<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. /____/
KEMPER STATE TAX-FREE INCOME SERIES
(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza, Chicago, IL 60606
(Address of Principal Executive Offices) (Zip Code)
Philip J. Collora
Scudder Kemper Investments, Inc.
222 South Riverside Plaza
Chicago, IL 60606
(Name and Address of Agent for Service)
(312) 537-7000
(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 (without par value)
of Kemper New York Tax-Free Income 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
SCUDDER NEW YORK TAX FREE FUND
Please take notice that a Special Meeting of Shareholders (the
"Meeting") of Scudder New York Tax Free Fund (the "Fund"), a series of Scudder
State Tax Free Trust, will be held at the offices of Scudder Kemper Investments,
Inc., 13/th/ Floor, Two International Place, Boston, MA 02110-4103, on May 24,
2001, at 3:00 p.m., Eastern time, for the following purpose:
Proposal: 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 Kemper New York
Tax-Free Income Fund, (ii) each shareholder of the Fund
would receive Class S shares of Kemper New York Tax-Free
Income Fund in an amount equal to the value of their
holdings in the Fund, and (iii) the Fund would then be
terminated.
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 the Proposal is not obtained at the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the Fund's shares present in person or by proxy at the Meeting.
The persons named as proxies will vote FOR any such adjournment those proxies
which they are entitled to vote in favor of the Proposal and will vote AGAINST
any such adjournment those proxies to be voted against the Proposal.
By Order of the Board,
/s/ John Millette
John Millette
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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION............................................................................. __
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION.............................. __
SYNOPSIS...................................................................... __
PRINCIPAL RISK FACTORS........................................................ __
THE PROPOSED TRANSACTION...................................................... __
ADDITIONAL INFORMATION................................................................... __
</TABLE>
<PAGE>
PROXY STATEMENT/PROSPECTUS
March [ ], 2001
Relating to the acquisition of the assets of
SCUDDER NEW YORK TAX FREE FUND,
a separate series of
SCUDDER STATE TAX FREE TRUST (the "Acquired Trust")
Two International Place
Boston, Massachusetts 02110-4103
(800) [ ]
--------------------------
by and in exchange for shares of beneficial interest of
KEMPER NEW YORK TAX-FREE INCOME FUND,
a separate series of
KEMPER STATE TAX-FREE INCOME SERIES (the "Acquiring Trust")
222 South Riverside Plaza
Chicago, Illinois 60606
(800) [ ]
--------------------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies by the Board of Trustees of the Acquired Trust in
connection with the Special Meeting of Shareholders of Scudder New York Tax Free
Fund (the "Fund") to be held on May 24, 2001, at the offices of Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Investment Manager"), 13/th/ Floor,
Two International Place, Boston, MA 02110-4103 at 3:00 p.m. (Eastern time), or
at such later time made necessary by 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.
At the meeting, shareholders of the Fund will be asked to approve 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 Kemper New York
Tax-Free Income 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 Kemper New York Tax-Free Income Fund and the assumption by Kemper
New York Tax-Free Income Fund of all of the liabilities of the Fund, as
described more fully below (the "Reorganization"). Shares of Kemper New York
Tax-Free Income 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 Kemper New York Tax-Free
Income Fund and will receive shares of Kemper New York Tax-Free Income 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 18, 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.
-1-
<PAGE>
In the descriptions of the Proposal 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 Kemper New York Tax-Free Income 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 Kemper New York Tax-Free Income 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 Kemper New York Tax-Free Income Fund, see Kemper New York Tax-Free
Income Fund's prospectus dated February 1, 2001, 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 August 1,
2000, 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 Kemper New York Tax-Free Income
Fund's statement of additional information dated February 1, 2001, as
supplemented from time to time, which may be obtained upon request and without
charge by calling or writing Kemper New York Tax-Free Income 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 Kemper New York
Tax-Free Income Fund at the telephone number or address listed above.
Shareholder inquiries regarding Kemper New York Tax-Free Income 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.
Kemper New York Tax-Free Income Fund and the Fund are non-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 of the Acquired Trust unanimously recommends that
shareholders vote FOR the Proposal.
PROPOSAL: APPROVAL OF AGREEMENT
AND PLAN OF REORGANIZATION
I. SYNOPSIS
Introduction
The Board of Trustees ("Board of Trustees" refers to the Board of
Trustees of the Acquired Trust), including all of the Independent Trustees,
approved the Plan at a meeting held on November 13, 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 Kemper New York Tax-Free Income Fund in exchange for Class S shares of Kemper
New York Tax-Free Income Fund; (b) the distribution of such shares to the
shareholders of the Fund in complete liquidation of the Fund; and (c) the
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<PAGE>
termination of the Fund. As a result of the Reorganization, each shareholder of
the Fund will become a shareholder of Kemper New York Tax-Free Income Fund and
will hold, immediately after the Reorganization, Class S shares of Kemper New
York Tax-Free Income Fund 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 S shareholders of Kemper New York
Tax-Free Income Fund following the Reorganization will be identical to those
currently provided to shareholders of the Fund. See "Purchases, Exchanges and
Redemptions" below.
Background of the Reorganization
The Reorganization is part of a broader Scudder Kemper 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. In 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
and classes (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. 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
Scudder Funds.
The fund consolidations are expected to have a positive impact on
Scudder Kemper, as well. These consolidations 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 proposal on June 5, 2000, the Trustees
have conducted a thorough review of all aspects of the proposed Reorganization.
See "The Proposed Transaction - Board Approval of the Proposed Transaction"
below.
The Trustees believe that the Reorganization will provide shareholders
of the Fund with the following benefits:
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<PAGE>
. LOWER FUND EXPENSES. If the Reorganization is approved, the Fund's
shareholders are expected to benefit from lower total fund
operating expenses. Please refer to "Comparison of Expenses"
below.
. SIMILAR INVESTMENT OBJECTIVES AND POLICIES. Although some
differences do exist, Scudder Kemper has advised the Trustees that
the Funds have compatible investment objectives and policies. Both
Funds invest primarily in New York municipal securities. In
addition, Scudder Kemper has also advised the Trustees that both
Funds have the same portfolio management team and follow a
substantially similar investment process. Please refer to
"Investment Objectives, Policies and Restrictions of the Funds"
below.
. INVESTMENT IN A LARGER FUND. Scudder Kemper has advised the
Trustees that the Fund's shareholders will benefit from an
investment in a larger fund which may have the ability to effect
portfolio transactions on more favorable terms and provide Scudder
Kemper with greater investment flexibility and the ability to
select a larger number of portfolio securities for the combined
Fund, with the attendant ability to spread investment risks among
a larger number of portfolio securities.
. TAX-FREE REORGANIZATION. It is a condition of the Reorganization
that the Fund receives an opinion of tax counsel that the
transaction would be a TAX-FREE transaction.
For these reasons, as more fully described below under "The Proposed
Transaction -- Board Approval of the Proposed Transaction," the 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
The investment objectives, policies and restrictions of the Fund and
Kemper New York Tax-Free Income Fund are similar. Some differences do exist. The
investment objective of the Fund is to seek income that is exempt from New York
state and New York City personal income tax and regular federal income taxes.
The investment objective of Kemper New York Tax-Free Income Fund is to seek a
high level of current income that is exempt from New York state and New York
City income taxes and regular federal income taxes. There can be no assurance
that either Fund will achieve its investment objective. Each Fund has elected to
be classified as a non-diversified series of an open-end investment company.
Kemper New York Tax-Free Income Fund normally invests at least 80% of
its net assets in municipal securities whose income is free from regular federal
income tax. In addition, Kemper New York Tax-Free Income Fund invests at least
65% of its net assets in New York municipal securities and other securities that
are exempt from New York state and New York City income taxes. The Fund invests
-4-
<PAGE>
at least 80% of its net assets in New York municipal securities. Each Fund may
invest up to 20% of its net assets in securities whose income is subject to the
federal alternative minimum tax.
Each Fund can buy many types of municipal securities of all maturities.
These may include revenue bonds (which are backed by revenues from a particular
source) and general obligation bonds (which are typically backed by the issuer's
ability to levy taxes). They may also include, to a limited extent, municipal
lease obligations and investments representing an interest in these. Although
each Fund is permitted to use various types of derivatives (contracts whose
value is based on, for example, indices, currencies or securities), the
Investment Manager does not intend to use them as principal investments for
either Fund, and might not use them at all.
Both Funds have the same portfolio management team and are managed in a
substantially similar manner. The Funds differ in their manner of security
selection. In selecting securities for Kemper New York Tax-Free Income Fund, the
Investment Manager looks for securities that appear to offer the best income
potential. In selecting securities for the Fund, the Investment Manager looks
for securities that appear to offer the best total return potential. With both
Funds, the Investment Manager normally prefers securities that cannot be called
in before maturity. In making investment decisions for both Funds, the
Investment Manager typically weighs a number of factors, including economic
outlooks, possible interest rate movements, changes in supply and demand within
the municipal bond market and, in the case of Kemper New York Tax-Free Income
Fund, specific security characteristics.
Normally, at least 90% of Kemper New York Tax-Free Income Fund's
municipal securities are rated in one of the top four grades of credit quality.
The Fund normally invests at least 75% of its total assets in securities that
are of the top four grades of credit quality, or are issued or guaranteed by the
U.S. government. Up to 10% of Kemper New York Tax-Free Income Fund's investments
in municipal securities may consist of "junk bonds," which are those rated below
the top four credit grades (i.e., grade BB/Ba and below), while the Fund could
put up to 25% of its total assets in junk bonds of the fifth and sixth credit
grades (i.e., as low as grade B).
As a temporary defensive measure, each Fund may shift up to 100% of its
assets into investments such as taxable money market securities. To the extent a
Fund takes such actions, it would mean that the Fund would not be pursuing its
objective.
Although the Investment Manager may adjust Kemper New York Tax-Free
Income Fund's dollar-weighted average maturity (the effective maturity of the
Fund's portfolio), it generally expects to keep it over 15 years under normal
circumstances. The Investment Manager may adjust the Fund's duration (a measure
of sensitivity to interest rates), but it generally intends to keep it between
5.5 and 9.5 years.
The Funds' fundamental investment restrictions (as set forth under
"Investment Restrictions" in each Fund's statement of additional information)
are identical, except that the Fund must have at least 80% of its net assets
invested in New York municipal securities during periods of normal market
conditions. Fundamental investment restrictions may not be changed without the
approval of Fund shareholders. In addition, as a fundamental policy, the Fund
reserves the freedom of action to concentrate its investments in instruments
issued by domestic banks. The Funds' non-fundamental investment policies, which
are set forth under "Investment Restrictions" in each Fund's statement of
additional information (i.e., those changeable by the particular Fund's Board
without shareholder approval) are identical, except that Kemper New York
Tax-Free Income Fund has a stated restriction limiting investments in illiquid
securities to no more than 15% of net assets. Both Funds are, however, subject
to such restriction pursuant to applicable regulation. Investors should refer to
each Fund's statement of additional information for a more detailed description
of the Fund's investment policies and restrictions.
-5-
<PAGE>
Portfolio Turnover
The portfolio turnover rate for Kemper New York Tax-Free Income Fund,
i.e., the ratio of the lesser of annual sales or purchases to the monthly
average value of the portfolio (excluding from both the numerator and the
denominator securities with maturities at the time of acquisition of one year or
less), for the fiscal year ended August 31, 2000 was 26%. The portfolio turnover
rate for the Fund for the fiscal year ended March 31, 2000 was 25%.
Performance
The following table shows how the returns of the Fund and Kemper New
York Tax-Free Income 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.
Average Annual Total Return
for the Periods Ended December 31, 2000
[Insert Table]
The Trustees have been advised by Scudder Kemper that differences in the
past performance of the two Funds were primarily attributable to the Funds'
engagement of separate and distinct investment management teams prior to January
1999. The Trustees did not consider differences in the Funds' past performance
to be a significant factor in evaluating the Reorganization because the Funds
currently share the same portfolio management team and follow a substantially
similar investment process.
For management's discussion of Kemper New York Tax-Free Income Fund's
performance for the fiscal year ended August 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
three 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, both Funds pay 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 August 31, 2000, Kemper New York Tax-Free Income
Fund had total net assets of $216,141,597. For the fiscal year ended August 31,
2000, Kemper New York Tax-Free Income Fund paid the Investment Manager a fee of
0.55% of its average daily net assets. As of March 31, 2000, the Fund had total
net assets of $174,465,235. For the fiscal year ended March 31, 2000, the Fund
paid the Investment Manager a fee of 0.625% of its average daily net assets.
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<PAGE>
The fee schedule for the combined fund after the Reorganization will be
identical to the current fee schedule for Kemper New York Tax-Free Income Fund.
Currently the fee schedules for the Fund and Kemper New York Tax-Free Income
Fund are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Fund Kemper New York Tax-Free Income Fund
-------------------------------------------------------------------------------------------------
Average Daily Net Assets Fee Rate Average Daily Net Assets Fee Rate
------------------------ -------- ------------------------ --------
<S> <C> <C> <C>
First $200 million 0.625% First $250 million 0.550%
Next $300 million 0.600% Next $750 million 0.520%
More than $500 million 0.575% Next $1.5 billion 0.500%
Next $2.5 billion 0.480%
Next $2.5 billion 0.450%
Next $2.5 billion 0.430%
Next $2.5 billion 0.410%
More than $12.5 billion 0.400%
-------------------------------------------------------------------------------------------------
</TABLE>
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 0.625%.
Based upon each Fund's average net assets for the twelve months ended November
30, 2000, the effective advisory fee rate for Kemper New York Tax-Free Income
Fund after the Reorganization would be 0.54% of average daily net assets.
Administrative Fee
On the date of Closing, Kemper New York Tax-Free Income Fund will enter
into an administration agreement with Scudder Kemper (the "Administration
Agreement"), pursuant to which Scudder Kemper will provide or pay others to
provide substantially all of the administrative services required by Kemper New
York Tax-Free Income Fund (other than those provided by Scudder Kemper under its
investment management agreement with that Fund) in exchange for the payment by
Kemper New York Tax-Free Income Fund of an annual administrative services fee
(the "Administrative Fee") equal to 0.15% of average daily net assets
attributable to the Class S shares. The Administration Agreement is
substantially identical to that recently adopted by the Fund and upon closing,
Class S shareholders of Kemper New York Tax-Free Income Fund will pay the same
rate of Administrative Fee as is currently borne by the Fund. One effect of this
arrangement is to make Kemper New York Tax-Free Income Fund's future expense
ratio more predictable. On the other hand, the administrative fee rate will not
decrease with 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 Kemper New York
Tax-Free Income Fund pursuant to separate agreements. Some of 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 Kemper New York Tax-Free Income Fund and maintains its accounting records.
