<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 California 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 CALIFORNIA TAX FREE FUND
Please take notice that a Special Meeting of Shareholders (the "Meeting")
of Scudder California Tax Free Fund (the "Fund"), a series of Scudder California
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 California Tax-Free Income
Fund, (ii) each shareholder of the Fund would receive
Class S shares of Kemper California 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 CALIFORNIA TAX FREE FUND,
a separate series of
SCUDDER CALIFORNIA 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 CALIFORNIA 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 California 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
California 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 California Tax-Free Income Fund and the
assumption by Kemper California Tax-Free Income Fund of all of the liabilities
of the Fund, as described more fully below (the "Reorganization"). Shares of
Kemper California 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
California Tax-Free Income Fund and will receive shares of Kemper California
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 California 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 California 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 California Tax-Free Income Fund, see Kemper California 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 California 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 California 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
California Tax-Free Income Fund at the telephone number or address listed above.
Shareholder inquiries regarding Kemper California 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 California Tax-Free Income Fund is a non-diversified series of
shares of beneficial interest of the Acquiring Trust, and the Fund is a
diversified series of shares of beneficial interest of the Acquired Trust. The
Acquiring Trust and the Acquired Trust are open-end management investment
companies organized as Massachusetts business trusts.
The Board of Trustees 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, 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
California Tax-Free Income Fund in exchange for Class S shares of Kemper
California Tax-Free Income Fund; (b) the distribution of such shares to the
shareholders of the Fund in complete liquidation of the
-2-
<PAGE>
Fund; and (c) the termination of the Fund. As a result of the Reorganization,
each shareholder of the Fund will become a shareholder of Kemper California Tax-
Free Income Fund and will hold, immediately after the Reorganization, Class S
shares of Kemper California 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
California 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:
-3-
<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 California 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 receive an opinion of tax counsel that the transaction would
be a TAX-FREE transaction.
For these reasons, as more fully described below under "The Proposed
Transaction -- Board Approval of the Proposed Transaction," the Board of
Trustees, including the Independent Trustees, has concluded that:
. the Reorganization is in the best interests of the Fund and its
shareholders; and
. the interests of the existing shareholders of the Fund will not be
diluted as a result of the Reorganization.
Accordingly, the Trustees unanimously recommend approval of the Plan
effecting the Reorganization. If the Plan is not approved, the Fund will
continue in existence unless other action is taken by the Trustees.
Investment Objectives, Policies and Restrictions of the Funds
This section will help you compare the investment objectives and policies
of the Fund and Kemper California Tax-Free Income Fund. Please be aware that
this is only a summary. More complete information may be found in the Funds'
prospectuses.
The investment objectives, policies and restrictions of the Fund and Kemper
California Tax-Free Income Fund are similar. Some differences do exist. The
investment objective of the Fund is to seek income that is exempt from
California personal and regular federal income taxes. The investment objective
of Kemper California Tax-Free Income Fund is to seek a high level of current
income that is exempt from California state and federal income taxes. There can
be no assurance that either Fund will achieve its investment objective.
Kemper California Tax-Free Income Fund normally invests at least 80% of its
net assets in California municipal securities and other securities whose income
is free from regular federal income tax.
-4-
<PAGE>
Similarly, the Fund invests at least 80% of its net assets in California
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. 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 California 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 each Fund, 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 California Tax-Free Income
Fund, specific security characteristics.
Normally, at least 90% of Kemper California Tax-Free Income Fund's
municipal securities are in 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 California Tax-Free Income Fund's 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 invest 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 California 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 duration (a measure of
sensitivity to interest rate movements) of Kemper California Tax-Free Income
Fund's portfolio, depending on its outlook for interest rates. In comparison,
the Investment Manager may adjust the Fund's duration, 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 Kemper California Tax-Free Income Fund has elected to
be classified as a non-diversified series of an open-end investment company,
while the Fund has elected to be classified as a diversified series of an open-
end investment company. Fundamental investment restrictions may not be changed
without the approval of Fund shareholders. The Funds' non-fundamental
investment policies (which may be changed by the particular Fund's Board without
shareholder approval) are identical, except that Kemper California 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 the
-5-
<PAGE>
respective statements of additional information of the funds for a more detailed
description of each Fund's investment policies and restrictions.
Portfolio Turnover
The portfolio turnover rate for Kemper California 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 57%. The portfolio
turnover rate for the Fund for the fiscal year ended March 31, 2000 was 40%.
Performance
The following table shows how the returns of the Fund and Kemper California
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 Fund's
engagement of seperate and distinct investment management teams prior to January
2000. The Trustees did not consider differences in the Fund's past performance
to be a significant factor in evaluating the Reorganization because the Funds
currently share the same portfolio managment team and follow a substantially
similar investment process.
For management's discussion of Kemper California 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 Funds
have the same portfolio management team. 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 California Tax-Free
Income Fund had total net assets of $805,336,226. For the fiscal year ended
August 31, 2000, Kemper California Tax-Free Income
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<PAGE>
Fund paid the Investment Manager a fee of 0.53% of its average daily net
assets. As of March 31, 2000, the Fund had total net assets of $309,357,127.
For the fiscal year ended March 31, 2000, the Fund paid the Investment Manager
a fee of 0.62% of its average daily net assets.
The fee schedule for the combined fund after the Reorganization will be
identical to the current fee schedule for Kemper California Tax-Free Income
Fund. Currently the fee schedules for the Fund and Kemper California Tax-Free
Income Fund are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Fund Kemper California 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 month period ended
November 30, 2000, the effective advisory fee rate for the Fund was 0.61%.
Based upon each Fund's average net assets for the twelve month period ended
November 30, 2000, the effective advisory fee rate for Kemper California Tax-
Free Income Fund after the Reorganization would be 0.53% of average daily net
assets.
Administrative Fee
On the date of Closing, Kemper California 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
California 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 California 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 California 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 California 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 California
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 California Tax-Free Income Fund and maintains its accounting
records. Scudder Service Corporation, a subsidiary of Scudder Kemper, is the
transfer agent, shareholder service agent and dividend-paying agent for Class S
shares of Kemper California 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 California Tax-Free Income
Fund and acts as agent of such Fund in the
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<PAGE>
continuous offering of such shares. As custodian, State Street Bank and Trust
Company holds the portfolio securities of Kemper California Tax-Free Income
Fund, pursuant to a custodian agreement. Other Service Providers include the
independent public accountants and legal counsel for Kemper California Tax-Free
Income Fund.
Once the Administration Agreement becomes effective, each Service Provider
will continue to provide the services to Kemper California Tax-Free Income Fund
described above, except that Scudder Kemper will pay these entities for the
provision of their services to Kemper California Tax-Free Income Fund and will
pay most other fund expenses, including insurance, registration, printing and
postage fees. In return, Kemper California 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 California 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 California Tax-Free Income Fund. The fee payable
by Kemper California Tax-Free Income Fund to Scudder Kemper pursuant to the
Administration Agreement would be reduced by the amount of any credit received
from Kemper California Tax-Free Income Fund's custodian for cash balances.
Certain expenses of Kemper California 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 California 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 California 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 California
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
California
Tax-Free Pro Forma
Shareholder Fees Fund Income Fund (Combined)(1)
---------------- ----------------- ------------------- -----------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases None None None
(as % of offering price)
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Maximum Contingent Deferred Sales Charge (Load) None None None
(as % of redemption proceeds)
Maximum Deferred Sales Charge (Load) imposed on None None None
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 0.61% 0.53% 0.53%
Rule 12b-1/ASF Fees None None None
Other Expenses 0.15%(2) 0.15%(3) 0.15%
Total Annual Fund Operating Expenses 0.76% 0.68% 0.68%
Expense Waiver
Net Annual Fund Operating Expenses
Expense Example of Total Operating
----------------------------------
Expenses at the End of the Period(4)
---------------------------------
One Year $ 78 $ 69 $ 69
Three Years $ 243 $ 218 $ 218
Five Years $ 422 $ 379 $ 379
Ten Years $ 942 $ 847 $ 847
</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 California Tax-Free Income Fund. SIS charges no
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direct fees in connection with the distribution of shares of the Fund or the
Class S shares of Kemper California Tax-Free Income Fund. Following the
Reorganization, shareholders of Class S shares of Kemper California 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 California Tax-Free Income Fund will be identical to
those of the Fund. Class S shares of Kemper California 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 California
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 California 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 seperate 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 California 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 California 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.)
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<PAGE>
Fiscal Year.
The Fund's fiscal year-end is March 31. Kemper California Tax-Free Income
Fund's fiscal year-end is August 31.
Auditors.
The Fund's auditors are PricewaterhouseCoopers LLP. Kemper California Tax-
Free Income Fund's auditors are Ernst & Young LLP.
Tax Consequences
As a condition to the Reorganization, each Fund will have received an
opinion of Willkie Farr & Gallagher in connection with the Reorganization, to
the effect that, based upon certain facts, assumptions and representations, the
Reorganization will constitute a tax-free reorganization within the meaning of
section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code").
If the Reorganization constitutes a tax-free reorganization, no gain or loss
will be recognized by the Fund or its shareholders as a direct result of the
Reorganization. See "The Proposed Transaction -- Federal Income Tax
Consequences."
* * *
The preceding is only a summary of certain information contained in this
Proxy Statement/Prospectus relating to the Reorganization. This summary is
qualified by reference to the more complete information contained elsewhere in
this Proxy Statement/Prospectus, the prospectuses and statements of additional
information of the Funds, and the Plan. Shareholders should read this entire
Proxy Statement/Prospectus carefully.
II. PRINCIPAL RISK FACTORS
Because of their similar investment objectives, policies and strategies,
the principal risks presented by Kemper California 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 longer average durations.
Because historically Kemper California 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 changes in 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 California 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 credit
risk, because any factors affecting the state or region, such as economic or
fiscal problems, could affect portfolio securities similarly. Lastly, Kemper
California Tax-Free Income Fund is subject to the risks associated with being
non-diversified. As a result of being non-diversified, such Fund's 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 the Fund, which is a
diversified fund. 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.
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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 California 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 California Tax-Free Income Fund will assume all of the
liabilities of the Fund. The Fund will distribute the Class S 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 California 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 California
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 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 California 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 California 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 California 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.
The Fund will pay its allocable share of expenses associated with the
Reorganization (approximately $32,783, or $[ ] per share, based on [ ], 2000
net assets for the Fund). Class A and Class B shares of Kemper California Tax
Free Fund will pay their allocable share of expenses associated with the
Reorganization, except that Scudder Kemper will bear any such expenses in excess
of $48,481 for Class A and $2,494 for Class B (approximately $[ ] and $[ ] per
share, respectively, based on
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[ ], 2000 net assets for the Kemper California Tax-Free Fund). Scudder Kemper
will pay all expenses associated with the Reorganization allocable to Class C
shares of Kemper California Tax-Free 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:
(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.
