C. Tempel
/s/ Steven Zaleznick * Trustee January 5, 2001
---------------------------
Steven Zaleznick
/s/ John R. Hebble Treasurer (Principal Financial January 5, 2001
--------------------------- and Accounting Officer)
John R. Hebble
*By: /s/ Joseph R. Fleming January 5, 2001
--------------------------
Joseph R. Fleming, Attorney-in-fact
*Executed pursuant to powers of attorney filed herein as an exhibit to the
Registrant's Registration Statement on Form N-14.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SCUDDER TAX FREE TRUST
<PAGE>
SCUDDER TAX FREE TRUST
EXHIBIT INDEX
Exhibit 10 Scudder Funds Amended and Restated Multi-Distribution System Plan
Exhibit 11 Opinion and Consent of Dechert
Exhibit 14 Consents of Independent Auditors
Exhibit 16 Powers of Attorney
Exhibit 17 Form of Proxy