Scudder Service Corporation, a wholly owned subsidiary of Scudder Kemper, is the
transfer agent, shareholder service agent and dividend-paying agent for Class S
shares of Kemper New York Tax-Free Income Fund. Scudder Investor Services, Inc.,
a wholly-owned subsidiary of Scudder Kemper, is the principal underwriter and
distributor for the Class S shares of Kemper New York Tax-Free Income Fund and
acts as agent of such Fund in the continuous offering of such shares. As
custodian, State Street Bank and Trust Company holds the portfolio securities of
Kemper New York Tax-Free Income Fund, pursuant to a
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<PAGE>
custodian agreement. Other Service Providers include the independent public
accountants and legal counsel for Kemper New York Tax-Free Income Fund.
Once the Administration Agreement becomes effective, each Service
Provider will continue to provide the services to Kemper New York Tax-Free
Income Fund described above, except that Scudder Kemper will pay these entities
for the provision of their services to Kemper New York Tax-Free Income Fund and
will pay most other fund expenses, including insurance, registration, printing
and postage fees. In return, Kemper New York Tax-Free Income Fund will pay
Scudder Kemper the Administrative Fee.
The proposed Administration Agreement will remain in effect with respect
to the Class S shares for an initial term ending September 30, 2003, subject to
earlier termination by the Trustees who oversee Kemper New York Tax-Free Income
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 Kemper New York Tax-Free Income Fund. The fee payable by Kemper New York
Tax-Free Income Fund to Scudder Kemper pursuant to the Administration Agreement
would be reduced by the amount of any credit received from Kemper New York
Tax-Free Income Fund's custodian for cash balances.
Certain expenses of Kemper New York Tax-Free Income Fund would not be
borne by Scudder Kemper under the Administration Agreement, such as taxes,
brokerage, interest and extraordinary expenses, and the fees and expenses of the
Independent Trustees (including the fees and expenses of their independent
counsel). Kemper New York Tax-Free Income Fund will continue to pay the fees
required by its investment management agreement with Scudder Kemper.
Comparison of Expenses
The tables and examples below are designed to assist you in
understanding the various costs and expenses that you will bear directly or
indirectly as an investor in the Class S shares of Kemper New York Tax-Free
Income Fund, and compares these with the expenses of the Fund. As indicated
below, it is expected that the total expense ratio of Class S shares of Kemper
New York Tax-Free Income Fund following the Reorganization will be lower than
the current expense ratio of the comparable class of the Fund. 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 S Shares
<TABLE>
<CAPTION>
Kemper
New York
Tax-Free Pro Forma
Fund Income Fund (Combined)(1)
---- ----------- ----------
Shareholder Fees
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on None None None
Purchases (as % of offering price)
Maximum Contingent Deferred Sales Charge None None None
(Load) (as % of redemption proceeds)
</TABLE>
-8-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Maximum Deferred Sales Charge (Load) imposed None None None
on reinvested dividends
Redemption Fee (as a percentage of amount None None* None*
redeemed, if applicable)
Annual Fund Operating Expenses (unaudited)
-------------------------------
(as a % of average net assets)
------------------------------
Management Fees 0.63% 0.55% 0.54%
Rule 12b-1/ASF Fees None None None
Other Expenses 0.15%(2) 0.15%(3) 0.15%
Total Annual Fund Operating Expenses 0.78% 0.70% 0.69%
Expense Example of Total Operating Expenses at
----------------------------------------------
the End of the Period(4)
---------------------
One Year $ 80 $ 72 $ 71
Three Years $249 $ 224 $221
Five Years $433 $ 390 $384
Ten Years $966 $ 871 $859
</TABLE>
----------------
[* There is a $5 wire service fee for receiving redemption proceeds via wire.]
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 and the implementation of an Administrative Fee.
(2) Restated to reflect the implementation of the Fund's Administrative Fee.
(3) Reflects Administrative Fee to be effective upon completion of the
Reorganization.
(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 of Shares
Scudder Investor Services, Inc. ("SIS"), Two International Place,
Boston, Massachusetts 02110, a subsidiary of the Investment Manager, is the
principal underwriter of the Fund and will serve as the principal underwriter
for the Class S shares of Kemper New York Tax-Free Income Fund. SIS charges no
direct fees in connection with the distribution of shares of the Fund or the
Class S shares of Kemper New York Tax-Free Income Fund. Following the
Reorganization, shareholders of Class S shares of Kemper New York Tax-Free
Income Fund will continue to be able to purchase shares of the funds in the
Scudder Family of Funds on a no-load basis.
Purchases, Exchanges and Redemptions
Both Funds are part of the Scudder Kemper complex of mutual funds. At
the time of the Closing, the procedures for purchases, exchanges and redemptions
of Class S shares of Kemper New York Tax-
-9-
<PAGE>
Free Income Fund will be identical to those of the Fund. Class S shares of
Kemper New York Tax-Free Income Fund will be exchangeable for Class S shares of
most other open-end funds advised by Scudder Kemper offering such shares.
Services available to shareholders of Class S shares of Kemper New York
Tax-Free Income Fund will be identical to those available to shareholders 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 S shares, and
reinvestment privileges. Please see the prospectus of Kemper New York Tax-Free
Income Fund for additional information.
Dividends and Other Distributions
Each Fund intends to declare income dividends daily and pay them monthly
and distribute net short-term and net long-term capital gains, if any, in
November or December. 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 Acquiring Trust's outstanding shares
is required to remove a trustee from office; a vote of two-
thirds of the Acquired Trust's outstanding shares is required
to remove a trustee from office.
. A special meeting of shareholders of Kemper New York Tax-Free
Income Fund may be called by shareholders holding at least
25% of the shares then outstanding (or 10% of the Acquiring
Trust's shares if the purpose is to determine the removal of
a Trustee); 10% of the Fund's shares then outstanding are
required to call a special meeting of its shareholders.
Board Members and Officers.
The Trustees of the Acquired Trust are different from the Trustees of
the Acquiring Trust. The shareholders of Kemper New York Tax-Free Income Fund
are currently considering the election of a new Board of Trustees, which, if
approved by the shareholders, will consist of John W. Ballantine, Lewis A.
Burnham, Linda C. Coughlin, Donald L. Dunaway, James R. Edgar, William F.
Glavin, Robert B. Hoffman, Shirley D. Peterson, Fred B. Renwick, William P.
Sommers and John G. Weithers. In addition, the officers of the Acquired Trust
and the Acquiring Trust are different. (See each Fund's Statement of Additional
Information for further information.)
Fiscal Year.
The Fund's fiscal year-end is March 31. Kemper New York Tax-Free Income
Fund's fiscal year-end is August 31.
Auditors.
The Fund's auditors are PricewaterhouseCoopers LLP. Kemper New York
Tax-Free Income Fund's auditors are Ernst & Young LLP.
-10-
<PAGE>
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 Kemper New York Tax-Free Income Fund are
similar to those presented by the Fund. The main risks applicable to each Fund
include, among others, management risk (i.e., securities selection by the
Investment Manager), risk associated with interest rates and risk associated
with credit quality. Interest rate risk is generally greater for funds investing
in fixed income securities with longer maturities and portfolios with longer
average durations. Because historically Kemper New York Tax-Free Income Fund has
generally invested in securities with longer maturities and a longer average
duration than the Fund, its share value may fluctuate more due to interest
rates. Credit risk is greater for junk bonds than for investment grade bonds.
Investments in junk bonds entail relatively greater loss of income and principal
than investments in higher rated securities, and may fluctuate more in value.
Credit risk may be higher for the Fund because it may invest in junk bonds to a
greater extent (up to 25% of its total assets) than may Kemper New York Tax-Free
Income Fund (up to 10% of its municipal securities). The fact that each Fund
invests primarily in securities from a single state increases this risk, because
any factors affecting the state or region, such as economic or fiscal problems,
could affect portfolio securities similarly. Lastly, each Fund is subject to the
risks associated with being non-diversified. Since each Fund is non-diversified,
its investment returns may be impacted to a greater extent by changes in the
market value and returns of any one portfolio holding as compared to diversified
funds. 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 the Funds, see "Investment Objectives, Policies and Restrictions
of the Funds" herein, 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 Kemper New York Tax-Free Income
Fund in exchange for that number of full and fractional Class S shares having an
aggregate net asset value equal to the aggregate net asset value of the shares
of the corresponding class of the Fund as of the close of business on the
Valuation Date. Kemper New York Tax-Free Income Fund will assume all of the
liabilities of the Fund. The Fund will distribute the Class S
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<PAGE>
shares received in the exchange to the shareholders of the Fund in complete
liquidation of the Fund. The Fund will then be terminated.
Upon completion of the Reorganization, each shareholder of the Fund will
own that number of full and fractional Class S shares having an aggregate net
asset value equal to the aggregate net asset value of such shareholder's shares
held in the Fund as of the close of business on the Valuation Date. Such shares
will be held in an account with Kemper New York Tax-Free Income 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 S shares
issued to the Fund's shareholders in the Reorganization will be in
uncertificated form. If Class S 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 S shares of Kemper New York
Tax-Free Income 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 by on or after the Valuation Date by the transfer
agent will be treated as requests received for the redemption or purchase of
Class S shares of Kemper New York Tax-Free Income Fund received by the
shareholder in connection with the Reorganization.
The obligations of each of the Acquiring Trust and the Acquired Trust on
behalf of Kemper New York Tax-Free Income Fund and the Fund, respectively, under
the Plan are subject to various conditions, as stated therein. 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 Kemper New York Tax-Free Income 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.
Scudder Kemper will pay Kemper New York Tax-Free Income Fund's allocable
share of expenses associated with the Reorganization. The Fund will pay its
allocable share of expenses associated with the Reorganization (approximately
$24,974, or $[ ] per share, based on [ ], 2000 net assets for the Fund).
Board Approval of the Proposed Transaction
Scudder Kemper first proposed the Reorganization to the Independent
Trustees of the Fund at a meeting held on June 5, 2000. The Reorganization was
presented to the Trustees and considered by them as part of a broader initiative
by Scudder Kemper to consolidate its mutual fund lineup and to offer all of the
open-end mutual funds it advises under the "Scudder" brand name (see "Synopsis -
Background of the Reorganization" above). This initiative includes five major
components:
-12-
<PAGE>
(i) A change in branding to offer virtually all funds advised
by Scudder Kemper under the Scudder name, with a concentration on
distribution through financial intermediaries and the AARP
Investment Program;
(ii) The combination of funds with similar investment
objectives and policies, including in particular the combination
of similar Scudder Funds and Kemper Funds currently offered to
the general public;
(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 creation of new classes of shares of each continuing
Scudder Fund to facilitate future distribution of such funds
through the "intermediary" or broker-sold distribution channel,
and the creation of new classes of shares of each Kemper Fund
into which a Scudder Fund is merging in order to allow current
Scudder Fund shareholders to continue holding a class of shares
with similar rights, privileges and expense structures as they
currently possess; and
(v) The implementation by each Kemper Fund of an
Administration Agreement similar in scope and structure to the
Administration Agreements recently adopted by many of the Scudder
Funds.
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 trustees or directors. They were assisted in this review by their
independent legal counsel and by independent consultants with special expertise
in financial and mutual fund industry matters. Following the June 5th meeting,
the Independent Trustees met on several occasions to review and discuss these
proposals, both among themselves and with representatives of Scudder Kemper. In
the course of their review, the Independent Trustees requested and received
substantial additional information and suggested numerous changes to Scudder
Kemper's proposals, many of which were accepted.
Following the conclusion of this process, the Independent Trustees of
the Fund, the independent trustees/directors of other funds involved and Scudder
Kemper reached general agreement on the elements of a restructuring plan as it
affects shareholders of various funds and, where required, agreed to submit
elements of the plan for approval to shareholders of those funds.
On November 13, 2000, the Board of the Fund, including the Independent
Trustees of the Fund, approved the terms of the Reorganization and certain
related proposals. The Independent Trustees have also unanimously agreed to
recommend that the Reorganization be approved by the Fund's shareholders.
In determining to recommend that the shareholders of the Fund approve
the Reorganization, the Board considered, among other factors: (a) the fees and
expense ratios of the Funds, including comparisons between the expenses of the
Fund and the estimated operating expenses of Kemper New York Tax-Free Income
Fund, and between the estimated operating expenses of Kemper New York Tax-Free
Income 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
Fund's and Kemper New York Tax-Free Income Fund's investment objectives,
policies, restrictions and portfolios; (d) the agreement by Scudder Kemper to
provide services to Kemper New York Tax-Free Income Fund for a fixed fee rate
under the Administration Agreement with an initial three year term; (e) the
service features available to shareholders of the Fund and Kemper New York
Tax-Free Income Fund; (f) the costs to be borne by the
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<PAGE>
Fund, Kemper New York Tax-Free Income Fund and Scudder Kemper as a result of the
Reorganization; (g) prospects for Kemper New York Tax-Free Income Fund to
attract additional assets; (h) the tax consequences of the Reorganization on the
Fund, Kemper New York Tax-Free Income Fund and their respective shareholders;
(i) the investment performance of the Fund and Kemper New York Tax-Free Income
Fund and (j) possible economies of scale that might be realized by Scudder
Kemper in connection with the Reorganization, as well as the other fund
combinations included in Scudder Kemper's restructuring proposal.
The Trustees also considered the impact of the Reorganization on the
total expenses to be borne by shareholders of the Fund. As noted above under
"Comparison of Expenses," the pro forma expense ratio (reflecting the
Administrative Fee) for the combined Fund following the Reorganization is lower
than the current expense ratio for the Fund. The Board also considered that the
Reorganization would permit the shareholders of the Fund to pursue similar
investment goals in a larger fund.