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<PAGE>
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 California Tax-Free Income
Fund, and between the estimated operating expenses of Kemper California 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 California Tax-Free Income Fund's investment objectives,
policies, restrictions and portfolios; (d) the agreement by Scudder Kemper to
provide services to Kemper California 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 California
Tax-Free Income Fund; (f) the costs to be borne by the Fund, Kemper California
Tax-Free Income Fund and Scudder Kemper as a result of the Reorganization; (g)
prospects for Kemper California Tax-Free Income Fund to attract additional
assets; (h) the tax consequences of the Reorganization on the Fund, Kemper
California Tax-Free Income Fund and their respective shareholders; (i) the
investment performance of the Fund and Kemper California 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 California 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 California 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 California Tax-Free Income Fund are currently divided into
three classes, Class A, Class B and Class C. The Trustees of the Acquiring
Trust have authorized the creation of an additional class of shares for Kemper
California Tax-Free Income Fund, Class S shares. It is anticipated that the
Class S shares will be created prior to the Closing. If the Class S shares are
not created prior to the Closing then the Reorganization will not be
consummated. Although shareholders of different classes of a series have an
interest in the same portfolio of assets, shareholders of different classes 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 California Tax-Free Income Fund
represents an interest in Kemper California Tax-Free Income Fund that is equal
to and proportionate with each other share of that class of Kemper California
Tax-Free Income Fund. Kemper California Tax-Free Income Fund
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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 California
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 California 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 California 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 368(a)(1) of the Code, and Kemper California 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 California
Tax-Free Income Fund in exchange solely for Class S shares and the assumption by
Kemper California 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 California 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 California 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 California Tax-Free
Income Fund upon the receipt of the assets of the Fund in exchange for Class S
shares and the assumption by Kemper California 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 California 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 California Tax-Free Income Fund will be passed on by
Dechert, Ten Post Office Square, South, Boston, Massachusetts 02109.
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<PAGE>
Capitalization
The following table shows on an unaudited basis the capitalization of
Kemper California 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):
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<TABLE>
<CAPTION>
Kemper California Pro Forma Pro Forma
Tax-Free Income Fund Fund Adjustments (Combined)
<S> <C> <C> <C> <C>
Net Assets
Class S Shares $313,310,966 /(3)/ $ 313,310,966
Class AARP Shares $ 74,132 /(3)/ $ 74,132
Class A Shares $753,160,570 /(4)/ $ 753,160,570
Class B Shares $ 31,638,978 /(4)/ $ 31,638,978
Class C Shares $ 3,697,497 /(4)/ $ 3,697,497
------------ ------------ ---------- -------------------
Total Net Assets $788,497,045 $313,385,098 $ 1,101,882,143/(2)/
============ ============ ========== ===================
Shares Outstanding
Class S Shares 28,739,770 14,416,010 43,155,780
Class AARP Shares 6,802 3,409 10,211
Class A Shares 103,803,874 103,803,874
Class B Shares 4,354,958 4,354,958
Class C Shares 512,625 512,625
Net Asset Value per Share
Class S Shares $ 10.90 $ 7.26
Class AARP Shares $ 10.90 $ 7.26
Class A Shares $ 7.26 $ 7.26
Class B Shares $ 7.27 $ 7.27
Class C Shares $ 7.21 $ 7.21
</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 California 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 California Tax-Free Income Fund that actually will be received on
or after such date.
(2) Pro forma (combined) net assets do not reflect expense reductions that
would result from the implementation of an Administrative Fee for Kemper
California 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 California Tax-Free Income Fund.
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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
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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 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
California Tax-Free Income Fund.] The Appendix hereto sets forth the beneficial
owners of more than 5% 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 any class 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
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<PAGE>
voting instruction card. After inputting this number, shareholders will be
prompted to provide their 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
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<PAGE>
INDEX OF EXHIBITS AND APPENDIX
EXHIBIT A: FORM OF AGREEMENT AND PLAN OF REORGANIZATION...................
EXHIBIT B: MANAGEMENT'S DISCUSSION OF KEMPER CALIFORNIA TAX-FREE INCOME
FUND'S PERFORMANCE.............................................
APPENDIX: BENEFICIAL OWNERS OF FUND SHARES...............................
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<PAGE>
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this [_] day of [_], 2001, by and among Kemper State Tax-Free Income Series (the
"Acquiring Trust"), a Massachusetts business trust, on behalf of Kemper
California Tax-Free Income Fund (the "Acquiring Fund"), a separate series of the
Acquiring Trust, Scudder California 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 California 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 $32,783, 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 $61,275, which includes board meeting fees,
legal, accounting and other consultant fees, and proxy solicitation costs. The
amount of these costs allocated to Class A shares of the Acquiring Fund are
$48,481 out of $55,980 (86.60%) and the costs allocated to Class B shares of the
Acquiring Fund are $2,494 out of $3,788 (65.84%).] Scudder Kemper is bearing the
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
<PAGE>
breach or intentional misrepresentation, as to each of which all remedies at law
or in equity of the party adversely affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by any authorized officer of the Acquired
Fund and any authorized officer of the Acquiring Fund; provided, however, that
following the meeting of the Acquired Fund Shareholders called by the Acquired
Fund pursuant to section 5.3 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund Shareholders under this Agreement
to the detriment of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, Two International Place, Boston, 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
<PAGE>
for the obligations of the Trusts hereunder, and all persons shall look only to
the assets of the Funds to satisfy the obligations of the Trusts hereunder. The
execution and the delivery of this Agreement have been authorized by each
Trust's Board members, on behalf of the applicable Fund, and this Agreement has
been signed by authorized officers of each Fund acting as such, and neither such
authorization by such Board members, nor such execution and delivery by such
officers, shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the
respective property of the Funds, as provided in each Trust's Declaration of
Trust.
Notwithstanding anything to the contrary contained in this Agreement, the
obligations, agreements, representations and warranties with respect to each
Fund shall constitute the obligations, agreements, representations and
warranties of that Fund only (the "Obligated Fund"), and in no event shall any
other series of the Trusts or the assets of any such series be held liable with
respect to the breach or other default by the Obligated Fund of its obligations,
agreements, representations and warranties as set forth herein.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of The Commonwealth of Massachusetts, without regard
to its principles of conflicts of laws.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by an authorized officer and its seal to be affixed thereto and
attested by its Secretary or Assistant Secretary.
Attest: KEMPER STATE TAX-FREE INCOME SERIES
on behalf of Kemper California Tax-Free
Income Fund
_________________________
Secretary
_______________________________
By:____________________________
Its:___________________________
Attest: SCUDDER CALIFORNIA TAX FREE TRUST
on behalf of Scudder California 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 California 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.
1
<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
2
<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
3
<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> <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> <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.
4
<PAGE>
PERFORMANCE UPDATE
KEMPER CALIFORNIA 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> <C>
KEMPER CALIFORNIA TAX-FREE INCOME FUND
CLASS A 3.18% 4.98% 6.73% 8.12% (since 2/17/83)
.........................................................................................................
KEMPER CALIFORNIA TAX-FREE INCOME FUND
CLASS B 4.14 4.95 n/a 5.41 (since 5/31/94)
.........................................................................................................
KEMPER CALIFORNIA TAX-FREE INCOME FUND
CLASS C 7.34 5.01 n/a 5.29 (since 5/31/94)
.........................................................................................................
</TABLE>
[LINE GRAPH LINE GRAPH KEMPER CALIFORNIA TAX-FREE INCOME FUND CLASS A]
<TABLE>
<CAPTION>
KEMPER CALIFORNIA TAX-
FREE INCOME FUND CLASS LEHMAN BROTHERS
A1 MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
2/28/83 9556.00 10000.00 10000.00
9895.00 10242.00 10347.00
10679.00 11323.00 10756.00
13028.00 13591.00 11164.00
15428.00 16216.00 11287.00
16063.00 16460.00 11788.00
12/31/88 17271.00 18132.00 12308.00
19251.00 20087.00 12880.00
20540.00 21553.00 13667.00
22886.00 24170.00 14086.00
24772.00 26301.00 14494.00
27890.00 29532.00 14893.00
12/31/94 26360.00 28016.00 15291.00
31494.00 32894.00 15679.00
32432.00 34351.00 16200.00
35210.00 37508.00 16476.00
37328.00 39939.00 16742.00
35948.00 39115.00 17191.00
8/31/00 39300.00 42078.00 17634.00
</TABLE>
[LINE GRAPH KEMPER CALIFORNIA TAX-FREE INCOME FUND CLASS B]
<TABLE>
<CAPTION>
KEMPER CALIFORNIA 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
9945.00 9942.00 10034.00
9760.00 9868.00 10149.00
10662.00 10816.00 10339.00
11576.00 11586.00 10407.00
6/30/96 11273.00 11534.00 10624.00
11818.00 12099.00 10753.00
12070.00 12486.00 10868.00
12724.00 13211.00 10936.00
12948.00 13566.00 11051.00
12/31/98 13379.00 14067.00 11112.00
13068.00 13948.00 11268.00
12776.00 13777.00 11410.00
13421.00 14396.00 11681.00
8/31/00 13894.00 14821.00 11704.00
</TABLE>
[LINE GRAPH KEMPER CALIFORNIA TAX-FREE INCOME FUND CLASS C]
5
<PAGE>
<TABLE>
<CAPTION>
KEMPER CALIFORNIA 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
9933.00 9942.00 10034.00
9754.00 9868.00 10149.00
10657.00 10816.00 10339.00
11556.00 11586.00 10407.00
6/30/96 11236.00 11534.00 10624.00
11782.00 12099.00 10753.00
12047.00 12486.00 10868.00
12648.00 13211.00 10936.00
12851.00 13566.00 11051.00
12/31/98 13281.00 14067.00 11112.00
12938.00 13948.00 11268.00
12662.00 13777.00 11410.00
13324.00 14396.00 11681.00
8/31/00 13797.00 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
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).
6
<PAGE>
APPENDIX
[Beneficial Owners of Fund Shares]
<PAGE>
This Proxy Statement/Prospectus is accompanied by Kemper California 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 California Tax Free Fund's prospectus dated August 1, 2000, which
was previously filed with the Commission via EDGAR on August 3, 2000 (File No.
811-03729) is incorporated by reference herein.
Kemper California 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 California Tax Free Fund, Kemper California Tax-Free Income Fund
a series of a series of Kemper State Tax-Free
Scudder California Tax Free Trust Income 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 California Tax Free Fund in connection with a proposed transaction
whereby Kemper California Tax-Free Income Fund will acquire all or substantially
all of the assets and all of the liabilities of Scudder California Tax Free Fund
in exchange for shares of Kemper California 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 California 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 California 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 California Tax Free Fund's prospectus dated August 1, 2000, which
was previously filed with the Commission via EDGAR on August 3, 2000 (File No.
811-03729) and is incorporated by reference herein.
4. Scudder California 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. 811-03729) and is incorporated by reference herein.
5. Scudder California 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 25, 2000 (File No. 811-03729) and is incorporated by reference
herein.
<PAGE>
6. The financial statements and schedules of Kemper California Tax-Free Income
Fund and Scudder California Tax Free Fund required by Regulation S-X for the
periods specified in Article 3 thereof, which are filed herein.
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated March [ ], 2001 relating to the Reorganization may
be obtained by writing Scudder California 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 November 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Kemper Cal Scudder Cal Pro Forma
Tax Free Tax Free Combined
Par/Shares Par/Shares Par/Shares
Security Name Amount Amount Amount
---------- ----------- ----------
<S> <C> <C> <C>
Short-Term Municipal Investments 2.2%
-------------------------------------
California Pollution Control Financing Authority, Pacific Gas & Electric Corp.,
Variabl Rate Demand Note, 11/01/2026 2,300,000 2,300,000
California Pollution Control Financing Authority, Southern
California Edison, Series 1986 D, Daily Demand Note, 3.30%, 02/28/2008 1,200,000 1,000,000 2,200,000
Irvine Ranch Water District, CA, Daily Demand Bond, 3.85%, 04/01/2033 1,000,000 1,000,000
Irvine Ranch Water District, CA, Daily Demand Bond, 3.85%, 10/01/2004 1,900,000 1,900,000
Irvine, CA, Import Bond Act 1915, Special Assessment, 4.75%, 09/02/2023 3,755,000 3,755,000
Irvine, CA, Improvement Bond, Assessment District 89-10, Daily
Demand Bond, 3.50%, 09/02/2015 1,900,000 1,900,000
Orange County, CA, Impact Act 1915, Variable Rate Demand Note,
2.30%, 09/02/2018 2,900,000 2,900,000
Orange County, CA, Municipal Water District, Certificate of
Participation, Variable Rate Demand Note, 3.75%, 08/15/2015 2,000,000 2,000,000
Southern California Pollution Control Revenue, Edison Co. Series
1986 A, Daily Demand Note, 3.40%, 02/28/2008 6,700,000 6,700,000
Total Short-Term Municipal Investments (Cost of $22,655,000,
$2,000,000, and $24,655,000 respectively)
Long-Term Municipal Investments 97.8%
-------------------------------------
ABAG Finance Authority, CA, Stanford Health Systems, Certificate of
Participation, ETM 11/1/2007,6.0% 605,000 605,000
Alameda County, CA, Water District Revenue, Series 1998 6/1/2016,
4.625% 2,450,000 2,450,000
Anaheim County, CA, Convention Center Financing, Certificate of
Participation, Zero Coupon, MBIA Insured 8/1/2005 1,250,000 1,250,000
Anaheim, CA, Public Financing Authority, Lease Revenue Public
Improvements Project, Series 1997A, Fsa Ins 9/1/2024, 6.0% 3,500,000 3,500,000
Anaheim, CA, Public Financing Authority, Lease Revenue Public
Improvements Project, Series 1997C, FSA Insured 9/1/2014, 6.0% 1,000,000 1,000,000
Anaheim, CA, Public Financing Authority, Lease Revenue Public
Improvements Project, Series 1997C, FSA Insured 9/1/2016, 6.0% 1,000,000 1,000,000
Anaheim, CA, Public Financing Authority, Lease Revenue, Public
Improvements Project, Series 1997 C, FSA Insured 9/1/2017 1,455,000 1,455,000
Anaheim, CA, Public Financing Authority, Lease Revenue Public
Improvements Project, Series 1997C, Zero Coupon, FSA Insur 9/1/2018 1,000,000 1,000,000
Benicia, CA, Unified School District, General Obligation, Series A,
Zero Coupon 8/1/2017 1,735,000 1,735,000
Benicia, CA, Unified School District, General Obligation, Series A,
Zero Coupon 8/1/2018 1,510,000 1,510,000
Big Bear Lake, CA, Water Revenue, Rites-PA 597A, 10.19% 4/1/2015 1,700,000 1,700,000
Big Bear Lake, CA, Water Revenue, Rites-PA 597B, 10.17% 4/1/2022 6,750,000 6,750,000
Burbank, CA, Unified School District, General Obligation, Series B,
Zero Coupon 8/1/2011 1,250,000 1,250,000
Burbank, CA, Unified School District, General Obligation, Series B,
Zero Coupon 8/1/2012 1,500,000 1,500,000
Burbank, CA, Unified School District, General Obligation, Series B,
Zero Coupon 8/1/2013 3,225,000 3,225,000
Burbank, CA, Unified School District, General Obligation, Series B,
Zero Coupon 8/1/2014 3,000,000 3,000,000
Cabrillo, CA, University School District, Series A 8/1/2019 4,000,000 4,000,000
California Educational Facilities Authority, University of San
Diego, Revenue, Zero Coupon 10/1/2014 1,470,000 1,470,000
California Educational Facilities Authority Revenue 10/1/2024 2,500,000 2,500,000
California Educational Facilities Authority, Mills College, Revenue,
Prerefunded 9/1/2002, 6.875%,9/1/2022 1,775,000 1,775,000
California Educational Facilities Authority, University of San
Francisco, Revenue 10/1/2016, 6.0% 6,640,000 6,640,000
California Housing Finance Agency, Multi-Unit Rental Housing Revenue,
Series A 8/1/2001, 7.4% 1,555,000 1,555,000
California Housing Finance Agency, Multi-Unit Rental Housing Revenue,
Series A 8/1/2002, 7.45% 1,015,000 1,015,000
California Housing Finance Agency, Multi-Unit Rental Housing Revenue,
Series A 8/1/2006, 7.6% 4,030,000 4,030,000
California Housing Finance Agency, Multi-Unit Rental Housing Revenue,
Series A 8/1/2007, 7.65% 2,335,000 2,335,000
California Housing Finance Agency, Multi-Unit Rental Housing
Revenue, Series A 8/1/2009, 7.7% 700,000 700,000
California Housing Finance Agency, Multi-Unit Rental Housing
Revenue, Series A 8/1/2016, 7.75% 2,440,000 2,440,000
California Housing Finance Agency, Multi-Unit Rental Housing Revenue,
Series A 8/1/2023, 7.8% 2,635,000 2,635,000
California Health Facilties Finance Authority Revenue, Capital
Appreciation, Kaiser, Series 1989A, Zero Coupon, 4,900,000 4,900,000
AMBAC Insured, 10/1/20120
California Health Facilities Authority, Kaiser Permanente, Revenue,
Series A, Zero Coupon 10/1/2009 7,140,000 7,140,000
California Housing Finance Agency, Multi-Unit Rental Housing
Revenue, Series II 8/1/2001, 7.3% 375,000 375,000
California Housing Finance Agency, Multi-Unit Rental Housing
Revenue, Series II 8/1/2002, 7.35% 400,000 400,000
California Housing Finance Agency, Multi-Unit Rental Housing
Revenue, Series II 8/1/2003, 7.35% 430,000 430,000
California Housing Finance Agency, Multi-Unit Rental Housing
Revenue, Series II 8/1/2004, 7.35% 460,000 460,000
California Housing Finance Agency, Multi-Unit Rental Housing
Revenue, Series II 8/1/2005, 7.35% 495,000 495,000
California Housing Finance Agency, Hom Mortgage Revenue, Series F1,
AMT, AMBAC Insured 8/1/2005, 6.2% 840,000 840,000
California Housing Finance Agency, Home Mortgage Revenue, Series F1,
AMT, AMBAC Insured 8/1/2006, 6.3% 1,310,000 1,310,000
California Housing Finance Agency, Home Mortgage Revenue, Series F-1
8/1/2015, 6.875% 10,905,000 10,905,000
California Housing Finance Agency, Home Mortgage Revenue, Series
1995 G, MBIA Ins 2/1/2007, 5.7% 500,000 500,000
California Housing Finance Agency, Home Mortgage Revenue, Series
1995 G, MBIA Insured 2/1/2008, 5.8% 1,330,000 1,330,000
California Housing Finance Agency, Home Mortgage Revenue, Series
1995 G, MBIA Insured 2/1/2009, 5.9% 200,000 200,000
California Health Facilities, Finance Authority Revenue, Capital
Appreciation, Kaiser Permanente, Series 1989 A, Zero Coupon 10/1/2010 3,040,000 3,040,000
California Health Facilities Finance Authority, Kaiser Permanente,
Revenue, Series A, Prerefunded 12/1/2000, 7.00%,12/1/2010 3,550,000 3,550,000
California Health Facilities Finance Authority, Adventist Health
System West, Revenue, Series B 3/1/2011, 6.5% 2,000,000 2,000,000
California Health Facilities Finance Authority, Adventist Health
System West, Revenue Series B 3/1/2007, 6.5% 3,750,000 3,750,000
California Health Facilities Finance Authority, Southern California
Presbyterian, Revenue, Prerefunded 6/1/2001, 6.7%, 6/1/2011 2,000,000 2,000,000
California Health Facilities Finance Authority, Insured Health
Facilities, Small Facilities Loan, Revenue, Series A 3/1/2011, 6.7% 1,200,000 1,200,000
California Pollution Control Financing Authority, Variable Rate
Demand Note, Series 1996C 11/1/2026, 3.85% 3,900,000 3,900,000
California Pollution Control Financing Authority, Solid Waste
Disposal Revenue, CanFibre of Riverside PJ, Series 1997 A, AMT
7/1/2019, 9.0% 6,750,000 2,250,000 9,000,000
California Resource Efficiency Financing Authority, Certificate of
Participation, Capital Improvement Program, Series 1997 4/1/2010, 6.0% 1,500,000 1,500,000
California Resource Efficiency Financing Authority, Certificate of
Participation, Capital Improvement Program, Series 1997 4/1/2011, 6.0% 1,590,000 1,590,000
California Resource Efficiency Financing Authority, Capital
Improvements Program, Certificates of Participation 4/1/2012, 6.0% 1,685,000 1,685,000
California Resource Efficiency Financing Authority, Capital
Improvements Program, Certificates of Participation 4/1/2017, 5.5% 1,285,000 1,285,000