Based on all of 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
Kemper New York Tax-Free Income Fund is a series of the Acquiring Trust,
a Massachusetts business trust established under a Declaration of Trust dated
October 24, 1985, as amended. The Acquiring Trust's authorized capital consists
of an unlimited number of shares of beneficial interest, all having no par value
per share. The Trustees of the Acquiring Trust are authorized to divide the
Acquiring Trust's shares into separate series. Kemper New York Tax-Free Income
Fund is one of four series of the Acquiring Trust that the board has created to
date. The Trustees of the Acquiring Trust are also authorized to further divide
the shares of the series of the Acquiring Trust into classes. The shares of
Kemper New York Tax-Free Income Fund are currently divided into four classes,
Class S, 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 by the class incurring such expenses.
Each share of each class of Kemper New York Tax-Free Income Fund
represents an interest in Kemper New York Tax-Free Income Fund that is equal to
and proportionate with each other share of that class of Kemper New York
Tax-Free Income Fund. Kemper New York Tax-Free Income 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 Kemper New York Tax-Free Income
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 Kemper New York Tax-Free Income Fund of
all or substantially all of the assets of the Fund in exchange solely for Class
S shares and the assumption by Kemper New York Tax-Free Income 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
-14-
<PAGE>
368(a)(1) of the Code, and Kemper New York Tax-Free Income 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 Kemper New York Tax-Free
Income Fund in exchange solely for Class S shares and the assumption by Kemper
New York Tax-Free Income Fund of all of the liabilities of the Fund or upon the
distribution of the Class S 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 Kemper New York Tax-Free Income 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 Kemper New York Tax-Free Income Fund will
include the period during which such assets were held by the Fund; (v) no gain
or loss will be recognized by Kemper New York Tax-Free Income Fund upon the
receipt of the assets of the Fund in exchange for Class S shares and the
assumption by Kemper New York Tax-Free Income 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 S shares solely in exchange for their shares
of the Fund as part of the transaction; (vii) the basis of the Class S 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 S
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, Kemper New York Tax-Free Income 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 Kemper New York Tax-Free Income Fund will be passed on by Dechert,
Ten Post Office Square, South, Boston, Massachusetts 02109.
-15-
<PAGE>
Capitalization
The following table shows on an unaudited basis the capitalization of
Kemper New York Tax-Free Income 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> Pro Forma
Kemper New York Pro Forma (Combined)
Tax-Free Income Fund Fund Adjustments
<S> <C> <C> <C> <C>
Net Assets
Class S Shares $ 177,395,673 /(3)/ $ 177,395,673
Class AARP Shares $ 2,165 /(3)/ $ 2,165
Class A Shares $ 199,733,112 /(4)/ $ 199,733,112
Class B Shares $ 11,953,646 /(4)/ $ 11,953,646
Class C Shares $ 3,430,992 /(4)/ $ 3,430,992
--------------------- --------------------- ----------------- -------------------
Total Net Assets $ 215,117,750 $ 177,397,838 $ 392,515,588/(2)/
===================== ===================== ================= ===================
Shares Outstanding
Class S Shares 16,069,302 1,004,391 17,073,693
Class AARP Shares 196 12 208
Class A Shares 19,215,237 19,215,237
Class B Shares 1,148,249 1,148,249
Class C Shares 330,243 330,243
Net Asset Value per Share
Class S Shares $ 11.04 $ 10.39
Class AARP Shares $ 11.04 $ 10.39
Class A Shares $ 10.39 $ 10.39
Class B Shares $ 10.41 $ 10.41
Class C Shares $ 10.39 $ 10.39
</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 Kemper New York Tax-Free Income 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 Kemper New York Tax-Free Income 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 an Administrative Fee for Kemper
New York Tax-Free Income Fund.
(3) Represents one-time proxy, legal, accounting and other costs of the
Reorganization to be borne by the Fund.
(4) Represents one-time proxy, legal, accounting and other costs of the
Reorganization to be borne by Kemper New York Tax-Free Income Fund.
-17-
<PAGE>
The Board of Trustees unanimously recommends that the shareholders of the
Fund vote in favor of this Proposal.
ADDITIONAL INFORMATION
Information about the Funds
Additional information about the Acquired Trust, the Acquiring Trust,
the Funds and the Reorganization has been filed with the SEC and may be obtained
without charge by writing to Scudder Investor Services, Inc., Two International
Place, Boston, Massachusetts 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 - Description of the Plan." In addition to solicitation by mail,
certain officers and representatives of the Acquired Trust, officers and
employees of Scudder Kemper and certain financial services firms and their
representatives, who will receive no extra compensation for their services, may
solicit proxies by telephone, telegram or personally.
Any 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 the
Proposal.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of at least one-third of the shares of the Fund 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 the 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 the Proposal. Any such adjournment as to a matter will require the
affirmative vote of the holders of a majority of the Fund's shares present in
person or by proxy at the
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<PAGE>
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 the Proposal and will
vote against any such adjournment those proxies to be voted against the
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.
Approval of the Proposal requires the affirmative vote of the holders of
a majority of the Fund's shares outstanding and entitled to vote thereon.
Abstentions and broker non-votes and will have the effect of a "no" vote on the
Proposal.
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 S shares of the Fund
outstanding.
[As of December 31, 2000, the officers and Trustees of the Acquiring
Trust as a group owned less than 1% of the outstanding shares of each class of
Kemper Tax-Free New York Income Fund.] The Appendix 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 other class of
each series of the Acquired Trust. To the best of each Trust's knowledge, as of
December 31, 2000, no person owned beneficially more than 5% of either Fund's
outstanding shares or the shares of any other series of the Acquired Trust,
except as stated on the Appendix.
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
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
Proposal on the proxy card(s), and ask for the shareholder's instructions on the
Proposal. 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
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<PAGE>
voting instructions on the Proposal. 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 via 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., Two
International Place, Boston, Massachusetts 02110-4103, 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,
/s/ John Millette
John Millette
Secretary
-20-
<PAGE>
INDEX OF EXHIBITS AND APPENDIX
<TABLE>
<S> <C>
EXHIBIT A: FORM OF AGREEMENT AND PLAN OF REORGANIZATION......................................
EXHIBIT B: MANAGEMENT'S DISCUSSION OF KEMPER NEW YORK TAX-FREE INCOME FUND'S PERFORMANCE.....
APPENDIX: BENEFICIAL OWNERS OF FUND SHARES..................................................
</TABLE>
-21-
<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 Kemper State Tax-Free Income Series (the
"Acquiring Trust"), a Massachusetts business trust, on behalf of Kemper New York
Tax-Free Income Fund (the "Acquiring Fund"), a separate series of the Acquiring
Trust, Scudder State Tax Free Trust (the "Acquired Trust" and, together with the
Acquiring Trust, each a "Trust" and collectively the "Trusts"), a Massachusetts
business trust, on behalf of Scudder New York Tax Free 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 222 South Riverside Plaza, Chicago, Illinois
60606. The principal place of business of the Acquired Trust is Two
International Place, Boston, Massachusetts 02110-4103.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all or substantially all of
the assets of the Acquired Fund to the Acquiring Fund in exchange solely for
Class S voting shares of beneficial interest (without par value) 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 S 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 S 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 S 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, 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
(the "Acquired Fund Shareholders"), determined as of the Valuation Time (as
defined in section 2.1), on a pro rata basis, the Acquiring Fund Shares received
by the Acquired Fund pursuant to section 1.1 and will completely liquidate. Such
distribution and liquidation will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on the
books of the Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund Shareholders. The 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 S Acquiring Fund
Shares to be so credited to the Class S Acquired Fund Shareholders shall be
equal to the aggregate net asset value of the Class S Acquired Fund shares owned
by such shareholders as of the Valuation Time. All issued and outstanding shares
of the Acquired Fund will simultaneously be cancelled on the books of the
Acquired Fund, although share certificates representing interests in Class S
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 S Acquiring Fund Share shall be the net
asset value per share computed as of the Valuation Time using the valuation
procedures referred to in section 2.1. Notwithstanding anything to the contrary
contained in this Agreement, in the event that, as of the Valuation Time, there
are no Class S Acquiring Fund Shares issued and outstanding, then, for purposes
of this Agreement, the per share net asset value of a Class S share shall be
equal to the net asset value of one Class A Acquiring Fund Share.
2.3. The number of the Class S Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Assets shall be
determined by dividing the value of the Assets with respect to Class S shares of
the Acquired Fund, determined in accordance with section 2.1 by the net asset
value of a Class S Acquiring Fund Share determined in accordance with section
2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall be subject to confirmation by each Fund's respective independent
accountants upon the reasonable request of the other Fund.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this Agreement shall
be June 18, 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 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
<PAGE>
presented by the custodian for the Acquired Fund to the custodian for the
Acquiring Fund for examination no later than five business days preceding the
Closing Date and transferred and delivered by the Acquired Fund as of the
Closing Date by the Acquired Fund for the account of Acquiring Fund duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof. The Acquired Fund's portfolio securities and instruments
deposited with a securities depository, as defined in Rule 17f-4 under the 1940
Act, shall be delivered as of the Closing Date by book entry in accordance with
the customary practices of such depositories and the custodian for the Acquiring
Fund. The cash to be transferred by the Acquired Fund shall be delivered by
wire transfer of federal funds on the Closing Date.
3.4. Scudder Service Corporation, 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 S 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 S 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 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
<PAGE>
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 March 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 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 March 31, 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 Scudder Service Corporation, 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 August 31, 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 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 August 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 [entered into an administrative services
agreement with Scudder Kemper] in a form reasonably satisfactory to the Acquired
Fund.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of the 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.
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:
<PAGE>
(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.
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
<PAGE>
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 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.
<PAGE>
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 $24,974, which includes board meeting fees, legal, accounting
and other consultant fees, and proxy solicitation costs. The Acquired Fund is
bearing all of these costs. The anticipated costs of the Reorganization
allocable to the Acquiring Fund are $25,292, which includes board meeting fees,
legal, accounting and other consultant fees, and proxy solicitation costs.
Scudder Kemper is bearing these costs and any remaining costs, including any
cost overruns [(except that the Acquir[ing] 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 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.
<PAGE>
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by any authorized officer of the Acquired
Fund and any authorized officer of the Acquiring Fund; provided, however, that
following the meeting of the Acquired Fund Shareholders called by the Acquired
Fund pursuant to section 5.3 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund Shareholders under this Agreement
to the detriment of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, Two International Place, Boston, Massachusetts 02110-4103, with a
copy to Dechert, Ten Post Office Square South, Boston, MA 02109-4603, Attention:
Joseph R. Fleming, Esq., or to the Acquiring 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 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 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
<PAGE>
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: KEMPER STATE TAX-FREE INCOME SERIES
on behalf of Kemper New York Tax-Free
Income Fund
_______________________
Secretary
______________________________
By:___________________________
Its:__________________________
Attest: SCUDDER STATE TAX FREE TRUST
on behalf of Scudder New York Tax Free 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 Kemper New York Tax-Free Income Fund's Performance
<PAGE>
MANAGEMENT TEAM
KEMPER STATE TAX-FREE INCOME SERIES
PORTFOLIO MANAGEMENT TEAM
[BRENNAN PHOTO]
ELEANOR R. BRENNAN IS CO-LEAD PORTFOLIO MANAGER OF KEMPER CALIFORNIA, KEMPER
FLORIDA AND KEMPER OHIO TAX-FREE INCOME FUNDS. BRENNAN JOINED THE FIRM IN 1995
AND IS A SENIOR VICE PRESIDENT. SHE RECEIVED HER B.A. IN ECONOMICS FROM URSINUS
COLLEGE AND AN M.S. IN FINANCE FROM DREXEL UNIVERSITY.
[CAGGIANO PHOTO]
MATTHEW J. CAGGIANO IS A PORTFOLIO MANAGER OF KEMPER CALIFORNIA TAX-FREE INCOME
FUND. HE HAS 10 YEARS OF PROFESSIONAL INVESTMENT EXPERIENCE AND JOINED SCUDDER
KEMPER INVESTMENTS IN 1990.
[CONDON PHOTO]
PHILIP G. CONDON IS CO-LEAD PORTFOLIO MANAGER OF KEMPER CALIFORNIA, KEMPER
FLORIDA, KEMPER NEW YORK AND KEMPER OHIO TAX-FREE INCOME FUNDS. HE HAS 24 YEARS
OF PROFESSIONAL INVESTMENT EXPERIENCE AND JOINED THE FIRM IN 1983 AS A FIXED-
INCOME ANALYST.
[GOODFIELD PHOTO]
ASHTON P. GOODFIELD IS CO-LEAD PORTFOLIO MANAGER FOR KEMPER NEW YORK TAX-FREE
INCOME FUND. SHE IS A SENIOR VICE PRESIDENT WITH 14 YEARS OF PROFESSIONAL
INVESTMENT EXPERIENCE. SHE JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1986.
[WILSON PHOTO]
REBECCA L. WILSON IS A PORTFOLIO MANAGER FOR KEMPER FLORIDA AND KEMPER OHIO
TAX-FREE INCOME FUNDS. SHE JOINED SCUDDER KEMPER INVESTMENTS IN 1986. SHE HAS 14
YEARS OF PROFESSIONAL INVESTMENT EXPERIENCE.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS AND SHOULD NOT BE CONSIDERED AS A RECOMMENDATION OF ANY SPECIFIC
SECURITY.
8
<PAGE>
PERFORMANCE UPDATE
MUNICIPAL BONDS HAVE FACED A CHALLENGING ENVIRONMENT SINCE AUGUST 1999. CAREFUL
SECURITY SELECTION AND SAVVY CURVE POSITIONING IN A RISING-INTEREST-RATE
ENVIRONMENT HELPED DELIVER ATTRACTIVE RESULTS. BELOW, THE MANAGEMENT TEAM
DISCUSSES THE MARKET'S PERFORMANCE AND HOW KEMPER STATE TAX-FREE INCOME FUNDS
ARE POSITIONED FOR THE YEAR AHEAD.
Q HOW DID THE MUNICIPAL BOND MARKET BEHAVE DURING FISCAL YEAR 2000?
A During the 12 months ended August 31, 2000, interest rates fluctuated
sharply. Short-term rates rose while long-term rates fell. Strong U.S. economic
growth prompted the Federal Reserve Board Open Market Committee to raise its
short-term interest-rate target by 125 basis points (1.25 percentage points) to
6.50 percent during the period. By late summer, inflationary pressures appeared
to ebb following a period that saw commodity moved prices upward while the
nation's unemployment rate fell to 30-year lows.