California Rural Home Mortgage Finance Authority, Single Family Mortgage
Revenue, Series 2000 B, Step-Up Coupon 6/1/2031, 6.1% 1,000,000 1,000,000
State of California, General Obligation, Series 1991 9/1/2010, 6.5% 1,305,000 1,305,000
State of California, General Obligation 2/1/2011, 6.6% 4,975,000 4,975,000
State of Califonia, General Obligation, Series 1997 10/1/2018, 5.0% 2,150,000 2,150,000
State of Califonia, General Obligation, Series 1998 10/1/2017, 4.375% 5,000,000 5,000,000
State of California, Gerneral Obligation 10/1/2010, 5.75% 8,000,000 7,000,000 15,000,000
State of California, General Obligation 10/1/2019, 5.875% 10,000,000 10,000,000
State of California, General Obligation 5/1/2010, 5.75% 8,070,000 8,070,000
State of California, General Obligation 5/1/2011, 5.5% 5,465,000 5,500,000 10,965,000
California State Public Works Board, Department of Corrections, Revenue,
Series A 9/1/2010, 7.4% 3,365,000 3,365,000
California Public Works Board, Department of Corrections, Lease Based
Revenue, Medera Prison, Series A-2, MBIA insured 9/1/2010, 7.4% 1,000,000 1,000,000
California State Public Works Board, Department of Corrections, Lease
Revenue, Series A 1/1/2012, 5.75% 5,145,000 5,145,000
California State Colleges and Universities, Housing System, Revenue
11/1/2012, 5.65% 8,110,000 8,110,000
California State Colleges and Universities, Housing System, Revenue
11/1/2013, 5.7% 5,000,000 5,000,000
California Community Development Authority, Apartment Development Revenue
Bond, Series 1998 A-3 5/15/2025, 5.1% 1,000,000 1,000,000
California Community Development Authority, Apartment Development Revenue
Bond, Series 1998 A-4 5/15/2025, 5.25% 1,000,000 1,000,000
California Statewide Communities Development Authority, Certificate of
Participation, The Internext Group 4/1/2017, 5.375% 1,000,000 1,000,000
California Statewide Communities Development Authority, Certificates of
Participation, The Internext Group 4/1/2030, 5.375% 18,000,000 5,500,000 23,500,000
California Statewide Communities Development Authority 8/15/2017, 6.0%
California Statewide Communities Development Authority, Catholic 1,000,000 1,000,000
Healthcare West, Series 1999 7/1/2020, 6.5% 5,500,000 2,000,000 7,500,000
California Statewide Communities Development Authority, Cedars-Sinai
Medical Center, Certificates of Participation 8/1/2012, 6.5% 20,205,000 20,205,000
California Statewide Community Development Authority, Certificate of
Participation, Children's Hospital, Series 1993 6/1/2010, 6.0% 1,000,000 1,000,000
California Statewide Community Development Authority, Certificates of
Participation, Lutheran Homes, Series 1999 11/15/2008, 5.5% 1,500,000 1,500,000
California Statewide Community Development Authority, Certificate of
Participation, Lutheran Homes, Series 1993 11/15/2013, 5.6% 4,750,000 4,750,000
Capistrano, CA, Unified School District, Improvement District No. 1,
Series 2000 A 8/1/2018, 6.25% 1,000,000 1,000,000
Carlsbad, CA, Unified School District, General Obligation, Zero Coupon
11/1/2018 3,050,000 3,050,000
Carson, CA, Redevelopment Agency, Redevelopment Project No. 1, Tax
Allocation, Series B 10/1/2016, 6.0% 3,350,000 3,350,000
Castaic Lake, CA, Water Agency, Certificate of Participation, Water System
Improvement Project, Series 1994 A, MBIA Insured 8/1/2007, 7.25% 1,000,000 1,000,000
Center, California, Unified School District, Capital Appreciation, Series
1997C, Zero Coupon, MBIA/BIG Insured 9/1/2014 2,240,000 2,240,000
Central Valley, CA, Financing Authority, Cogeneration Project, Revenue,
Prerefunded 7/1/03, 6.10%, 7/1/2013 8,700,000 8,700,000
Central Valley, CA, School District, Financing Authority, Capital
Appreciation, Zero Coupon 2/1/2007 1,960,000 1,960,000
Central Valley, CA, School District, Financing Authority, Capital
Appreciation, Zero Coupon 8/1/2007 5,510,000 5,510,000
Chino Basin, CA, Regional Financing Authority, Municipal Water District,
Sewer System, AMBAC Insured 8/1/2011, 5.9% 1,290,000 1,290,000
Concord, CA, Redevelopment Agency, Tax Allocation, Series 3 7/1/2018, 8.0% 40,000 40,000
Contra Costa County, CA, GNMA Mortgage Backed Securities Program, Home
Mortgage, ETM, Revenue 5/1/2022, 7.75% 2,715,000 2,715,000
Corona, CA, Community Facilities District, Special Tax, Series 90-1-A
9/1/2015, 5.5% 9,240,000 9,240,000
Corona-Norco, CA, Unified School District Public Financing Authority,
Community Facilities District, Special Tax Revenue, Series A 9/1/2014,
5.75% 2,750,000 2,750,000
Delmar, CA, Race Track Authority, Series 1996 8/15/2006, 6.0% 2,000,000 2,000,000
Dry Creek, CA, Joint Elementary School District, Capital Appreciation,
Series 1997A, Zero Coupon 8/1/2010 1,120,000 1,120,000
Dry Creek, CA, Joint Elementary School District, Capital Appreciation,
Series 1997A, Zero Coupon 8/1/2011 1,180,000 1,180,000
Dry Creek, CA, Joint Elementary School District, Capital Appreciation,
Series 1997A, Zero Coupon 8/1/2016 555,000 555,000
Dry Creek, CA, Joint Elementary School District, Capital Appreciation,
Series 1997A, Zero Coupon 5/1/2022 1,385,000 1,385,000
Dry Creek, CA, Joint Elementary School District, Capital Appreciation,
Series 1997A, Zero Coupon 8/1/2021 1,920,000 1,920,000
Duarte, CA, Certificate of Participation, City of Hope Medical Center
4/1/2002, 5.75% 3,525,000 3,525,000
Duarte, CA, Certificates of Participation, City of Hope Medical Center,
Series 1993 4/1/2008, 6.0% 3,750,000 3,750,000
El Dorado County, CA, Public Agency Financing Authority, Revenue
2/15/2012, 5.6% 6,000,000 6,000,000
Emeryville, CA, Public Financing Authority, Redevelopment Project,
Revenue, Series A, Prerefunded 05/01/2002, 6.50%, 5/1/2021 3,940,000 3,940,000
Emeryville, CA, Public Financing Authority, Redevelopment Project,
Revenue, Series A 5/1/2021, 6.5% 6,315,000 6,315,000
Encinitas, CA Unified School District, Capital Appreciation, Zero Coupon
8/1/2017 4,000,000 4,000,000
Escondido, CA, High School District, zero coupon, 11/01/2017
Escondido, CA, Unified High School Dist, ETM, General Obligation, zero 5,500,000 5,500,000
coupon 11/1/2020 7,000,000 7,000,000
Escondido, CA, Unified High School District, General Obligation, Zero
Coupon 5/1/2015 3,165,000 3,165,000
Escondido, CA, Unified High School District, General Obligations, Zero
Coupon 5/1/2016 3,335,000 3,335,000
Escondido County, CA, Unified School District, Capital Appreciation, Zero
Coupon 11/1/2018 4,605,000 4,605,000
Fontana, CA, Public Financing Authority, Tax Allocation Revenue 9/1/2021, 7.05% 3,900,000 3,900,000
FootHill-De Anza, CA 8/1/2012, 6.0% 1,610,000 1,610,000
Foothill-De Anza, CA, Community College 8/1/2013, 6.0% 1,105,000 1,000,000 2,105,000
Foothill-DeAnza, CA, Community College District, De-Anza Campus Center
Project, Certificates of Participation, Prerefunded 6/1/01, 7.875%, 6/1/2021 3,950,000 3,950,000
Foothill-DeAnza, CA, Community College District, De-Anza Campus Center
Project, Certificates of Participation, Prerefunded 9/1/03, 7.35%, 3/1/2007 1,540,000 1,540,000
Foothill/ Eastern Corridor Agency, CA, Toll Road Revenue, Series A,
Prerefunded 1/1/2007, 6.50%, 1/1/2032 10,000,000 10,000,000
Foothill/ Eastern Corridor Agency, CA, Toll Road Revenue. Series A,
Prerefunded 1/1/2007, 6.00%, 01/01/2034 3,350,000 3,350,000
Foothill/ Eastern Corridor Agency, CA, Toll Road Revenue, Series A, ETM,
zero coupon 1/1/2014 2,000,000 2,000,000
Foothill Eastern Transportation, Corridor Agency, CA, Toll Road Revenue,
Senior Lien, Series 1995A, Step-up Coupon, 0% to 1/1/05, 6.95% 1/1/07,
1/1/2007 575,000 575,000
Foothill Eastern Transportation Corridor Agency, CA, Toll Road Revenue,
Series 1995 A, Step-up Coupon, Prerefundedv 1/1/2010 at 102, 0% to
1/1/2005, 7.1% to 1/1/2011 6,000,000 6,000,000
Foothill Eastern Transportation Corridor Agency, CA, Toll Road Revenue,
Senior Lien, Series A, Step-up Coupon, 0% to 1/1/05, 7.15% to
1/1/13,1/1/2013 975,000 975,000
Foothill Eastern Transportation Corridor Agency, CA , Toll Road Revenue,
Series 1995 A, Step-up Coupon, Prerefunded 1/1/2010 at 102, 0% to
1/1/2005, 7.15% to 1/1/2014 2,875,000 2,875,000
Foothill/ Eastern Corridor Agency, CA, Toll Road Revenue, Series A,
Prerefunded 1/1/2010, 6.0%, 1/1/2016 11,000,000 11,000,000
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue, ETM, zero Coupon
1/1/2018 10,000,000 10,000,000
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue, Capital
Appreciation, ETM, zero coupon, 01/01/2020 5,000,000 5,000,000 10,000,000
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue, Capital
Appreciation, Series 1999, Zero coupon 1/15/2017 4,500,000 1,475,000 5,975,000
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue, Zero Coupon 6,250,000 6,250,000
1/15/2018
</TABLE>
<TABLE>
<CAPTION>
Kemper Cal Scudder Pro Forma
Tax Free Cal Tax Free Combined
Market Market Market
Security Name Value ($) Value ($) Value ($)
---------- ---------- ----------
<S> <C> <C> <C>
Short-Term Municipal Investments 2.2%
-------------------------------------
California Pollution Control Financing Authority, Pacific Gas &
Electric Corp., Variabl Rate Demand Note, 11/01/2026 2,300,000 2,300,000
California Pollution Control Financing Authority, Southern
California Edison, Series 1986 D, Daily Demand Note, 3.30%, 02/28/2008 1,200,000 1,000,000 2,200,000
Irvine Ranch Water District, CA, Daily Demand Bond, 3.85%, 04/01/2033 1,000,000 1,000,000
Irvine Ranch Water District, CA, Daily Demand Bond, 3.85%, 10/01/2004 1,900,000 1,900,000
Irvine, CA, Import Bond Act 1915, Special Assessment, 4.75%, 09/02/2023 3,755,000 3,755,000
Irvine, CA, Improvement Bond, Assessment District 89-10, Daily
Demand Bond, 3.50%, 09/02/2015 1,900,000 1,900,000
Orange County, CA, Impact Act 1915, Variable Rate Demand Note,
2.30%, 09/02/2018 2,900,000 2,900,000
Orange County, CA, Municipal Water District, Certificate of
Participation, Variable Rate Demand Note, 3.75%, 08/15/2015 2,000,000 2,000,000
Southern California Pollution Control Revenue, Edison Co. Series
1986 A, Daily Demand Note, 3.40%, 02/28/2008 6,700,000 6,700,000
------------------------------------------
Total Short-Term Municipal Investments (Cost of $22,655,000,
$2,000,000, and $24,655,000 respectively) 22,655,000 2,000,000 24,655,000
==========================================
Long-Term Municipal Investments 97.8%
-------------------------------------
ABAG Finance Authority, CA, Stanford Health Systems, Certificate of
Participation, ETM 11/1/2007,6.0% 670,739 670,739
Alameda County, CA, Water District Revenue, Series 1998 6/1/2016,
4.625% 2,315,030 2,315,030
Anaheim County, CA, Convention Center Financing, Certificate of
Participation, Zero Coupon, MBIA Insured 8/1/2005 1,019,413 1,019,413
Anaheim, CA, Public Financing Authority, Lease Revenue Public
Improvements Project, Series 1997A, Fsa Ins 9/1/2024, 6.0% 3,896,970 3,896,970
Anaheim, CA, Public Financing Authority, Lease Revenue Public
Improvements Project, Series 1997C, FSA Insured 9/1/2014, 6.0% 1,129,960 1,129,960
Anaheim, CA, Public Financing Authority, Lease Revenue Public
Improvements Project, Series 1997C, FSA Insured 9/1/2016, 6.0% 1,124,980 1,124,980
Anaheim, CA, Public Financing Authority, Lease Revenue, Public
Improvements Project, Series 1997 C, FSA Insured 9/1/2017 590,599 590,599
Anaheim, CA, Public Financing Authority, Lease Revenue Public
Improvements Project, Series 1997C, Zero Coupon, FSA Insur 9/1/2018 380,670 380,670
Benicia, CA, Unified School District, General Obligation, Series A,
Zero Coupon 8/1/2017 707,412 707,412
Benicia, CA, Unified School District, General Obligation, Series A,
Zero Coupon 8/1/2018 577,424 577,424
Big Bear Lake, CA, Water Revenue, Rites-PA 597A, 10.19% 4/1/2015 2,128,553 2,128,553
Big Bear Lake, CA, Water Revenue, Rites-PA 597B, 10.17% 4/1/2022 8,233,448 8,233,448
Burbank, CA, Unified School District, General Obligation, Series B,
Zero Coupon 8/1/2011 748,475 748,475
Burbank, CA, Unified School District, General Obligation, Series B,
Zero Coupon 8/1/2012 845,370 845,370
Burbank, CA, Unified School District, General Obligation, Series B,
Zero Coupon 8/1/2013 1,707,025 1,707,025
Burbank, CA, Unified School District, General Obligation, Series B,
Zero Coupon 8/1/2014 1,488,180
Cabrillo, CA, University School District, Series A 8/1/2019 1,435,520 1,435,520
California Educational Facilities Authority, University of San
Diego, Revenue, Zero Coupon 10/1/2014 723,005 723,005
California Educational Facilities Authority Revenue 10/1/2024 658,650 658,650
California Educational Facilities Authority, Mills College, Revenue,
Prerefunded 9/1/2002, 6.875%,9/1/2022 1,894,316 1,894,316
California Educational Facilities Authority, University of San
Francisco, Revenue 10/1/2016, 6.0% 7,168,079 7,168,079
California Housing Finance Agency, Multi-Unit Rental Housing Revenue,
Series A 8/1/2001, 7.4% 1,578,185 1,578,185
California Housing Finance Agency, Multi-Unit Rental Housing Revenue,
Series A 8/1/2002, 7.45% 1,052,768 1,052,768
California Housing Finance Agency, Multi-Unit Rental Housing Revenue,
Series A 8/1/2006, 7.6% 4,256,325 4,256,325
California Housing Finance Agency, Multi-Unit Rental Housing Revenue,
Series A 8/1/2007, 7.65% 2,467,955 2,467,955
California Housing Finance Agency, Multi-Unit Rental Housing
Revenue, Series A 8/1/2009, 7.7% 740,411 740,411
California Housing Finance Agency, Multi-Unit Rental Housing
Revenue, Series A 8/1/2016, 7.75% 2,567,514 2,567,514
California Housing Finance Agency, Multi-Unit Rental Housing Revenue,
Series A 8/1/2023, 7.8% 2,774,787 2,774,787
California Health Facilties Finance Authority Revenue, Capital
Appreciation, Kaiser, Series 1989A, Zero Coupon, AMBAC
Insured,10/1/20120 2,707,544 2,707,544
California Health Facilities Authority, Kaiser Permanente, Revenue,
Series A, Zero Coupon 10/1/2009 4,705,546 4,705,546
California Housing Finance Agency, Multi-Unit Rental Housing
Revenue, Series II 8/1/2001, 7.3% 380,201 380,201
California Housing Finance Agency, Multi-Unit Rental Housing
Revenue, Series II 8/1/2002, 7.35% 412,252 412,252
California Housing Finance Agency, Multi-Unit Rental Housing
Revenue, Series II 8/1/2003, 7.35% 448,370 448,370
California Housing Finance Agency, Multi-Unit Rental Housing
Revenue, Series II 8/1/2004, 7.35% 485,226 485,226
California Housing Finance Agency, Multi-Unit Rental Housing
Revenue, Series II 8/1/2005, 7.35% 526,977 526,977
California Housing Finance Agency, Hom Mortgage Revenue, Series F1,
AMT, AMBAC Insured 8/1/2005, 6.2% 864,822 864,822
California Housing Finance Agency, Home Mortgage Revenue, Series F1,
AMT, AMBAC Insured 8/1/2006, 6.3% 1,360,134 1,360,134
California Housing Finance Agency, Home Mortgage Revenue, Series F-1
8/1/2015, 6.875% 11,276,315 11,276,315
California Housing Finance Agency, Home Mortgage Revenue, Series
1995 G, MBIA Ins 2/1/2007, 5.7% 523,310 523,310
California Housing Finance Agency, Home Mortgage Revenue, Series
1995 G, MBIA Insured 2/1/2008, 5.8% 1,398,535 1,398,535
California Housing Finance Agency, Home Mortgage Revenue, Series
1995 G, MBIA Insured 2/1/2009, 5.9% 210,642 210,642
California Health Facilities, Finance Authority Revenue, Capital
Appreciation, Kaiser Permanente, Series 1989 A, Zero Coupon 10/1/2010 1,891,062 1,891,062
California Health Facilities Finance Authority, Kaiser Permanente,
Revenue, Series A, Prerefunded 12/1/2000, 7.00%,12/1/2010 3,621,284 3,621,284
California Health Facilities Finance Authority, Adventist Health
System West, Revenue, Series B 3/1/2011, 6.5% 2,050,860 2,050,860
California Health Facilities Finance Authority, Adventist Health
System West, Revenue Series B 3/1/2007, 6.5% 3,845,363 3,845,363
California Health Facilities Finance Authority, Southern California
Presbyterian, Revenue, Prerefunded 6/1/2001, 6.7%, 6/1/2011 2,067,780 2,067,780
California Health Facilities Finance Authority, Insured Health
Facilities, Small Facilities Loan, Revenue, Series A 3/1/2011, 6.7% 1,252,668 1,252,668
California Pollution Control Financing Authority , Variable Rate
Demand Note, Series 1996C 11/1/2026, 3.85% 3,900,000 3,900,000
California Pollution Control Financing Authority, Solid Waste
Disposal Revenue, CanFibre of Riverside PJ, Series 1997 A, AMT
7/1/2019, 9.0% 4,252,500 1,417,500 5,670,000
California Resource Efficiency Financing Authority, Certificate of
Participation, Capital Improvement Program, Series 1997 4/1/2010, 6.0% 1,675,335 1,675,335
California Resource Efficiency Financing Authority, Certificate of
Participation, Capital Improvement Program, Series 1997 4/1/2011, 6.0% 1,788,798 1,788,798
California Resource Efficiency Financing Authority, Capital
Improvements Program, Certificates of Participation 4/1/2012, 6.0% 1,900,208 1,900,208
California Resource Efficiency Financing Authority, Capital
Improvements Program, Certificates of Participation 4/1/2017, 5.5% 1,323,409 1,323,409
California Rural Home Mortgage Finance Authority, Single Family Mortgage
Revenue, Series 2000 B, Step-Up Coupon 6/1/2031, 6.1% 1,085,040 1,085,040
State of California, General Obligation, Series 1991 9/1/2010, 6.5% 1,511,895 1,511,895
State of California, General Obligation 2/1/2011, 6.6% 5,830,750 5,830,750
State of Califonia, General Obligation, Series 1997 10/1/2018, 5.0% 2,116,202 2,116,202
State of Califonia, General Obligation, Series 1998 10/1/2017, 4.375% 4,455,400 4,455,400
State of California, Gerneral Obligation 10/1/2010, 5.75% 8,803,920 7,703,430 16,507,350
State of California, General Obligation 10/1/2019, 5.875% 10,565,100 10,565,100
State of California, General Obligation 5/1/2010, 5.75% 8,853,436 8,853,436
State of California, General Obligation 5/1/2011, 5.5% 5,880,012 5,917,670 11,797,682
California State Public Works Board, Department of Corrections, Revenue,
Series A 9/1/2010, 7.4% 4,116,539 4,116,539
California Public Works Board, Department of Corrections, Lease Based