In the municipal bond market, the initial challenge in the summer of 1999 was
to preserve capital as bond prices and investor demand fell. However, by the
spring of 2000, municipal bond prices rebounded as U.S. economic growth slowed
to a more sustainable pace. Throughout the year, credit quality held firm in
many states, and rating services upgraded New York and California municipal
debt.
Shrinking new supplies of municipal debt created intense competition for
attractively priced securities with above-average income and total return
prospects. As of August 31, 2000, the volume of new issuance was down 20 percent
from earlier levels in the year, to about $124 billion. California and Ohio had
even larger percentage declines in new issuance for the period.
Municipal bond yields fluctuated substantially during fiscal year 2000. The
yield of the Bond Buyer Revenue Bond index, an unmanaged group of municipal
bonds that vary in quality and maturity (see Terms To Know, on page 10), hit a
five-year high of 6.35 percent in January. Bond prices then began to rise, and
by August 31, the index's yield had fallen to 5.72 percent. Within the funds, we
took advantage of a major shift in the shape of the municipal yield curve at the
end of calendar year 1999 to increase income potential and build more call
protection.
Q HOW DID EACH KEMPER STATE TAX-FREE INCOME FUND PERFORM BETWEEN AUGUST 1999
AND AUGUST 2000?
A It was a great year for Kemper California Tax-Free Income Fund and a
strong year for Kemper New York Tax-Free Income Fund and Kemper Florida Tax-Free
Income Fund. Results for Kemper Ohio Tax-Free Income Fund were more modest,
reflecting market conditions and bond issuance patterns within the state.
The California fund's 7.97 percent 12-month total return (as of August 31,
2000, for Class A Shares, unadjusted for a sales charge) substantially outpaced
the average of the fund's peers and finished ahead of both the unmanaged Lehman
Brothers Municipal Bond index (up 6.77 percent) and the unmanaged Lehman
Brothers California Exempt Bond index (up 7.82 percent).* The New York and
Florida funds' results also outpaced the average return of their respective peer
groups for the 12 months ended August 31, 2000. The Ohio fund's fiscal-year
return was slightly less than its peer-group average.
* THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND LEHMAN BROTHERS CALIFORNIA
EXEMPT BOND INDEX INCLUDE BONDS THAT VARY IN QUALITY AND MATURITY. THE
CALIFORNIA INDEX INCLUDES ONLY CALIFORNIA BONDS, WHILE THE OTHER INDEX HAS
BONDS FROM MANY STATES, INCLUDING CALIFORNIA. TO BE INCLUDED IN EITHER INDEX,
A MUNICIPAL BOND MUST MEET THE FOLLOWING CRITERIA: A MINIMUM CREDIT RATING OF
BBB, ISSUED AS A PART OF AN ISSUE OF AT LEAST $50 MILLION, ISSUED WITHIN THE
LAST 5 YEARS, AND A MATURITY OF AT LEAST 2 YEARS. BONDS SUBJECT TO
ALTERNATIVE MINIMUM TAX, VARIABLE-RATE BONDS AND ZERO-COUPON BONDS ARE
EXCLUDED. INVESTORS CANNOT INVEST IN EITHER INDEX. INDEX RETURNS DO NOT
REFLECT THE EXPENSES OF OPERATING AN ACTIVELY MANAGED MUTUAL FUND.
Q WHY DID THE CALIFORNIA FUND PERFORM BETTER THAN OTHER STATES?
A California bonds did particularly well in fiscal year 2000 because there
was a high level of retail demand in California for municipal bonds from
individual investors. The state also benefited from ratings upgrades for
California's general obligation (GO) bond debt.
Within Kemper California Tax-Free Income Fund, we capitalized on these trends
and maintained a large portion of fund assets in bonds maturing in 12 to 20
years, the portion of the yield curve that benefited substantially from the
municipal bond market's rebound. The fund finished the fiscal year
9
<PAGE>
PERFORMANCE UPDATE
with results that were in the top 10 percent of its peer group, as shown in the
Lipper Rankings table.
California's economy is reaping the rewards of the nation's high-technology
boom and strong debt management practices, according to Standard & Poor's.
California's average annual rate of growth in personal income was 6.49 percent
between December 1994 and December 1999, compared with 5.67 percent for the
United States as a whole.** As technology stock volatility increased in the past
year, especially for Internet-related companies, we believe some California
investors harvested long-term capital gains from the sale of technology stocks
and technology stock options. We've seen trading activity that suggests
California residents are reinvesting the proceeds of such sales in state
municipal bonds to diversify their portfolios, reduce risk and minimize income
taxes. California has one of the nation's highest state income tax burdens.
** SOURCE: BLOOMBERG BUSINESS NEWS.
Q WHAT HAPPENED IN NEW YORK AND FLORIDA DURING FISCAL YEAR 2000?
A During the past year, New York's general obligation bonds were also
upgraded amid strength in the state's economy, helping lift bond prices.
Investor demand, while good, was not as robust as in California. Personal income
growth in New York has lagged the national average over the past few years (see
Economic Snapshot table). New York City is thriving thanks to Wall Street and
global trade, but some areas upstate have not done as well. Larger employers
such as Xerox and Kodak as well as smaller firms continue to cut back and/or
relocate operations to areas with lower taxes and lower utility costs.
Within Kemper New York Tax-Free Income Fund, we achieved 12-month results that
were within the top 12 percent of the fund's peer group by focusing on bonds
maturing within a 14- to 18-year range (see Lipper Rankings table). It was
challenging to find a diverse mix of attractive municipal investments within the
state's bond market last year because new issuance declined. Much of the new
debt that came to market was state lease obligations, and we did not want to be
too overweighted in this one area. During the past year, we also avoided New
York bonds that were related to the tobacco industry settlement because of
uncertainties surrounding this revenue stream.
Within Kemper Florida Tax-Free Income Fund, we achieved 12-month results that
were within the top 14 percent of the fund's peer group by focusing on bonds
maturing within a range similar to that of the New York fund (see Lipper
Rankings table). The volume of new Florida issuance, while down, did not decline
as much as other states, providing us with an opportunity to reposition the
portfolio to benefit from the bond market's rebound.
In Florida, a stronger-than-average economy has helped support bond prices. As
of July 31, the state's unemployment rate of 3.7 percent was lower than the
national average, while personal income growth between 1994 and 1999 was higher
than average. The state's growth also fuels a need for more road, school and
sewer-related bond issues. This past year, Florida officials won praise from
rating agencies for a study that systematically evaluated the impact of
Florida's growth-related bonding programs on its financial health. The study
found that the state's annual tax revenues are likely to grow 52 percent through
2009, from $21 billion to $32 billion, and recommended an increase in Florida's
budget reserve. In July, Standard & Poor's said,"This type of analysis is viewed
positively from a credit standpoint."
Q WHY WERE RESULTS FOR KEMPER OHIO TAX-FREE INCOME FUND MORE MODEST THAN THE
OTHER THREE SINGLE-STATE FUNDS?
A The Ohio portfolio reflected the fact that the bulk of the state's
municipalities issue bonds in the shorter maturity range, an area of the yield
curve that did not do particularly well last year, especially in comparison with
bonds in the 10- to 20-year range. The scarcity of new issuance, coupled with
the small size of the fund relative to its Ohio peer group and the other three
Kemper funds, made security selection and portfolio diversification challenging.
Q THIS PAST WINTER, THE TREASURY BEGAN BUYING BACK SOME LONG-TERM DEBT AND
HELD FEWER AUCTIONS. WHAT EFFECT DID THIS HAVE ON MUNICIPAL BONDS?
A The Treasury buyback news helped generate a welcome rally after several
months of depressed municipal bond prices. In February, the Treasury said it
plans to buy back 30-year government bonds and reduce auctions all along the
maturity spectrum.
This past winter, the difference in income potential between short-term and
long-term municipal securities was steep compared with Treasuries. We used this
development to
10
<PAGE>
PERFORMANCE UPDATE
reposition the portfolios with more longer-term bonds selling at a discount.
This helped the funds capture additional total return potential as the market
rebounded in the spring.
Q WHAT'S YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET?
A The environment for municipal bonds has improved substantially since
mid-1999. First, we doubt that the Federal Reserve will need to raise interest
rates further in the coming months, since U.S. economic growth has moderated. At
the same time, overall municipal bond credit quality remains solid, especially
in comparison with U.S. corporate bonds. In a July report, Standard & Poor's
said, "It is reasonable to be optimistic that the United States' recent good
economic fortune is shaping public policy in a way that will support the rise in
state and local government credit quality for years to come."
Even though bond prices have risen, we still believe the municipal market
provides strong long-term value, as tax-equivalent yields were at attractive
levels for investors in the highest brackets as of August 31, 2000. California
isn't the only place where people have faced high income taxes in recent years,
and we are hopeful that more equity investors may look to municipal bonds to
reduce income taxes and portfolio volatility.
Historically, California has been regarded as a pacesetter for what happens in
the rest of the country. We hope this will hold true for municipal bonds and
that the apparent pattern of asset reallocation to tax-exempt debt that we have
seen anecdotally in the Golden State will spread to other states.
Finally, we think it worth noting that the 6.77 percent return of the Lehman
Brothers Municipal Bond index outpaced the 5.17 percent total return of the Dow
Jones Industrial Average for the 12 months ended August 31, 2000. While such an
occurrence is rare and is unlikely to be repeated over the long term, we think
it illustrates the continuing valuable role that municipal bonds can play in a
diverse portfolio.
STATE ECONOMIC AND BOND MARKET SNAPSHOT (DATA AS OF 8/31/00)
<TABLE>
<CAPTION>
PERSONAL INCOME GO BOND 10-YEAR GO VOLUME OF UNEMPLOYMENT RATE REGIONAL CONSUMER
GROWTH RATE 1994-1999 RATING BOND YIELD BOND ISSUANCE AS OF 7/00 PRICES SINCE 1983
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA 6.49% AA3/AA- 4.65% -27.9% 5.0% +79%
....................................................................................................................................
FLORIDA 6.16% AA2/AA+ 4.80% -3.3% 3.7% +68%
....................................................................................................................................
NEW YORK 4.94% A2/A+ 4.78% -4.7% 4.2% +83%
....................................................................................................................................
OHIO 5.01% AA1/AA+ 4.89% -34.2% 4.1% +68%
....................................................................................................................................
</TABLE>
SOURCES: BLOOMBERG BUSINESS NEWS, THE BOND BUYER, MOODY'S INVESTORS SERVICE,
STANDARD & POOR'S, U.S. DEPARTMENT OF LABOR. YIELDS AND RATINGS SHOWN ARE NOT
INTENDED TO PRESENT THE YIELDS OR AVERAGE QUALITY OF ANY KEMPER FUND. BOND
ISSUANCE REFLECTS DATA FOR EIGHT MONTHS ENDED AUGUST 2000. CALIFORNIA CONSUMER
PRICES ARE FOR THE SAN FRANCISCO AREA.
CURRENT STATE INCOME TAX RATES
FOR TAXPAYERS IN THE 39.6% FEDERAL BRACKET
<TABLE>
<CAPTION>
RANKING AMONG STATES
HIGHEST RATE (1 = HIGHEST TAX RATE)
<S> <C> <C>
CALIFORNIA 9.30% 4TH
..................................................................................................................
FLORIDA NONE --
..................................................................................................................
NEW YORK 6.85% 16TH
..................................................................................................................
OHIO 7.23% 15TH
..................................................................................................................
</TABLE>
SOURCE: BLOOMBERG BUSINESS NEWS. RATES MAY BE AFFECTED BY PAYMENT OF THE
ALTERNATIVE MINIMUM TAX. WHILE FLORIDA HAS NO STATE INCOME TAX, IT HAS A
GRADUATED INTANGIBLES TAX BASED ON ASSET VALUES. NEW YORK TAX RATE AND RELATIVE
TAX BURDEN ARE HIGHER IN NEW YORK CITY, WHICH HAS ITS OWN INCOME TAX.
11
<PAGE>
PERFORMANCE UPDATE
KEMPER NEW YORK TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED AUGUST 31, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER NEW YORK TAX-FREE INCOME FUND
CLASS A 1.72% 4.45% 6.63% 6.76% (since 12/31/85)
...........................................................................................................................
KEMPER NEW YORK TAX-FREE INCOME FUND
CLASS B 2.60 4.39 n/a 4.82 (since 5/31/94)
...........................................................................................................................
KEMPER NEW YORK TAX-FREE INCOME FUND
CLASS C 5.64 4.55 n/a 4.81 (since 5/31/94)
...........................................................................................................................