Revenue, Medera Prison, Series A-2, MBIA insured 9/1/2010, 7.4% 1,230,450 1,230,450
California State Public Works Board, Department of Corrections, Lease
Revenue, Series A 1/1/2012, 5.75% 5,485,959 5,485,959
California State Colleges and Universities, Housing System, Revenue
11/1/2012, 5.65% 8,603,007 8,603,007
California State Colleges and Universities, Housing System, Revenue
11/1/2013, 5.7% 5,297,350 5,297,350
California Community Development Authority, Apartment Development Revenue
Bond, Series 1998 A-3 5/15/2025, 5.1% 984,440 984,440
California Community Development Authority, Apartment Development Revenue
Bond, Series 1998 A-4 5/15/2025, 5.25% 974,120 974,120
California Statewide Communities Development Authority, Certificate of
Participation, The Internext Group 4/1/2017, 5.375% 921,710 921,710
California Statewide Communities Development Authority, Certificates of
Participation, The Internext Group 4/1/2030, 5.375% 15,740,640 4,809,640 20,550,280
California Statewide Communities Development Authority 8/15/2017, 6.0% 1,078,080 1,078,080
California Statewide Communities Development Authority, Catholic
Healthcare West, Series 1999 7/1/2020, 6.5% 5,507,920 2,002,880 7,510,800
California Statewide Communities Development Authority, Cedars-Sinai
Medical Center, Certificates of Participation 8/1/2012, 6.5% 22,356,226 22,356,226
California Statewide Community Development Authority, Certificate of
Participation, Children's Hospital, Series 1993 6/1/2010, 6.0% 1,116,180 1,116,180
California Statewide Community Development Authority, Certificates of
Participation, Lutheran Homes, Series 1999 11/15/2008, 5.5% 1,610,265 1,610,265
California Statewide Community Development Authority, Certificate of
Participation, Lutheran Homes, Series 1993 11/15/2013, 5.6% 5,120,548 5,120,548
Capistrano, CA, Unified School District, Improvement District No. 1,
Series 2000 A 8/1/2018, 6.25% 1,111,210 1,111,210
Carlsbad, CA, Unified School District, General Obligation, Zero Coupon
11/1/2018 1,150,582 1,150,582
Carson, CA, Redevelopment Agency, Redevelopment Project No. 1, Tax
Allocation, Series B 10/1/2016, 6.0% 3,433,549 3,433,549
Castaic Lake, CA, Water Agency, Certificate of Participation, Water System
Improvement Project, Series 1994 A, MBIA Insured 8/1/2007, 7.25% 1,170,150 1,170,150
Center, California, Unified School District, Capital Appreciation, Series
1997C, Zero Coupon, MBIA/BIG Insured 9/1/2014 1,106,426 1,106,426
Central Valley, CA, Financing Authority, Cogeneration Project, Revenue,
Prerefunded 7/1/03, 6.10%, 7/1/2013 9,298,038 9,298,038
Central Valley, CA, School District, Financing Authority, Capital
Appreciation, Zero Coupon 2/1/2007 1,488,091 1,488,091
Central Valley, CA, School District, Financing Authority, Capital
Appreciation, Zero Coupon 8/1/2007 4,091,010 4,091,010
Chino Basin, CA, Regional Financing Authority, Municipal Water District,
Sewer System, AMBAC Insured 8/1/2011, 5.9% 1,444,052 1,444,052
Concord, CA, Redevelopment Agency, Tax Allocation, Series 3 7/1/2018, 8.0% 40,120 40,120
Contra Costa County, CA, GNMA Mortgage Backed Securities Program, Home
Mortgage, ETM, Revenue 5/1/2022, 7.75% 3,452,638 3,452,638
Corona, CA, Community Facilities District, Special Tax, Series 90-1-A
9/1/2015, 5.5% 9,932,630 9,932,630
Corona-Norco, CA, Unified School District Public Financing Authority,
Community Facilities District, Special Tax Revenue, Series A 9/1/2014, 5.75% 2,919,978 2,919,978
Delmar, CA, Race Track Authority , Series 1996 8/15/2006, 6.0% 2,049,700 2,049,700
Dry Creek, CA, Joint Elementary School District, Capital Appreciation,
Series 1997A, Zero Coupon 8/1/2010 711,010 711,010
Dry Creek, CA, Joint Elementary School District, Capital Appreciation,
Series 1997A, Zero Coupon 8/1/2011 706,560 706,560
Dry Creek, CA, Joint Elementary School District, Capital Appreciation,
Series 1997A, Zero Coupon 8/1/2016 242,480 242,480
Dry Creek, CA, Joint Elementary School District, Capital Appreciation,
Series 1997A, Zero Coupon 5/1/2022 419,475 419,475
Dry Creek, CA, Joint Elementary School District, Capital Appreciation,
Series 1997A, Zero Coupon 8/1/2021 610,003 610,003
Duarte, CA, Certificate of Participation, City of Hope Medical Center
4/1/2002, 5.75% 3,605,405 3,605,405
Duarte, CA, Certificates of Participation, City of Hope Medical Center,
Series 1993 4/1/2008, 6.0% 3,982,538 3,982,538
El Dorado County, CA, Public Agency Financing Authority, Revenue
2/15/2012, 5.6% 6,357,720 6,357,720
Emeryville, CA, Public Financing Authority, Redevelopment Project,
Revenue, Series A, Prerefunded 05/01/2002, 6.50%, 5/1/2021 4,150,357 4,150,357
Emeryville, CA, Public Financing Authority, Redevelopment Project,
Revenue, Series A 5/1/2021, 6.5% 6,504,261 6,504,261
Encinitas, CA Unified School District, Capital Appreciation, Zero Coupon
8/1/2017 1,630,920 1,630,920
Escondido, CA, High School District, zero coupon, 11/01/2017 2,223,540 2,223,540
Escondido, CA, Unified High School Dist, ETM, General Obligation, zero
coupon 11/1/2020 2,345,560 2,345,560
Escondido, CA, Unified High School District, General Obligation, Zero
Coupon 5/1/2015 1,496,001 1,496,001
Escondido, CA, Unified High School District, General Obligations, Zero
Coupon 5/1/2016 1,476,438 1,476,438
Escondido County, CA, Unified School District, Capital Appreciation, Zero
Coupon 11/1/2018 1,737,190 1,737,190
Fontana, CA, Public Financing Authority, Tax Allocation Revenue 9/1/2021, 7.05% 4,007,484 4,007,484
FootHill-De Anza, CA 8/1/2012, 6.0% 1,795,263 1,795,263
Foothill-De Anza, CA, Community College 8/1/2013, 6.0% 1,224,837 1,108,450 2,333,287
Foothill-DeAnza, CA, Community College District, De-Anza Campus Center
Project, Certificates of Participation, Prerefunded 6/1/01, 7.875%, 6/1/2021 4,108,395 4,108,395
Foothill-DeAnza, CA, Community College District, De-Anza Campus Center
Project, Certificates of Participation, Prerefunded 9/1/03, 7.35%, 3/1/2007 1,633,863 1,633,863
Foothill/ Eastern Corridor Agency, CA, Toll Road Revenue, Series A,
Prerefunded 1/1/2007, 6.50%, 1/1/2032 11,249,200 11,249,200
Foothill/ Eastern Corridor Agency, CA, Toll Road Revenue. Series A,
Prerefunded 1/1/2007, 6.00%, 01/01/2034 3,681,114 3,681,114
Foothill/ Eastern Corridor Agency, CA, Toll Road Revenue, Series A, ETM,
zero coupon 1/1/2014 1,026,160 1,026,160
Foothill Eastern Transportation, Corridor Agency, CA, Toll Road Revenue,
Senior Lien, Series 1995A, Step-up Coupon, 0% to 1/1/05, 6.95% 1/1/07,
1/1/2007 495,207 495,207
Foothill Eastern Transportation Corridor Agency, CA, Toll Road Revenue,
Series 1995 A, Step-up Coupon, Prerefundedv 1/1/2010 at 102, 0% to
1/1/2005, 7.1% to 1/1/2011 5,502,780 5,502,780
Foothill Eastern Transportation Corridor Agency, CA, Toll Road Revenue,
Senior Lien, Series A, Step-up Coupon, 0% to 1/1/05, 7.15% to
1/1/13,1/1/2013 895,957 895,957
Foothill Eastern Transportation Corridor Agency, CA , Toll Road Revenue,
Series 1995 A, Step-up Coupon, Prerefunded 1/1/2010 at 102, 0% to 2,641,924 2,641,924
1/1/2005, 7.15% to 1/1/2014
Foothill/ Eastern Corridor Agency, CA, Toll Road Revenue, Series A,
Prerefunded 1/1/2010, 6.0%, 1/1/2016 12,380,610 12,380,610
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue, ETM, zero Coupon
1/1/2018 3,967,100 3,967,100
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue, Capital
Appreciation, ETM, zero coupon, 01/01/2020 1,753,850 1,753,850 3,507,700
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue, Capital
Appreciation, Series 1999, Zero coupon 1/15/2017 1,816,695 595,472 2,412,167
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue, Zero Coupon
1/15/2018 2,361,500 2,361,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue, Zero Coupon
1/15/2025 10,000,000 10,000,000
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue, Series 1999, Zero
Coupon 1/15/2026 3,750,000 1,250,000 5,000,000
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue, Series 1995 A
1/1/2035, 5.0% 10,000,000 2,500,000 12,500,000
Fresno, CA, Health Facilities Authority, Holy Cross Health System,
Revenue, Prerefunded 6/1/2002, 6.625%, 6/1/2021 2,000,000 2,000,000
Fresno, CA, Health Facilities Authority, Holy Cross Health System,
Revenue, Prerefunded 6/1/2002, 6.5%,6/1/2011 1,500,000 1,500,000
Fresno, CA, Unified School District, General Obligation, Series A
8/1/2016, 6.4% 2,000,000 2,000,000
Fresno, CA, Unified School District, Series 1999 C 2/1/2017, 5.9% 1,760,000 1,760,000
Hawthorne, CA, Community Redevelopment Agency, Redevelopment Project Area
2, Tax Allocation 9/1/2014, 6.625% 2,000,000 2,000,000
Healdsburg, CA, Unified School District, Capital Appreciation, Series
1997, FGIC Insured 7/15/2011 400,000 400,000
Healdsburg, CA, Unified School District, Capital Appreciation, Series
1997, FGIC Insured 7/15/2012 400,000 400,000
Healdsburg, CA, Unified School District, Capital Appreciation, Series