</TABLE>
KEMPER NEW YORK TAX-FREE INCOME FUND CLASS A
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN CLASS B SHARES FROM 12/31/85 TO
8/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER NEW YORK TAX-
FREE INCOME FUND CLASS LEHMAN BROTHERS
A1 MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
12/31/85 9548.00 10000.00 10000.00
10750.00 11932.00 10110.00
10637.00 12111.00 10558.00
11461.00 13341.00 11025.00
12837.00 14779.00 11537.00
13599.00 15858.00 12242.00
12/31/91 15419.00 17784.00 12617.00
16872.00 19352.00 12983.00
19060.00 21729.00 13339.00
12/31/94 18117.00 20613.00 13696.00
21375.00 24202.00 14044.00
21919.00 25274.00 14511.00
23869.00 27598.00 14758.00
25300.00 29386.00 14995.00
24224.00 28780.00 15398.00
8/31/00 26101.00 30959.00 15795.00
</TABLE>
KEMPER NEW YORK TAX-FREE INCOME FUND CLASS B
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN CLASS B SHARES FROM 5/31/94 TO
8/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER NEW YORK TAX-
FREE INCOME FUND CLASS LEHMAN BROTHERS
B1 MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9972.00 9942.00 10034.00
9771.00 9868.00 10149.00
10568.00 10816.00 10339.00
11426.00 11586.00 10407.00
6/30/96 11130.00 11534.00 10624.00
11626.00 12099.00 10753.00
11908.00 12486.00 10868.00
12538.00 13211.00 10936.00
6/30/98 12789.00 13566.00 11051.00
13203.00 14067.00 11112.00
12839.00 13948.00 11268.00
12526.00 13777.00 11410.00
13051.00 14396.00 11681.00
8/31/00 13418.00 14821.00 11704.00
</TABLE>
KEMPER NEW YORK TAX-FREE INCOME FUND CLASS C
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN CLASS C SHARES FROM 5/31/94 TO
8/31/00
<PAGE>
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER NEW YORK TAX-
FREE INCOME FUND CLASS LEHMAN BROTHERS
C1 MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9936.00 9942.00 10034.00
9770.00 9868.00 10149.00
10560.00 10816.00 10339.00
11420.00 11586.00 10407.00
6/30/96 11135.00 11534.00 10624.00
11611.00 12099.00 10753.00
11908.00 12486.00 10868.00
12540.00 13211.00 10936.00
6/30/98 12777.00 13566.00 11051.00
13198.00 14067.00 11112.00
12834.00 13948.00 11268.00
12522.00 13777.00 11410.00
13050.00 14396.00 11681.00
8/31/00 13418.00 14821.00 11704.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT
SHARES,WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
*AVERAGE ANNUAL TOTAL RETURN AND TOTAL
RETURN MEASURE NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS OVER THE PERIODS
SPECIFIED, ASSUMING REINVESTMENT OF
DIVIDENDS AND, WHERE INDICATED,
ADJUSTMENT FOR THE MAXIMUM SALES
CHARGE. THE MAXIMUM SALES CHARGE FOR
CLASS A SHARES IS 4.5%. FOR CLASS B
SHARES, THE MAXIMUM CONTINGENT
DEFERRED SALES CHARGE IS 4%. CLASS C
SHARES HAVE NO SALES ADJUSTMENT, BUT
REDEMPTIONS WITHIN ONE YEAR OF
PURCHASE MAY BE SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE OF
1%. SHARE CLASSES INVEST IN THE SAME
UNDERLYING PORTFOLIO. AVERAGE ANNUAL
RETURN REFLECTS ANNUALIZED CHANGE,
WHILE TOTAL RETURN REFLECTS AGGREGATE
CHANGE. DURING THE PERIODS NOTED,
SECURITIES PRICES FLUCTUATED. FOR
ADDITIONAL INFORMATION, SEE THE
PROSPECTUS, STATEMENT OF ADDITIONAL
INFORMATION AND THE FINANCIAL
HIGHLIGHTS AT THE END OF THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT OF
DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A
SHARES AND THE CONTINGENT DEFERRED
SALES CHARGE IN EFFECT AT THE END OF
THE PERIOD FOR CLASS B SHARES. IN
COMPARING THE KEMPER STATE TAX-FREE
INCOME FUNDS WITH THE LEHMAN
BROTHERS MUNICIPAL BOND INDEX, YOU
SHOULD NOTE THAT THE FUNDS'
PERFORMANCE REFLECTS THE MAXIMUM
SALES CHARGES, WHILE NO SUCH CHARGES
ARE REFLECTED IN THE PERFORMANCE OF
THE INDEX.
+THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX INCLUDES APPROXIMATELY 15,000
BONDS. TO BE INCLUDED IN THE INDEX A
MUNICIPAL BOND MUST MEET THE FOLLOWING
CRITERIA: A MINIMUM CREDIT RATING OF
BBB, HAVE BEEN ISSUED AS A PART OF AN
ISSUE OF AT LEAST $50 MILLION, HAVE
BEEN ISSUED WITHIN THE LAST 5 YEARS,
AND HAVE A MATURITY OF AT LEAST 2
YEARS. BONDS SUBJECT TO ALTERNATIVE
MINIMUM TAX, VARIABLE-RATE BONDS AND
ZERO-COUPON BONDS ARE EXCLUDED FROM
THE INDEX. SOURCE: WIESENBERGER(R).
++THE CONSUMER PRICE INDEX IS A
STATISTICAL MEASURE OF CHANGE, OVER
<PAGE>
TIME, IN THE PRICES OF GOODS AND
SERVICES IN MAJOR EXPENDITURE GROUPS
FOR ALL URBAN CONSUMERS. IT IS
GENERALLY CONSIDERED TO BE A MEASURE
OF INFLATION. SOURCE: WIESENBERGER(R).
<PAGE>
APPENDIX
[Beneficial Owners of Fund Shares]
<PAGE>
This Proxy Statement/Prospectus is accompanied by Kemper New York
Tax-Free Income Fund's prospectus offering Class S shares dated February 1, 2001
which was previously filed with the Securities and Exchange Commission (the
"Commission") via EDGAR on December 1, 2000 (File No. 811-03657) and is
incorporated by reference herein.
Scudder New York Tax Free Fund's prospectus dated August 1, 2000, which
was previously filed with the Commission via EDGAR on August 3, 2000 (File No.
811-03749), is incorporated by reference herein.
Kemper New York Tax-Free Income Fund's statement of additional
information offering Class S shares dated February 1, 2001 which was previously
filed with the Commission via EDGAR on December 1, 2000 (File No. 811-03657), is
incorporated by reference herein.
<PAGE>
PART B
KEMPER STATE TAX-FREE INCOME SERIES
------------------------------------------------------------
Statement of Additional Information
March [ ], 2001
------------------------------------------------------------
Acquisition of the Assets of By and in Exchange for Shares of
Scudder New York Tax Free Fund, Kemper New York Tax-Free Income Fund, a
a series of series of Kemper State Tax-Free Income
Scudder State Tax Free Trust Series (the "Acquiring Trust")
Two International Place 222 South Riverside Plaza
Boston, MA 02110-4103 Chicago, IL 60606
This Statement of Additional Information is available to the
shareholders of Scudder New York Tax Free Fund in connection with a proposed
transaction whereby Kemper New York Tax-Free Income Fund will acquire all or
substantially all of the assets and all of the liabilities of Scudder New York
Tax Free Fund in exchange for shares of Kemper New York Tax-Free Income 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. Kemper New York Tax-Free Income Fund's statement of additional
information offering Class S shares dated February 1, 2001 which was previously
filed with the Securities and Exchange Commission (the "Commission") via EDGAR
on December 1, 2000 (File No. 811-03657) and is incorporated by reference
herein.
2. Kemper New York Tax-Free Income Fund's annual report to shareholders for
the fiscal year ended August 31, 2000, which was previously filed with the
Commission via EDGAR on October 25, 2000 (File No. 811-03657) and is
incorporated by reference herein.
3. Scudder New York Tax Free Fund's prospectus dated August 1, 2000, which
was previously filed with the Commission via EDGAR on August 3, 2000 (File No.
811-03749) and is incorporated by reference herein.
4. Scudder New York Tax Free Fund's statement of additional information
dated August 1, 2000, which was previously filed with the Commission via EDGAR
on August 3, 2000 (File No. 811-03749) and is incorporated by reference herein.
5. Scudder New York Tax Free Fund's annual report to shareholders for the
fiscal year ended March 31, 2000, which was previously filed with the Commission
via EDGAR on May 26, 2000 (File No. 811-03749) and is incorporated by reference
herein.
6. The financial statements and schedules of Kemper New York Tax-Free
Income Fund and Scudder New York Tax Free Fund required by Regulation S-X for
the periods specified in Article 3 thereof, which are filed 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 Scudder New York Tax Free Fund at Two International Place,
Boston, Massachusetts 02110-4103 or by calling [ ] at 1-800-[ ]. This
Statement of Additional Information should be read in conjunction with the Proxy
Statement/Prospectus.
<PAGE>
PRO FORMA
PORTFOLIO OF INVESTMENTS
AS OF 11/30/2000 (UNAUDITED)
<TABLE>
<CAPTION>
Kemper New Scudder
York Tax New York Pro Forma
Free Income Tax Free Combined
Par/Share Par/Share Par/Share
Amount Amount Amount
----------------------------------
<S> <C> <C> <C>
Short-Term Investments 2.7%
Monroe County, NY, 3/1/2015, 6% 1,250,000 1,250,000
New York Municipal Water Authority, Series 1994G, Variable Rate Demand Note, 6/15/2024, 1,000,000 1,100,000 2,100,000
4.25%
New York City Municipal Water Finance Authority, Daily Demand Note, 6/15/2025, 4.50% 1,000,000 2,000,000 3,000,000
New York State Energy Research & Developement Daily Demand Note, 6/1/2029, 4.00% 2,100,000 2,000,000 4,100,000
Total Short-Term Investments (Cost of $5,463,452, $5,100,000, and $10,563,452, respectively)
Long-Term Investments 97.3%
Albany County Airport Revenue, Series 1997, 12/15/2017, 5.375% 1,000,000 1,000,000
Albany County Airport Revenue, Series 1997, 12/15/2019, 5.5% 1,000,000 1,000,000
Albany, NY, General Obligation, AMBAC Insured, 1/15/2008, 7% 10,000 10,000
Bablyon, NY, General Obligation, Series 1998A, Zero Coupon, 8/1/2007 735,000 735,000
Battery Park City Authority, Housing Revenue, Prerefunded 06/01/2005 @ 100, 6/1/2023, 8.625% 10,000 10,000
Brookhaven, NY, Industrial Development Agency, Civic Factory Revenue, 11/15/2030, 8.25% 1,000,000 1,000,000
Buffalo, NY, General Obligation, 12/1/2012, 5.75% 1,000,000 1,000,000
Chautauqua County, NY, 4/1/2008, 7.3% 575,000 575,000
Chautauqua County, NY, 4/1/2009, 7.3% 575,000 575,000
Erie County, New York, Public Improvement General Obligation Unlimited, Series 1992,
1/15/2012, 6.125% 590,000 590,000
Glen Cove Housing Authority, Senior Living Facility, The Mayfair at Glen Cove, AMT, Series
1996, 10/1/2026, 8.25% 1,500,000 1,500,000
Islip, NY, New York Community Development Agency, New York Institute of Technology, Series
1996, 3/1/2026, 7.5% 4,000,000 4,000,000
Jamestown, New York, General Obligation, Series 1991A, 3/15/2008, 7% 600,000 600,000
Long Island Power Authority, NY, Electric Systems Revenue, Series A, 12/1/2013, 5.5% 3,000,000 3,000,000
Long Island Power Authority, NY, Electric Systems Revenue, Series 1998A, 12/1/2018, 5% 4,000,000 4,000,000
Long Island Power Authority, NY, Electric Systems Revenue, Series A, 12/1/2023, 5.5% 3,500,000 3,500,000
Long Island Power Authority, NY, Electric Systems Revenue, Zero Coupon, 6/1/2012 8,000,000 2,000,000 10,000,000
Long Island Power Authority, NY, Electric Systems Revenue, Zero Coupon, 6/1/2014 2,115,000 2,115,000
New York Metropolitan Transportation Authority, Transit Facilities Revenue, Series E,
7/1/2015, 5% 3,000,000 3,000,000
New York Metropolitan Transportation Authority, Transit Facilities Revenue, Series 1998 C,
7/1/2013, 5.125% 4,000,000 4,000,000
New York Metropolitan Transportation Authority, Transit Facilities Revenue, Series Q,
7/1/2012, 5.125% 5,000,000 5,000,000
New York Metropolitan Transportation Authority, Transit Facilities Revenue, 7/1/2016, 6% 7,750,000 7,750,000
New York Metropolitan Transportation Authority, Inverse Variable Rate Certificate Trust,
Series 1993 B, 6/30/2002, 5.786101320% 8,000,000 8,000,000
New York Metropolitan Transportation Authority, Dedicated Tax FD, Series 1999 A, 4/1/2016, 5.25% 2,000,000 2,000,000
Monroe County, NY, General Obligation Unlimited, Series 1996, 3/1/2013, 6% 1,050,000 1,050,000
Monroe County, NY, General Obligation Unlimited, Series 1996, 3/1/2014, 6% 1,040,000 1,040,000
Monroe County, NY, General Obligation Unlimited, Series 1996, 3/1/2017, 6% 1,410,000 1,410,000
Monroe County, NY, General Obligation, 3/1/2018, 6% 1,130,000 1,130,000
Troy, New York, Municipal Assistance Corporation, Series B, Zero Coupon, 1/15/2007 650,000 650,000
Troy, New York, Municipal Assistance Corporation, Series B, Zero Coupon, 7/15/2007 650,000 650,000
Troy, New York, Municipal Assistance Corporation, Series B, Zero Coupon, 1/15/2008 750,000 750,000
Nassau County, NY, General Obligation Unlimited, Series F, 3/1/2010, 7% 2,445,000 2,000,000 4,445,000
Nassau County, NY, Sewer Districts, Series A, 7/1/2012, 6% 705,000 705,000
Nassau County, NY, Sewer Districts, Series A, 7/1/2013, 6% 710,000 710,000
Nassau County, NY, Industrial Finance Authority, 11/15/2015, 5.75% 1,500,000 1,500,000
New York City, NY, General Obligation, Series B, 6/1/2006, 8.25% 2,750,000 2,750,000
New York City, NY, General Obligation, Series E, MBIA Insured, 8/1/2005, 8% 330,000 330,000
New York City, NY, General Obligation, Series 1995B, 8/15/2007, 7.25% 2,250,000 2,250,000
New York City, NY, General Obligation, Series 1996A, 8/1/2009, 6.25% 5,175,000 5,175,000
New York City, NY, General Obligation, Series 1996A, 8/1/2005, 7% 5,000,000 5,000,000
New York City, NY, General Obligation, Series 1996A, 8/1/2006, 7% 5,000,000 5,000,000
New York City, NY, General Obligation, 3/15/2002, 7.75% 5,000 5,000
New York City, NY, General Obligation, Series H, 8/1/2014, 6% 2,500,000 2,500,000
New York City, NY, General Obligation, Series 1997I, 4/15/2009, 6% 2,000,000 2,000,000