1997, FGIC Insured 7/15/2013 400,000 400,000
Healdsburg, CA, Unified School District, Capital Appreciation, Series
1997, FGIC Insured 7/15/2014 400,000 400,000
Hollister CA, Joint Powers Financing Authority, Sewer System
Improvement Project, Revenue 12/1/2011, 5.75% 3,815,000 3,815,000
Inglewood, CA, Civic Center Improvement Project, Certificates of
Participation 8/1/2011, 7.0% 2,500,000 2,500,000
Inglewood, CA, Civic Center Improvement Project, Certificates of
Participation 8/1/2021, 6.5% 1,825,000 1,825,000
Inglewood, CA, Civic Center Improvement Project, Certificates of
Participation 8/1/2019, 7.0% 5,200,000 5,200,000
Inglewood, CA, Public Financing Authority, Revenue, Series B,
Prerefunded 5/1/2002, 7.0 % 7,990,000 7,990,000
Inglewood, CA, Public Financing Authority, Revenue, Series C,
Prerefunded 5/1/2002, 7.0%, 5/1/2022 890,000 890,000
Inland Empire Solid Waste Financing Authority, California Landfill
Improvement Financing Project, FSA Insured, Series 1996B 8/1/2006, 6.0% 1,000,000 1,000,000
Irvine Ranch Water District, CA, Conservation District, Daily Demand
Note 5/1/2009, 3.85% 1,600,000 1,600,000
Kern, CA, High School District, General Obligation, Series A
8/1/2012, 6.4% 3,095,000 3,095,000
Laguna Salada CA Unified School District, General Obligation, Series
B, Zero Coupon 8/1/2019 2,765,000 2,765,000
Laguna Salada, CA, Unified School District, General Obligation,
Series B, Zero Coupon 8/1/2020 2,000,000 2,000,000
Las Virgenes, CA, Unified School District, General Obligation, Series
A, Zero Coupon 11/1/2013 2,150,000 2,150,000
Las Virgenes, CA, Unified School District, General Obligation, Series
A, Zero Coupon 11/1/2014 1,050,000 1,050,000
Las Virgenes, CA, Unified School District, General Obligation, Series
A, Zero Coupon 11/1/2015 1,275,000 1,275,000
Las Virgenes, CA, Unified School District, Capital Appreciation, Zero
Coupon 11/1/2016 1,500,000 1,500,000
Lemon Grove, CA, Community Development Agency, Lemon Grove
Redevelopment Project, Tax Allocation, Prerefunded 8/1/2002, 6.65%,
8/1/2006 250,000 250,000
Lemon Grove, CA, Community Development Agency, Lemon Grove
Redevelopment Project, Tax Allocation, Prerefunded 8/1/2002, 6.9%,
8/1/2020 2,250,000 2,250,000
Long Beach Califonia BD Finance Authority, Lease Revenue, Rainbow
Harbor, Series 1999 A 5/1/2020, 5.125% 2,750,000 2,750,000
Long Beach California Harbor 5/15/2017, 6.0% 1,500,000 1,500,000
Long Beach, CA, Harbor Revenue 5/15/2018, 6.0% 4,000,000 4,000,000
Long Beach, CA, Harbor Revenue 5/15/2016, 7.85% 4,215,000 4,215,000
Long Beach, CA, Harbor Revenue 5/15/2019, 7.85% 5,300,000 5,300,000
Long Beach, CAC10 5/15/2016, 5.75% 12,570,000 12,570,000
Los Angeles, CA, Convention and Exhibition Center Authority,
Certificates of Participation, Prerefunded 12/1/2005, 9.0%, 12/1/2020 1,000,000 1,000,000
Los Angeles County, California, Convention and Exhibition Center
Authority Lease Revenue, Series 1993A, MBIA/BIG Insured 8/15/2011, 6.125% 1,000,000 1,000,000
Los Angeles, CA, Department of Airports, Ontario International
Airport, Revenue, Series A 5/15/2012, 5.9% 3,290,000 3,290,000
Los Angeles, CA, Harbor Department Revenue, Series B 8/1/2026, 6.25% 2,320,000 2,320,000
Los Angeles, CA, State Building Authority Lease Revenue, California
Department, General Services, Series 1993A 5/1/2008, 5.6% 7,000,000 7,000,000
Los Angeles, CA, Unified School District, General Obligation, Series
A 7/1/2021, 5.0% 14,000,000 6,000,000 20,000,000
Los Angeles, CA, Unified School District, Inverse Floater, Rites-PA
589A, 10.40%, 7/1/2012 3,170,000 3,170,000
Los Angeles, CA, Unified School District, Inverse Floater, Rites-PA
589B, 10.40%,7/1/2013 1,485,000 1,485,000
Los Angeles, CA, Unified School District, Inverse Floater, Rites-PA
589C, 10.40% 7/1/2014 2,910,000 2,910,000
Los Angeles, CA, Unified School District, Inverse Floater, Rites-PA
589D, 10.40% 7/1/2015 3,560,000 3,560,000
Los Angeles, CA, University School District 7/1/2015, 5.625% 4,115,000 4,115,000
Los Angeles, CA, University School District 7/1/2016, 5.625% 10,655,000 10,655,000
Los Angeles, CA, University School District 7/1/2017, 5.625% 3,500,000 3,500,000
Los Angeles, CA, University School District 7/1/2018, 5.625% 4,990,000 4,990,000
Los Angeles County, CA, Certificates of Participation, Capital
Appreciation, Disney Parking Project, Zero coupon 9/1/2006 2,500,000 2,500,000
Los Angeles County, CA, Certificate of Participation, Capital
Appreciation, Disney Parking Project, Zero coupon 3/1/2008 2,780,000 2,780,000
</TABLE>
<TABLE>
<S> <C> <C> <C>
Los Angeles County, CA , Certificates of Participation, Capital
Appreciation, Disney Parking Project, Zero coupon 9/1/2008 4,865,000 4,865,000
Los Angeles County, CA, Certificate of Participation, Marina Del Ray,
Series A 7/1/2003, 6.25% 1,590,000 1,590,000
Los Angeles County, CA, Certificate of Participation, Marina Del Ray,
Series A 7/1/2008, 6.5% 2,500,000 2,500,000
Los Angeles County, CA, Metropolitan Transportation Authority,
Revenue Bond, Series 1999 A 7/1/2019, 5.0% 2,000,000 2,000,000
Los Angeles County, CA, Metropolitan Transportation Authority, Sales
Tax Revenue, Series A 7/1/2017, 4.75% 4,610,000 4,610,000
Los Angeles County, CA, Metropolitan Transportation Authority, Sales
Tax Revenue, Series A 7/1/2019, 4.75% 5,060,000 5,060,000
Los Banos, CA, Certificates of Participation 12/1/2019, 6.0% 2,100,000 2,100,000
Lucia Mar, CA, Unified School District, General Obligation, Series A,
Zero Coupon 8/1/2016 1,000,000 1,000,000
M-S-R Public Power Agency, San Juan Project, Revenue, Series D, ETM
7/1/2020, 6.75% 2,000,000 2,000,000
Martinez, CA, Home Mortgage Revenue, ETM 2/1/2002, 10.375% 20,000 20,000
Merced, CA, Unified School District, General Obligation, Series A,
Zero Coupon 8/1/2014 2,045,000 2,045,000
Merced, CA, High School District, Capital Appreciation, Series 1999 2,090,000 2,090,000
A, Zero Coupon 8/15/2015
Merced, CA, High School District, Capital Appreciation Bond, Series A
8/1/2016 2,140,000 2,140,000
Metropolitan Water District, Southern California Waterworks, Revenue, 2,000,000 2,000,000
Series A 7/1/2021, 5.75%
Metropolitan Water District of Southern California, Waterworks 5,000,000 5,000,000
Revenue, Series A 7/1/2022, 4.75%
Midpeninsula Regional Open Space District, CA, Finance Authority 1,190,000 1,190,000
Revenue, Capital Appreciation, Zero Coupon 9/1/2020
Millbrae, CA, Residential Facilities, Revenue Magnolia of Millbrae
Project, Series 1997A AMT 9/1/2027, 7.375% 4,000,000 4,000,000
Modesto, CA, Certificate of Participation, Community Project, Series
A, AMBAC Insured 11/1/2014,5.6% 1,370,000 1,370,000
Modesto, CA, Irrigation District Financing Authority, Revenue, Series 7,000,000 7,000,000
A 10/1/2015, 6.0%
Modesto, CA, Wastewater Facilities Treatment Revenue, Series 1997,
AMT, MBIA insured 11/1/2011, 6.0% 1,255,000 1,255,000
Mojave Desert & Mountain Region, CA, Solid Waste Joint Powers
Authority 6/1/2020, 7.875% 2,350,000 2,350,000
Montebello, CA, Unified School District, General Obligation, Zero 1,890,000 1,890,000
Coupon 8/1/2012
Montebello, CA, Unified School District, General Obligation, Zero 1,945,000 1,945,000
Coupon 8/1/2013
Moreno Valley, CA, Towngate Community Facilities District, Special 2,810,000 2,810,000
Tax 10/1/2023, 7.125%
Moreno Valley, CA, Towngate Community Facilities District, Special 3,670,000 3,670,000
Tax 12/1/2009, 6.5%
Murrieta Valley, CA, Unified School District, General Obligation, 2,500,000 2,500,000
Series A, Zero Coupon 9/1/2016
Northern California Power Agency, Public Power Revenue, Prerefunded 210,000 210,000
01/01/2016, 7.0%, 7/1/2016
Northern California Power Agency, Public Power Revenue, 2,500,000 2,500,000
Hydroelectric Project No. 1, Series A7/1/20175
Oakland, CA, Housing Finance Revenue 1/1/2010, 7.1% 1,125,000 1,125,000
Orange County, CA, Recovery Certificates of Participation 7/1/2026, 6.0% 13,000,000 13,000,000
Palmdale, CA, School District, School Building Project, Certificates 1,420,000 1,420,000
of Participation, Zero Coupon 10/1/2019
Pleasanton, CA, Joint Power Financing Series A 9/2/2012, 6.15% 8,775,000 8,775,000
Ponoma, CA, Unified School District, General Obligation, ETM, Series 1,020,000 1,020,000
1992B 8/1/2014, 6.25%
Oakland, CA, Port Revenue 11/1/2010, 5.5% 6,305,000 2,500,000 8,805,000
Oakland, CA, Port Revenue 11/1/2011, 5.625% 9,260,000 9,260,000
Oakland, CA, Port Revenue 11/1/2014, 5.75% 2,500,000 2,500,000
Puerto Rico Commonwealth, General Obligation 7/1/2015, 6.50%6.5 4,000,000 4,000,000
Puerto Rico Commonwealth, Inverse Floating Rate, Rites-PA 620 B 3,500,000 1,500,000 5,000,000
7/1/2014, 7.25%
Puerto Rico Commonwealth Highway & Transportation Authority, Highway 1,000,000 1,000,000
Revenue, Series 1996 Z 7/1/2014, 6.25%
Puerto Rico Commonwealth Highway and Transportation Authority, 750,000 750,000
Highway Revenue, Series Z, 07/01/2016