New York City, NY, General Obligation, Series L, 8/1/2007, 5.625% 5,550,000 5,550,000
New York City, NY, General Obligation, Series F, Zero coupon, 8/1/2008 6,755,000 6,755,000
New York City, NY, General Obligation, Series 1991B, 2/1/2005, 7.5% 1,000,000 1,000,000
New York City, NY, General Obligation, 8/1/2018, 5.125% 3,405,000 3,405,000
New York City, NY, General Obligation, Series J, 5/15/2017, 5% 2,000,000 2,000,000
New York City, NY, Housing Development Corporation, Series A, 6/1/2010, 7.3% 8,800,000 8,800,000
New York City, NY, Industrial Development Agency, Japan Air Lines, Series 1996, FSA Insured,
11/1/2015, 6% 930,000 930,000
New York City, NY, Municipal Assistance Corp., Series 1997L, 7/1/2005, 6% 3,500,000 3,500,000
New York City, NY, Transitional Finance Authority, Revenue, Series A, 11/15/2013, 5.25% 500,000 500,000
New York City, NY, Transitional Finance Authority, Revenue Bond, Series C, 5/1/2017, 5% 4,000,000 4,000,000
New York City, NY, Transitional Finance Authority, Revenue Bond, Series 1999C, 5/1/2025, 5.5% 3,780,000 3,780,000
New York City, NY, Transitional Finance Authority, Revenue Bond, Series A, 8/15/2011, 5.75% 3,000,000 3,000,000
New York City, NY, Transitional Finance Authority, Revenue Bond, Series 2000B,
11/15/2014, 6.125% 1,000,000 1,000,000 2,000,000
New York City, NY, Industrial Development Agency, Civil Facilities Revenue,
USTA National Tennis Center, 11/15/2004, 6.1% 1,215,000 1,215,000
New York City, NY, Industrial Development Agency, Civil Facilities Revenue,
USTA National Tennis Center, 11/15/2006, 6.25% 3,000,000 3,000,000
New York City, NY, Industrial Development Agency, Civil Facilities Revenue,
YMCA Greater New York Project, Series 1997, 11/1/2015, 6% 580,000 580,000
New York City, NY, Industrial Development Agency, Civil Facilities Revenue,
YMCA Geater New York Project, Series 1997, 8/1/2008, 5.85% 600,000 600,000
New York City, NY, Industrial Development Agency, Civil Facilities Revenue,
YMCA Greater New York Project, 8/1/2016, 5.8% 1,000,000 1,000,000
New York State, General Obligation, Series 1998F, 9/15/2013, 5.25%
New York State Dormitory Authority, Westchester County Court Facilities, Lease Revenue,
8/1/2014, 5.25% 2,555,000 2,555,000
New York State Dormitory Authority, State University Dormitory Facilities, Lease Revenue,
Series B, 7/1/2019, 5.375% 1,980,000 1,980,000
New York State Dormitory Authority, Lease Revenue, Office Facilities, Audit & Control,
Series 1999, 4/1/2013, 5.25% 720,000 720,000
New York State Dormitory Authority, College and University Pooled Capital Program,
12/1/2005, 7.8% 470,000 470,000
New York State Dormitory Authority, Revenue, Columbia University, 7/1/2015, 5% 2,500,000 2,500,000
New York State Dormitory Authority, Judicial Facilities, Revenue, 7/1/2016, 7.375% 115,000 115,000
New York State Dormitory Authority, State University Educational Facilities, Revenue, Series B, 1,000,000 1,000,000
5/15/2011, 7.5%
New York State Dormitory Authority, City University, Revenue, Series D, 7/1/2009, 7% 2,200,000 2,200,000
New York State Dormitory Authority, State University Educational Facilities, Revenue, Series C,
5/15/2010, 7.375% 1,000,000 1,000,000
New York State Dormitory Authority, St. Vincents's Hospital and Medical Center, 8/1/2011, 7.375% 2,105,000 2,105,000
New York State Dormitory Authority, Revenue, State Universtiy Educational Facilities, Series A,
5/15/2011, 5.875% 2,250,000 2,250,000
New York State Dormitory Authority, Revenue, State University Educational Facilities,
Prerefunded 5/15/2002, 5/15/2018, 7.25% 155,000 155,000
New York State Dormitory Authority, Fordham University, Revenue, 7/1/2015, 7.2% 790,000 790,000
New York State Dormitory Authority, City University, Revenue, 7/1/2018, 5.75% 2,250,000 2,250,000
New York State Dormitory Authority, State University Series 1993A, AMBAC Insured, 5/15/2011,
5.875% 380,000 380,000
New York State Dormitory Authority, Colgate University, Revenue, 7/1/2016, 6% 900,000 900,000
New York State Dormitory Authority, Colgate University, Revenue, 7/1/2021, 6% 850,000 850,000
New York State Dormitory Authority, Revenue, 7/1/2009, 5.75% 1,000,000 1,000,000
New York State Dormitory Authority, City University, Revenue, 7/1/2013, 5.75% 4,100,000 4,100,000
New York State Dormitory Authority, City University, Series 1995A, 7/1/2016, 5.625% 1,100,000 1,100,000
New York State Dormitory Authority, Revenue, Mt. Sinai School of Medicine, Series B,
MBIA Insured, 7/1/2011, 5.7% 1,825,000 1,825,000
New York State Dormitory Authority, Revenue, Upstate Community College, 7/1/2006, 5.8% 1,075,000 1,075,000
New York State Dormitory Authority, Pace University, Series 1997, 7/1/2008, 6.5% 1,360,000 1,360,000
New York State Dormitory Authority, Pace University, Series 1997, 7/1/2009, 6.5% 555,000 555,000
New York State Dormitory Authority, Pace University, Revenue, 7/1/2011, 6.5% 760,000 760,000
New York State Dormitory Authority, Pace University, Revenue, 7/1/2012, 6.5% 500,000 500,000
New York State Dormitory Authority, Nyack Hospital, Series 1996, 7/1/2006, 6% 1,000,000 1,000,000
New York State Dormitory Authority, Nyack Hospital, Series 1996, 7/1/2013, 6.25% 500,000 500,000
<CAPTION>
Kemper
New York Scudder Scudder
Tax Free New York Pro Forma
Income Tax Free Combined
Market Market Market
Value ($) Value ($) Value ($)
----------------------------------
<S> <C> <C> <C>
Short-Term Investments 2.7%
Monroe County, NY, 3/1/2015, 6% 1,375,550 1,375,550
New York Municipal Water Authority, Series 1994G, Variable Rate Demand Note, 6/15/2024, 1,000,000 1,100,000 2,100,000
4.25%
New York City Municipal Water Finance Authority, Daily Demand Note, 6/15/2025, 4.50% 1,000,000 2,000,000 3,000,000
New York State Energy Research & Developement Daily Demand Note, 6/1/2029, 4.00% 2,100,000 2,000,000 4,100,000
---------------------------------
Total Short-Term Investments (Cost of $5,463,452, $5,100,000, and $10,563,452, respectively) 5,475,550 5,100,000 10,575,550
=================================
Long-Term Investments 97.3%
Albany County Airport Revenue, Series 1997, 12/15/2017, 5.375% 987,890 987,890
Albany County Airport Revenue, Series 1997, 12/15/2019, 5.5% 990,080 990,080
Albany, NY, General Obligation, AMBAC Insured, 1/15/2008, 7% 10,220 10,220
Bablyon, NY, General Obligation, Series 1998A, Zero Coupon, 8/1/2007 537,946 537,946
Battery Park City Authority, Housing Revenue, Prerefunded 06/01/2005 @ 100, 6/1/2023, 8.625% 11,587 11,587
Brookhaven, NY, Industrial Development Agency, Civic Factory Revenue, 11/15/2030, 8.25% 978,220 978,220
Buffalo, NY, General Obligation, 12/1/2012, 5.75% 1,066,620 1,066,620
Chautauqua County, NY, 4/1/2008, 7.3% 668,207 668,207
Chautauqua County, NY, 4/1/2009, 7.3% 677,033 677,033
Erie County, New York, Public Improvement General Obligation Unlimited, Series 1992, 1/15/2012,
6.125% 653,784 653,784
Glen Cove Housing Authority, Senior Living Facility, The Mayfair at Glen Cove, AMT, Series
1996, 10/1/2026, 8.25% 1,577,415 1,577,415
Islip, NY, New York Community Development Agency, New York Institute of Technology, Series
1996, 3/1/2026, 7.5% 4,591,360 4,591,360
Jamestown, New York, General Obligation, Series 1991A, 3/15/2008, 7% 686,100 686,100
Long Island Power Authority, NY, Electric Systems Revenue, Series A, 12/1/2013, 5.5% 3,167,160 3,167,160
Long Island Power Authority, NY, Electric Systems Revenue, Series 1998A, 12/1/2018, 5% 3,819,440 3,819,440
Long Island Power Authority, NY, Electric Systems Revenue, Series A, 12/1/2023, 5.5% 3,439,485 3,439,485
Long Island Power Authority, NY, Electric Systems Revenue, Zero Coupon, 6/1/2012 4,449,840 1,112,460 5,562,300
Long Island Power Authority, NY, Electric Systems Revenue, Zero Coupon, 6/1/2014 1,041,595 1,041,595
New York Metropolitan Transportation Authority, Transit Facilities Revenue, Series E, 7/1/2015,
5% 2,943,540 2,943,540
New York Metropolitan Transportation Authority, Transit Facilities Revenue, Series 1998 C,
7/1/2013, 5.125% 4,025,800 4,025,800
New York Metropolitan Transportation Authority, Transit Facilities Revenue, Series Q, 7/1/2012,
5.125% 5,062,150 5,062,150
New York Metropolitan Transportation Authority, Transit Facilities Revenue, 7/1/2016, 6% 8,176,405 8,176,405
New York Metropolitan Transportation Authority, Inverse Variable Rate Certificate Trust, Series
1993 B, 6/30/2002, 5.786101320% 8,415,600 8,415,600
New York Metropolitan Transportation Authority, Dedicated Tax FD, Series 1999 A, 4/1/2016, 5.25% 2,005,400 2,005,400
Monroe County, NY, General Obligation Unlimited, Series 1996, 3/1/2013, 6% 1,155,871 1,155,871
Monroe County, NY, General Obligation Unlimited, Series 1996, 3/1/2014, 6% 1,145,653 1,145,653
Monroe County, NY, General Obligation Unlimited, Series 1996, 3/1/2017, 6% 1,544,838 1,544,838
Monroe County, NY, General Obligation, 3/1/2018, 6% 1,235,429 1,235,429
Troy, New York, Municipal Assistance Corporation, Series B, Zero Coupon, 1/15/2007 488,007 488,007
Troy, New York, Municipal Assistance Corporation, Series B, Zero Coupon, 7/15/2007 476,723 476,723
Troy, New York, Municipal Assistance Corporation, Series B, Zero Coupon, 1/15/2008 534,735 534,735
Nassau County, NY, General Obligation Unlimited, Series F, 3/1/2010, 7% 2,837,887 2,321,380 5,159,267
Nassau County, NY, Sewer Districts, Series A, 7/1/2012, 6% 769,965 769,965
Nassau County, NY, Sewer Districts, Series A, 7/1/2013, 6% 774,652 774,652
Nassau County, NY, Industrial Finance Authority, 11/15/2015, 5.75% 1,562,865 1,562,865
New York City, NY, General Obligation, Series B, 6/1/2006, 8.25% 3,217,527 3,217,527
New York City, NY, General Obligation, Series E, MBIA Insured, 8/1/2005, 8% 377,005 377,005
New York City, NY, General Obligation, Series 1995B, 8/15/2007, 7.25% 2,571,075 2,571,075
New York City, NY, General Obligation, Series 1996A, 8/1/2009, 6.25% 5,582,427 5,582,427
New York City, NY, General Obligation, Series 1996A, 8/1/2005, 7% 5,490,950 5,490,950
New York City, NY, General Obligation, Series 1996A, 8/1/2006, 7% 5,570,050 5,570,050
New York City, NY, General Obligation, 3/15/2002, 7.75% 5,082 5,082
New York City, NY, General Obligation, Series H, 8/1/2014, 6% 2,626,875 2,626,875
New York City, NY, General Obligation, Series 1997I, 4/15/2009, 6% 2,137,740 2,137,740
New York City, NY, General Obligation, Series L, 8/1/2007, 5.625% 5,845,482 5,845,482
New York City, NY, General Obligation, Series F, Zero coupon, 8/1/2008 4,668,718 4,668,718
New York City, NY, General Obligation, Series 1991B, 2/1/2005, 7.5% 1,046,900 1,046,900
New York City, NY, General Obligation, 8/1/2018, 5.125% 3,308,400 3,308,400
New York City, NY, General Obligation, Series J, 5/15/2017, 5% 1,931,400 1,931,400
New York City, NY, Housing Development Corporation, Series A, 6/1/2010, 7.3% 9,076,760 9,076,760
New York City, NY, Industrial Development Agency, Japan Air Lines, Series 1996, FSA Insured,
11/1/2015, 6% 982,312 982,312
New York City, NY, Municipal Assistance Corp., Series 1997L, 7/1/2005, 6% 3,717,455 3,717,455
New York City, NY, Transitional Finance Authority, Revenue, Series A, 11/15/2013, 5.25% 507,020 507,020
New York City, NY, Transitional Finance Authority, Revenue Bond, Series C, 5/1/2017, 5% 3,854,480 3,854,480
New York City, NY, Transitional Finance Authority, Revenue Bond, Series 1999C, 5/1/2025, 5.5% 3,767,223 3,767,223
New York City, NY, Transitional Finance Authority, Revenue Bond, Series A, 8/15/2011, 5.75% 3,208,350 3,208,350
New York City, NY, Transitional Finance Authority, Revenue Bond, Series 2000B, 11/15/2014, 6.125% 1,087,600 1,087,600 2,175,200
New York City, NY, Industrial Development Agency, Civil Facilities Revenue, USTA National Tennis
Center, 11/15/2004, 6.1% 1,285,421 1,285,421
New York City, NY, Industrial Development Agency, Civil Facilities Revenue, USTA National Tennis
Center, 11/15/2006, 6.25% 3,226,740 3,226,740
New York City, NY, Industrial Development Agency, Civil Facilities Revenue, YMCA Greater New York
Project, Series 1997, 11/1/2015, 6% 598,032 598,032
New York City, NY, Industrial Development Agency, Civil Facilities Revenue, YMCA Geater New York
Project, Series 1997, 8/1/2008, 5.85% 613,884 613,884
New York City, NY, Industrial Development Agency, Civil Facilities Revenue, YMCA Greater New York
Project, 8/1/2016, 5.8% 979,270 979,270
New York State, General Obligation, Series 1998F, 9/15/2013, 5.25% 1,012,520 1,012,520
New York State Dormitory Authority, Westchester County Court Facilities, Lease Revenue, 8/1/2014,
5.25% 2,579,809 2,579,809
New York State Dormitory Authority, State University Dormitory Facilities, Lease Revenue,
Series B, 7/1/2019, 5.375% 1,952,438 1,952,438
New York State Dormitory Authority, Lease Revenue, Office Facilities, Audit & Control,
Series 1999, 4/1/2013, 5.25% 731,145 731,145
New York State Dormitory Authority, College and University Pooled Capital Program, 12/1/2005, 7.8% 481,604 481,604
New York State Dormitory Authority, Revenue, Columbia University, 7/1/2015, 5% 2,483,275 2,483,275
New York State Dormitory Authority, Judicial Facilities, Revenue, 7/1/2016, 7.375% 137,460 137,460
New York State Dormitory Authority, State University Educational Facilities, Revenue, Series B,
5/15/2011, 7.5% 1,164,710 1,164,710
New York State Dormitory Authority, City University, Revenue, Series D, 7/1/2009, 7% 2,420,286 2,420,286
New York State Dormitory Authority, State University Educational Facilities, Revenue, Series C,
5/15/2010, 7.375% 1,147,230 1,147,230
New York State Dormitory Authority, St. Vincents's Hospital and Medical Center, 8/1/2011, 7.375% 2,182,863 2,182,863
New York State Dormitory Authority, Revenue, State Universtiy Educational Facilities, Series A,
5/15/2011, 5.875% 2,431,620 2,431,620
New York State Dormitory Authority, Revenue, State University Educational Facilities,
Prerefunded 5/15/2002, 5/15/2018, 7.25% 164,476 164,476
New York State Dormitory Authority, Fordham University, Revenue, 7/1/2015, 7.2% 807,411 807,411
New York State Dormitory Authority, City University, Revenue, 7/1/2018, 5.75% 2,390,040 2,390,040
New York State Dormitory Authority, State University Series 1993A, AMBAC Insured, 5/15/2011,
5.875% 413,599 413,599
New York State Dormitory Authority, Colgate University, Revenue, 7/1/2016, 6% 986,841 986,841
New York State Dormitory Authority, Colgate University, Revenue, 7/1/2021, 6% 925,658 925,658
New York State Dormitory Authority, Revenue, 7/1/2009, 5.75% 1,069,430 1,069,430
New York State Dormitory Authority, City University, Revenue, 7/1/2013, 5.75% 4,414,306 4,414,306
New York State Dormitory Authority, City University, Series 1995A, 7/1/2016, 5.625% 1,162,139 1,162,139
New York State Dormitory Authority, Revenue, Mt. Sinai School of Medicine, Series B,
MBIA Insured, 7/1/2011, 5.7% 1,946,709 1,946,709
New York State Dormitory Authority, Revenue, Upstate Community College, 7/1/2006, 5.8% 1,130,566 1,130,566
New York State Dormitory Authority, Pace University, Series 1997, 7/1/2008, 6.5% 1,516,930 1,516,930
New York State Dormitory Authority, Pace University, Series 1997, 7/1/2009, 6.5% 624,258 624,258
New York State Dormitory Authority, Pace University, Revenue, 7/1/2011, 6.5% 867,236 867,236
New York State Dormitory Authority, Pace University, Revenue, 7/1/2012, 6.5% 572,685 572,685
New York State Dormitory Authority, Nyack Hospital, Series 1996, 7/1/2006, 6% 995,630 995,630
New York State Dormitory Authority, Nyack Hospital, Series 1996, 7/1/2013, 6.25% 499,705 499,705
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
New York State Dormitory Authority,
Columbia University, NY, Revenue, 7/1/2010, 6% 1,000,000 1,000,000 1,062,120 1,062,120
New York State Dormitory Authority, State
University Educational Facilities, Revenue, 5/15/2017, 5.875% 2,325,000 2,325,000 2,511,837 2,511,837
New York State Dormitory Authority, City
University System, Revenue, Series A, 7/1/2018, 5.75% 2,000,000 2,000,000 2,124,480 2,124,480
New York State Dormitory Authority, Upstate Community
Colleges, Revenue, Series A, 7/1/2016, 5.875% 3,555,000 3,555,000 3,643,839 3,643,839
New York State Dormitory Authority, Revenue, 7/1/2018, 5% 1,875,000 1,875,000 1,777,181 1,777,181
New York State Dormitory Authority, Green Chimneys School,
Series 1999 A, 7/1/2018, 5.5% 1,375,000 1,375,000 1,390,881 1,390,881
New York State Dormitory Authority, Special Activities School
Districts, Revenue, 7/1/2011, 5.25% 2,545,000 2,545,000 2,623,080 2,623,080
New York State Dormitory Authority, Special Activities School
Districts, Revenue, 7/1/2012, 5.25% 1,350,000 1,350,000 1,381,320 1,381,320
New York State Dormitory Authority, Special Activities School
Districts, Revenue, 7/1/2015, 5.25% 1,000,000 1,000,000 1,005,200 1,005,200
New York State Dormitory Authority, Revenue Bond,
8/15/2012, 5.75% 2,000,000 2,000,000 2,111,520 2,111,520
New York State Dormitory Authority, Revenue, 2/15/2010,
7.8199992% 2,500,000 2,500,000 2,962,525 2,962,520
New York State Dormitory Authority, Revenue, Mt. Sinai Health,
Series A, 7/1/2025, 6.5% 2,000,000 2,000,000 2,078,180 2,078,180
New York State Dormitory Authority, State University
Educational Facilities, Revenue, 5/15/2012, 5.75% 3,000,000 3,000,000 3,211,260 3,211,260
New York State Dormitory Authority, State University
Educational Facilities, Revenue Bond, 5/15/2018, 5.25% 3,000,000 3,000,000 2,964,480 2,964,480
New York State Dormitory Authority, State University
Additional Facilities, Series C, 5/17/2017, 5.75% 1,000,000 1,000,000 1,066,600 1,066,600
New York State Dormitory Authority, State University
Additional Facilities, Series C, 5/17/2017, 5.75% 1,000,000 1,000,000 1,066,600 1,066,600
New York State Energy Research and Development Authority,
10/01/2029, 3.999999360% 1,000,000 1,000,000 1,000,000 1,000,000
New York State Energy Research and Development Authority,
Lilco Project, Revenue, Series A, 3/1/2016, 5.15% 2,500,000 2,500,000 2,374,350 2,374,350
New York State Environmental Facilities Corporation,
Special Obligation Revenue, Riverbank State Park,
Series 1996, 04/01/2008, 6.25% 2,185,000 2,185,000 2,397,906 2,397,906
New York State Environmental Facilities Corporation, State
Water Pollution Control, Revolving Fund
Revenue, Series A, Prerefunded 06/15/2001, 6/15/2010, 7.2 900,000 900,000 932,040 932,040
New York State Environmental Facilities Corporation, State
Water Pollution Control, Revolving Fund
Revenue, Series A, 6/15/2010, 7.25% 100,000 100,000 103,427 103,427
New York State Environmental Facilities Corporation, State
Water Pollution Control, Revolving Fund
Revenue, Series E, 6/15/2014, 6.5% 90,000 90,000 92,698 92,698
New York State Environmental Facilities Corporation, State
Water Pollution Control, Series D, 5/15/2015, 6.9% 715,000 715,000 778,349 778,349
New York State Environmental Facilities Corporation,
RiverBank State Park, Special Obligation Revenue,
4/1/2012, 6.25% 3,695,000 3,695,000 4,140,025 4,140,025
New York State Housing Finance Agency, State University
Construction, Revenue, Series A, 5/1/2011, 8% 200,000 200,000 244,564 244,564
New York State Housing Finance Agency, Multi-Family Mortgage
Housing, Revenue, Series A, 8/15/2012, 6.95% 1,500,000 1,500,000 1,565,190 1,565,190
New York State Health Facilities Authority, 11/1/2004, 6.375% 1,500,000 1,500,000 1,580,955 1,580,955
New York State Local Government Assistance Corporation,
Capital Appreciation, Series B, Zero coupon, 4/1/2009 5,980,000 5,980,000 4,008,992 4,008,992
New York State Local Government Assistance Corporation,
Series 1993E, 4/1/2016, 5.25% 1,185,000 1,185,000 1,201,779 1,201,779
New York State Housing Finance Agency, Service Contract
Obligation, Revenue, Series C, 9/15/2012, 7.3% 75,000 75,000 77,888 77,888
New York State Housing Finance Agency, Service Contract
Obligation, Revenue, Series A, 9/15/2012, 7.25% 185,000 185,000 193,868 193,868
New York State Mortgage Agency, Revenue, 10/1/2005, 6.8% 1,000,000 1,000,000 1,072,400 1,072,400
New York State Mortgage Agency, Homeownership Mortgage
Revenue, Series 5, 10/1/2021, 6.45% 4,000,000 4,000,000 4,182,440 4,182,440
New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities Improvement,
Revenue, 2/15/2018, 7.7% 45,000 45,000 45,095 45,095
New York State Medical Care Facilities Finance Agency,
Revenue, Prerefunded 02/15/2000, 2/15/2020, 7.75% 100,000 100,000 102,222 102,222
New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities Improvement,
Revenue, Series D, Prefunded 2/15/2002, 2/15/2018, 755,000 755,000 796,774 796,774
New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities Improvement,
Revenue, Series D, 2/15/2018, 7.4% 300,000 300,000 313,473 313,473
New York State Thruway Authority, General Revenue,
Capital Appreciation Special Obligation, Series 1991A,
Zero Coupon, 1/1/2006 2,905,000 2,905,000 2,272,697 2,272,697
New York State Thruway Authority, Revenue, 1/1/2025, 5% 5,360,000 5,360,000 4,974,026 4,974,026
New York State Thruway Authority, Highway and Bridges Trust
Fund, Revenue, Series A, 4/1/2015, 5.125% 1,500,000 1,500,000 1,493,865 1,493,865
New York State Thruway Authority, Highway and Bridges Trust
Fund, Revenue, 4/1/2011, 6% 5,000,000 5,000,000 5,328,300 5,328,300
New York State Thruway Authority, Highway and Bridges
Trust Fund, Revenue, 4/1/2013, 5.25% 2,400,000 2,400,000 2,434,608 2,434,608
New York State, Urban Development Corporation, State
Facilities, Revenue, 4/1/2015, 5.6% 2,260,000 2,260,000 2,355,733 2,355,733
New York State, Urban Development Corporation, Syracuse
University Center for Science and Technology,
Revenue, 1/1/2015, 5.5% 4,500,000 4,500,000 4,640,220 4,640,220
New York State, Urban Development Corporation, Syracuse
University Center for Science and Technology,
Revenue, 1/1/2017, 5.5% 4,890,000 4,890,000 4,992,054 4,992,054
New York State, Urban Development Corporation, Revenue,
Correctional Facilities, Series 1994A, 1/1/2014, 5.5% 2,000,000 2,000,000 2,096,080 2,096,080
New York State, Urban Development Corporation, Revenue,
Correctional Facilities, 1/1/2028, 5% 6,500,000 6,500,000 6,014,580 6,014,580
New York State, Urban Development Corporation, Revenue,
Correctional Facilities, Series B, 1/1/2013, 5.25% 1,700,000 1,700,000 1,728,543 1,728,543
New York State, Urban Development Corporation, Revenue,
Correctional Facilities, Series 1998, 4/1/2016, 5.125% 2,525,000 2,525,000 2,490,533 2,490,533
Niagara County, NY, General Obligation, MBIA Insured,
2/15/2011, 7.1% 500,000 500,000 593,015 593,015
Niagara Falls, NY, Water Treatment Plant, AMT, 11/1/2003, 7% 2,260,000 2,260,000 2,407,442 2,407,442
Niagara Falls, NY, Water Treatment Plant, AMT, 11/1/2005, 8.5% 2,140,000 2,140,000 2,484,176 2,484,176
Niagara Falls, NY, Water Treatment Plant, AMT, 11/1/2006, 8.5% 1,240,000 1,240,000 1,470,404 1,470,404
Niagara Falls, NY, Water Treatment Plant, General Obligation,
11/1/2011, 7.25% 215,000 215,000 257,423 257,423
Niagara Falls, NY, Water Treatment Plant, General Obligation,
11/1/2012, 7% 1,000,000 1,000,000 1,087,750 1,087,750
Niagara Falls, NY, Bridge Commission Toll Revenue 10/1/2015,
5.25% 10,720,000 10,720,000 10,969,347 10,969,347
Oneida-Herkimer, NY, Solid Waste Management Authority, Series
1998, 4/1/2013, 5.5% 500,000 500,000 518,805 518,805
Oneida-Herkimer, NY, Solid Waste Management Authority, Series
1998, 4/1/2014, 5.5% 1,000,000 1,000,000 1,034,860 1,034,860
Onondaga County, NY, Industrial Development Agency, Solid
Waste Disposal Facility, Solvay Paperboard LLC,
Series 1998, AMT, 11/1/2030, 7% 3,000,000 3,000,000 2,854,290 2,854,290
Orange County, NY, Industrial Development Agency, The Glen
Arden Project, 1/1/2005, 5.2% 200,000 200,000 192,768 192,768
Orange County, NY, Industrial Development Agency, The Glen
Arden Project, 1/1/2006, 5.3% 200,000 200,000 191,332 191,332
Orange County, NY, Industrial Development Agency, The Glen
Arden Project, 1/1/2007, 5.35% 200,000 200,000 189,500 189,500
Orange County, NY, Industrial Development Agency, The Glen
Arden Project, 1/1/2008, 5.4% 100,000 100,000 93,562 93,562
Orange County, NY, Industrial Development Agency, The Glen
Arden Project, 1/1/2018, 5.625% 1,000,000 1,000,000 2,000,000 818,490 818,490 1,636,980
Orange County, NY, Industrial Development Agency, The Glen
Arden Project, 1/1/2028, 5.7% 2,500,000 1,250,000 3,750,000 1,955,325 977,662 2,932,987
Port Authority of New York & New Jersey, Special Obligation
Revenue, Continental/Eastern Project,
Laguardia, 12/1/2015, 9.125% 2,550,000 2,550,000 2,620,456 2,620,456
Port Authority of New York & New Jersey, Special Obligation
Revenue, JFK International Air Terminal,
Split Amount, Series 1996, AMT, 10/1/2007, 7% 3,500,000 3,500,000 3,632,020 3,632,020
Port Authority of New York & New Jersey, Special Obligation
Revenue, JFK International Air Terminal, MBIA
insured, 12/1/2010, 6.25% 2,500,000 2,500,000 2,780,050 2,780,050
Port Authority of New York & New Jersey, Special Obligation
Revenue, JFK International Air Terminal, MBIA
insured, 12/1/2011, 6.25% 2,500,000 2,500,000 2,792,325 2,792,325
Port Authority of New York & New Jersey, JFK International
Airport Terminal 6, Special Obligation
Revenue, 12/1/2015, 6.25% 8,000,000 8,000,000 8,934,160 8,934,160
Puerto Rico Commonwealth, Public Improvements, General
Obligation, zero coupon, 7/1/2008, 0% 1,000,000 1,000,000 697,790 697,790
Puerto Rico Commonwealth, Highway and Transportation
Authority, Revenue, Series Z, 7/1/2018, 6% 2,750,000 2,750,000 3,060,502 3,060,502
Puerto Rico Electric Power Authority, Power Revenue,
7/1/2012, 6% 4,020,000 4,020,000 4,488,330 4,488,330
Puerto Rico Municipal Finance Agency, General Obligation,
Series A, 8/1/2012, 7.5054996% 1,500,000 1,500,000 1,756,530 1,756,530
Shenendehowa Central School District, NY, Clifton Park,
FGIC Insured, 6/15/2008, 6.85% 350,000 350,000 398,429 398,429
Shenendehowa Central School District, NY, Clifton Park,
FGIC Insured, 6/15/2009, 6.85% 350,000 350,000 402,349 402,349
34th Street Partnership Inc., NY, Capital Improvement,
1/1/2014, 5.5% 1,900,000 1,900,000 1,909,899 1,909,899
Tompkins County, NY, Industrial Development Agency Revenue,
6% Series 2000, 7/1/2017, 1,100,000 1,100,000 1,177,836 1,177,836
New York Triborough Bridge and Tunnel Authority, General
Purpose Revenue, Series Y, 1/1/2021, 6.125% 7,205,000 7,205,000 7,948,123 7,948,123
Ulster County, NY, General Obligation, Series 1998B,
10/15/2011, 5% 275,000 275,000 279,485 279,485
Ulster County, NY, General Obligation, Series 1998B,
10/15/2012, 5% 195,000 195,000 196,990 196,990
Ulster County, NY, General Obligation, Series 1998B,
10/15/2013, 5% 130,000 130,000 130,668 130,668
Ulster County, NY, Resource Recovery Agency, Solid Waste
System Revenue, 3/1/2014, 6% 3,000,000 3,000,000 3,065,580 3,065,580
Valley Central School District, Montgomery, NY, AMBAC
Insured, 6/15/2008, 7.15% 625,000 625,000 722,993 722,993
Virgin Islands, Public Finance Authority, Matching Fund
Loan Notes, ETM, Series 1992A, 10/1/2002, 7% 500,000 500,000 525,585 525,585
Virgin Islands, Public Finance Authority, Subordinate Lien,
Series 1998D, 10/1/2007, 6% 3,000,000 3,000,000 3,061,159 3,061,159
Weschester County, New York, 11/1/2011, 5.25% 3,000,000 3,000,000 3,104,234 3,104,234
------------------------------------
Total Long-Term Municipal Investments (Cost of
$200,103,094, $160,801,561, and
$360,904,655 respectively) 207,146,873 169,987,737 377,134,610
====================================
------------------------------------
Total Investment Portfolio (Cost of $205,566,546,
$165,901,561, and 371,468,107
$ respectively) 212,622,423 175,087,737 387,710,160
====================================
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF NOVEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Kemper New York Scudder New York Pro Forma Pro Forma
Tax-Free Income Tax Free Adjustments Combined
------------------ -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Investments, at value $ 212,622,423 $ 175,087,737 $ 387,710,160
Cash 104,400 493,153 597,553
Other assets less liabilities 2,390,927 1,816,948 $ - (2) 4,207,875
----------------- ------------------- ------------- --------------
Total Net assets $ 215,117,750 $ 177,397,838 $ - $ 392,515,588
================= =================== ============= ==============
Net Assets
Class S Shares $ 177,395,673 177,395,673
Class AARP Shares $ 2,165 2,165
Class A Shares $ 199,733,112 199,733,112
Class B Shares $ 11,953,646 11,953,646
Class C Shares $ 3,430,992 3,430,992
Shares Outstanding
Class S Shares 16,069,302 1,004,391 17,073,693
Class AARP Shares 196 12 208
Class A Shares 19,215,237 19,215,237
Class B Shares 1,148,249 1,148,249
Class C Shares 330,243 330,243
Net Asset Value per Share
Class S Shares 11.04 $ 10.39
Class AARP Shares 11.04 $ 10.39
Class A Shares 10.39 $ 10.39
Class B Shares 10.41 $ 10.41
Class C Shares 10.39 $ 10.39
</TABLE>
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED NOVEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Kemper New York Scudder New York Pro Forma Pro Forma
Tax-Free Income Tax Free Adjustments Combined
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 12,083,454 9,872,134 $ -- $ 21,955,588
----------------------------------------------------------------------------
Total Investment Income 12,083,454 9,872,134 21,955,588
Expenses
Management fees 1,174,410 1,094,579 (151,164) (3) 2,117,825
12B-1 Fees 588,116 - 588,116
Trustees Fees 8,378 5,433 (4) 13,811
All other expenses 259,473 405,887 (123,571) (5) 541,789
----------------------------------------------------------------------------
Total expenses before reductions 2,030,377 1,505,899 (274,735) 3,261,541
Expense reductions - - - -
----------------------------------------------------------------------------
Expenses, net 2,030,377 1,505,899 (274,735) 3,261,541
----------------------------------------------------------------------------
Net investment income (loss) 10,053,077 8,366,235 274,735 18,694,047
----------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain (loss) from investments (2,473,777) (1,545,584) -- (4,019,361)
Net increase in unrealized appreciation
of investments during the period 9,495,967 6,166,563 -- 15,662,530
----------------------------------------------------------------------------
Net increase in net assets from operations $ 17,075,267 $ 12,987,214 $ 274,735 $ 30,337,216
============================================================================
</TABLE>
Notes to Pro Forma Combining Financial Statements
(Unaudited)
November 30, 2000
1. These financial statements set forth the unaudited pro forma condensed
Statement of Assets and Liabilities as of November 30, 2000, and the
unaudited pro forma condensed Statement of Operations for the twelve month
period ended November 30, 2000 for Kemper New York Tax-Free Income Fund and
Scudder New York Tax Free Fund as adjusted giving effect to the
Reorganization as if it had occurred as of the beginning of the period.
These statements have been derived from the books and records utilized in
calculating daily net asset value for each fund.
2. Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $xxxxxx and $xxxxxx to be borne by Kemper New York Tax-
Free Fund and Scudder New York Tax Free Fund, respectively.
3. Represents reduction in management fees resulting from the utilization of
Kemper New York Tax-Free Fund's investment management agreement for the
entire year.
4. Reduction in trustee fees resulting from the Reorganization.
5. Represents reduction in other expenses resulting from the implementation of
an administrative agreement.
<PAGE>
PART C. OTHER INFORMATION
Item 15. Indemnification.
-------- ----------------
Article VIII of the Registrant's Agreement and Declaration of
Trust (Exhibits (1)(a)(1)(a)(3) hereto, which are incorporated
herein by reference) provides in effect that the Registrant will
indemnify its officers and trustees under certain circumstances.
However, in accordance with Section 17(h) and 17(i) of the
Investment Company Act of 1940 and its own terms, said Article of
the Agreement and Declaration of Trust does not protect any
person against any liability to the Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers,
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling
person in connection with the securities being registered, the
Registrant will, unless in opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question as to whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI
Holding Corp. ("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"),
Scudder, Stevens & Clark, Inc. ("Scudder") and the
representatives of the beneficial owners of the capital stock of
Scudder ("Scudder Representatives") entered into a transaction
agreement ("Transaction Agreement") pursuant to which Zurich
became the majority stockholder in Scudder with an approximately
70% interest, and ZKI was combined with Scudder ("Transaction").
In connection with the trustees' evaluation of the Transaction,
Zurich agreed to indemnify the Registrant and the trustees who
were not interested persons of ZKI or Scudder (the "Independent
Trustees") for and against any liability and expenses based upon
any action or omission by the Independent Trustees in connection
with their consideration of and action with respect to the
Transaction. In addition, Scudder has agreed to indemnify the
Registrant and the Independent Trustees for and against any
liability and expenses based upon any misstatements or omissions
by Scudder to the Independent Trustees in connection with their
consideration of the Transaction.
Item 16. Exhibits.
-------- ---------
(1) (a)(1) Amended and Restated Agreement and
Declaration of Trust is incorporated be
reference to Post-Effective Amendment No.
22 to the Registration Statement.
<PAGE>
(a)(2) Written Instrument Establishing and
Designating Separate Classes of Shares is
incorporated by reference to Post-Effective
Amendment No. 22 to the Registration
Statement.
(a)(3) Amended and Restated Written Instrument
Establishing and Designating Separate
Classes of Shares is incorporated by
reference to Post-Effective Amendment No.
25 to the Registration Statement.
(2) (b)(1) By-laws are incorporated by reference to
Post-Effective Amendment No. 23 to the
Registration Statement.
(3) Inapplicable.
(4) Form of Agreement and Plan of
Reorganization filed herein as Exhibit A to
Part A.
(5) Inapplicable.
(6) (d)(1) Investment Management Agreement between the
Registrant, on behalf of Kemper California
Tax Free Income Fund, and Scudder Kemper
Investments, Inc., dated September 7, 1998,
is incorporated by reference to Post-
Effective Amendment No. 28 to the
Registration Statement.
(7) (e)(1) Underwriting and Distribution Services
Agreement between the Registrant and Kemper
Distributors, Inc., dated September 7,
1998, is incorporated by reference to Post-
Effective Amendment No. 28 to the
Registration Statement.
(e)(2) Selling Group Agreement is incorporated by
reference to Post-Effective Amendment No.
22 to the Registration Statement.
(e)(3) Addendum to Selling Group Agreement is
incorporated by reference to Post-Effective
Amendment No. 22 to the Registration
Statement.
(8) Inapplicable.
(9) (g)(1) Custody Agreement is incorporated by
reference to Post-Effective Amendment No.
23 to the Registration Statement.
(g)(2) Amendment to Custody Agreement dated March
15, 1999, is incorporated by reference to
Post-Effective Amendment No. 31 to the
Registration Statement.
(g)(3) Amendment to Custody Agreement dated March
31, 1999, is incorporated by reference to
Post-Effective Amendment No. 31 to the
Registration Statement.
<PAGE>
(10) (m)(1) Rule 12b-1 Plan between the Registrant, on
behalf of Kemper California State Tax-Free
Income Fund (Class B shares) and Kemper
Distributors, Inc., dated August 1, 1998,
is incorporated by reference to Post-
Effective Amendment No. 27 to the
Registration Statement.
(m)(2) Rule 12b-1 Plan between the Registrant, on
behalf of Kemper California State Tax-Free
Income Fund, (Class C shares) and Kemper
Distributors, Inc., dated August 1, 1998,
is incorporated by reference to Post-
Effective Amendment No. 27 to the
Registration Statement.
(m)(3) Multi-Distribution System Plan is
incorporated by reference to Post-Effective
Amendment No. 25 to the Registration
Statement.
(m)(4) Kemper 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) Agency Agreement is incorporated by
reference to Post-Effective Amendment No.
22 to the Registration Statement.
(h)(2) Supplement to Agency Agreement is
incorporated by reference to Post-Effective
Amendment No. 25 to the Registration
Statement.
(h)(3) Administrative Services Agreement is
incorporated by reference to Post-Effective
Amendment No. 22 to the Registration
Statement.
(h)(4) Amendment to Administrative Services
Agreement is incorporated by reference to
Post-Effective Amendment No. 22 to the
Registration Statement.
(h)(5) Assignment and Assumption Agreement is
incorporated by reference to Post-Effective
Amendment No. 22 to the Registration
Statement.
(h)(6) Fund Accounting Services Agreement between
the Registrant, on behalf of Kemper
California Tax-Free Income Fund, and
Scudder Fund Accounting Corp., dated
December 31, 1997, is incorporated by
reference to Post-Effective Amendment No.
28 to the Registration Statement.
(14) Consents of Independent Auditors are filed
herewith.
(15) Inapplicable.
(16) Powers of Attorney are filed herewith.
(17) Form of Proxy is filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Kemper State Tax-Free Income Series 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.
KEMPER STATE TAX-FREE INCOME SERIES
By: /s/ Mark S. Casady
-----------------------
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C> <C>
/s/ Mark S. Casady President January 5, 2001
-----------------------------
Mark S. Casady
/s/ John W. Ballantine * Trustee January 5, 2001
-----------------------------
John W. Ballantine
/s/ Lewis A. Burnham * Trustee January 5, 2001
-----------------------------
Lewis A. Burnham
/s/ Linda C. Coughlin * Trustee January 5, 2001
-----------------------------
Linda C. Coughlin
/s/ Donald L. Dunaway * Trustee January 5, 2001
-----------------------------
Donald L. Dunaway
/s/ Robert B. Hoffman * Trustee January 5, 2001
-----------------------------
Robert B. Hoffman
/s/ Donald R. Jones * Trustee January 5, 2001
-----------------------------
Donald R. Jones
/s/ Thomas W. Littauer * Trustee January 5, 2001
-----------------------------
Thomas W. Littauer
/s/ Shirley D. Peterson * Trustee January 5, 2001
-----------------------------
Shirley D. Peterson
/s/ William P. Sommers * Trustee January 5, 2001
-----------------------------
William P. Sommers
/s/ John R. Hebble Treasurer (Principal Financial January 5, 2001
----------------------------- and Accounting Officer)
John R. Hebble
*By: /s/ Caroline Pearson January 5, 2001
----------------------
Caroline Pearson, Attorney-in-fact
</TABLE>
*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
KEMPER STATE TAX-FREE INCOME SERIES
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES
EXHIBIT INDEX
Exhibit 10 Kemper 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