Puerto Rico Commonwealth Highway and Transportation Authority, 7,250,000 7,250,000
Highway Revenue, Revenue, Series Z 7/1/2018, 6.0%
Puerto Rico Commonwealth Highway and Transportation Authority, 3,610,000 3,610,000
Highway Revenue, Inverse Floater, 8.65%, 8/11/2010
Puerto Rico Commonwealth Highway and Transportation Authority, 2,825,000 2,825,000
Highway Revenue, Inverse Floater, 8.65%, 3/9/2012
Puerto Rico Commonwealth Highway and Transportation Authority, 5,000,000 5,000,000
Transportation Revenue, Series A 7/1/2014, 5.5%
Puerto Rico Commonwealth, Infrastructure Finance Authority, Series A 1,500,000 500,000 2,000,000
10/1/2020, 5.5%
Puerto Rico Public Building Authority, Government Facilities Revenue, 1,000,000 1,000,000
Series 1995 A 7/1/2013, 6.25%
Puerto Rico Electric Power Authority, Power Revenue, Series HH 6,250,000 1,250,000 7,500,000
7/1/2014, 5.75%
Puerto Rico Electric Power Authority, Power Revenue, Series HH 2,300,000 2,300,000
7/1/2015, 5.75%
Puerto Rico Electric Power Authority 7/1/2016, 5.75% 5,000,000 5,000,000
Puerto Rico Municipal Finance Authority, Inverse Floating Rate, 1,250,000 1,145,000 2,395,000
RITES-PA 645B 8/1/2013, 6.32%
Puerto Rico Municipal Finance Authority, Inverse Floater 8/1/2014, 6.531% 2,500,000 2,500,000
Puerto Rico Municipal Finance Authority, Inverse Floating Rate, 1,000,000 1,225,000 2,225,000
RITES-PA 645D 8/1/2015, 7.17%
Redondo Beach, CA, Public Financing Authority, South Bay Center 1,000,000 1,000,000
Redevelopment Project, Revenue 7/1/2016, 7.0%
Redondo Beach, CA, Public Financing Authority, South Bay Center 2,000,000 2,000,000
Recevelopment Project, Revenue 7/1/2026, 7.125%
Reedley, CA, Sierra View Homes, Certificates of Participation, 3,820,000 3,820,000
Prerefunded 03/01/2001, 7.6%, 3/1/2021
Richmond, CA, Joint Powers Finance Authority, Series 1996 9/1/2006, 5.875% 500,000 500,000
Richmond, CA, Joint Powers Finance Authority, Series 1996 9/1/2016, 6.6% 1,000,000 1,000,000
Richmond, CA, Wastewater Revenue, Capital Appreciation, Zero Coupon
8/1/2020 2,495,000 2,495,000
Riverside County, CA, Asset Leasing Corp., Leasehold Revenue Project, 1,750,000 1,750,000
Series 1997, Zero Coupon 6/1/2015
Riverside County, CA, Asset Leasing Corp., Leasehold Revenue Project, 2,395,000 2,395,000
Series 1997, Zero coupon, MBIA/BIG Insured 6/1/2016
Rocklin, CA, Unified School District, Community Facilities, Zero
Coupon 9/1/2019 1,675,000 1,675,000
Rocklin, CA, Unified School District, Community Facilities, Zero
Coupon 9/1/2020 1,415,000 1,415,000
Sacramento, CA, Financing Authority Lease Revenue, Series 1993 B 4,200,000 4,200,000
11/1/2014, 5.0%
Sacramento, CA, City Financing Authority Lease Revenue
Refunding,11/1/2020, 5.4% 5,000,000 5,000,000
Sacremento, CA, City Financing Authority Revenue, Capital
Appreciation, Tax Allocation, Series 1993B, MBIA/BIG, Zero Coupon
11/1/2016 2,685,000 2,685,000
Sacramento, CA, City Financing Authority, Revenue Bond, Convention
Center Hotel, Series A 1/1/2030, 6.25% 10,000,000 4,000,000 14,000,000
Sacramento, CA, Cogeneration Authority, Procter and Gamble Project,
Revenue, Prerefunded 7/1/2005, 6.5%, 7/1/2021 7,750,000 7,750,000
Sacramento, CA, Cogeneration Authority, Procter and Gamble Project,
Revenue, Prerefunded 07/01/2005, 6.375%, 7/1/2010 2,700,000 2,700,000
</TABLE>
<TABLE>
<S> <C> <C> <C>
Sacramento, CA, Cogeneration Authority, Procter and Gamble Project,
Revenue 7/1/2010, 6.375% 2,300,000 2,300,000
Sacramento, CA, Municipal Utility District, Electric Revenue, Series
G 9/1/2013, 6.5% 1,270,000 1,270,000
Sacramento, California Municipal Utilities District Electrict
Revenue Series K 7/1/2018, 5.75% 5,170,000 5,170,000
Sacramento, CA, Municipal Utility District, Electric Revenue, Series
A 8/15/2006, 6.2% 1,000,000 1,000,000
Sacramento, CA, Municipal Utility District, Electric Revenue, Series
1997 L 7/1/2022, 5.125% 1,750,000 1,750,000
Sacramento, CA, Power Authority Cogeneration Project, Revenue Bonds,
Series 1995 7/1/2004, 6.5% 2,000,000 2,000,000
Sacramento California Power Authority Gogeneration Preject Revenue
7/1/2022, 6.0% 5,000,000 5,000,000
Sacramento County, CA, Sanitation District Financing Authority,
Revenue, Series A 12/1/2014, 6.0% 5,000,000 5,000,000
Sacramento County, CA, Community Facilities District Number 1,
Special Tax 9/1/2011, 6.0% 850,000 850,000
Sacramento County, CA, Community Facilities District Number 1,
Special Tax 9/1/2021, 6.3% 1,500,000 1,500,000
Sacramento County, CA, Community Facilities District Number 1,
Special Tax 9/1/2014, 6.125% 605,000 605,000
Sacramento County, CA, Community Facilities District Number 1,
Special Tax 12/1/2010, 5.5% 1,090,000 1,090,000
Saddleback Valley Unified School District, Public Financing
Authority, Special Tax Revenue, Series 1997A, FSA Insured 9/1/2013, 6.0% 1,000,000 1,000,000
Saddleback Valley Unified School District, Public Financing
Authority, Special Tax Revenue, Series 1997A 9/1/2014, 6.0% 1,195,000 1,000,000 2,195,000
Saddleback Valley Unified School District, Public Financing
Authority, Special Tax Revenue, Series 1997A, FSA Insured 9/1/2015, 6.0% 1,000,000 1,000,000
Saddleback Valley, CA, Unified School District, Public Finance
Authority, Special Tax Revenue, Series A 9/1/2020, 4.75% 3,215,000 3,215,000
Salinas, CA, Capital Improvement Projects, Certificates of
Participation, Series A 10/1/2017, 5.625% 2,000,000 2,000,000
San Bernardino, CA, School Health Care System, Sisters of Charity,
Revenue, Series A, Prerefunded 07/01/2001, 7.0%, 7/1/2011 5,000,000 5,000,000
San Bernardino County, CA, West Valley Detention Center, Certificates
of Participation 11/1/2012, 6.5% 8,000,000 8,000,000
San Bernadino, CA, Certificate of Participation, Medical Center
Financing Project, Series 1994, MBIA/BIG Ins 8/1/2017, 5.5% 3,965,000 3,965,000
San Bernadino, CA, Certificate of Participation, Medical Center
Financing Project, Refunding Revenue, Series 1994, MBIA/BIG 8/1/2009, 6.0% 3,000,000 3,000,000
San Bruno Park, CA, School District, General Obligation, Zero Coupon,
8/1/2014 1,010,000 1,010,000
San Bruno Park, CA, School District, General Obligation, Zero Coupon
8/1/2016 1,000,000 1,000,000
San Bruno Park, CA, School District, General Obligation, Zero Coupon
8/1/2017 1,000,000 1,000,000
San Bruno Park, CA, School District, General Obligation, Zero Coupon
8/1/2019 1,100,000 1,100,000
San Diego, CA, Detention Facility, Certificates of Participation,
Revenue 6/1/2002, 8.0% 2,725,000 2,725,000
San Diego, CA, Redevelopment Agency, Horton Project, Tax Allocation,
Series B 11/1/2017, 6.625% 2,000,000 2,000,000
San Francisco, CA, City and County Airport Communication,
International Airport Revenue, Series 12A 5/1/2013, 5.7% 5,470,000 5,470,000
San Francisco, CA, City and County Airport Communucation,
International Airport Revenue, Series 12A 5/1/2014, 5.7% 6,795,000 6,795,000
San Francisco, CA, City and County Airports, Inverse Floater
5/1/2015, 6.9599% 1,080,000 1,080,000
San Francisco, CA, City and County Airports, Inverse Floater
5/1/2017, 6.4599% 1,285,000 1,285,000
San Francisco, CA, City and County Airports, Inverse Floater
5/1/2015, 6.4599% 1,365,000 1,365,000
San Francisco, CA, City and County Airports, Inverse Floater
5/1/2010, 7.134% 1,445,000 1,445,000
San Francisco California City and County ARPTS Rites-PA 5/1/2015, 6.9979% 1,530,000 1,530,000
San Francisco California City and County ARPTS Rites-PA 5/1/2016, 7.2329% 1,625,000 1,625,000
</TABLE>
<TABLE>
<S> <C> <C> <C>
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue, Zero Coupon
1/15/2025 2,195,200 2,195,200
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue, Series 1999, Zero
Coupon 1/15/2026 2,121,075 707,025 2,828,100
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue, Series 1995 A
1/1/2035, 5.0% 9,374,800 2,343,700 11,718,500
Fresno, CA, Health Facilities Authority, Holy Cross Health System,
Revenue, Prerefunded 6/1/2002, 6.625%, 6/1/2021 2,114,280 2,114,280
Fresno, CA, Health Facilities Authority, Holy Cross Health System,
Revenue, Prerefunded 6/1/2002, 6.5%,6/1/2011 1,582,320 1,582,320
Fresno, CA, Unified School District, General Obligation, Series A
8/1/2016, 6.4% 2,337,920 2,337,920
Fresno, CA, Unified School District, Series 1999 C 2/1/2017, 5.9% 1,949,622 1,949,622
Hawthorne, CA, Community Redevelopment Agency, Redevelopment Project Area
2, Tax Allocation 9/1/2014, 6.625% 2,116,160 2,116,160
Healdsburg, CA, Unified School District, Capital Appreciation, Series
1997, FGIC Insured 7/15/2011 240,024 240,024
Healdsburg, CA, Unified School District, Capital Appreciation, Series
1997, FGIC Insured 7/15/2012 225,924 225,924
Healdsburg, CA, Unified School District, Capital Appreciation, Series
1997, FGIC Insured 7/15/2013 212,196 212,196
Healdsburg, CA, Unified School District, Capital Appreciation, Series
1997, FGIC Insured 7/15/2014 198,876 198,876
Hollister CA, Joint Powers Financing Authority, Sewer System
Improvement Project, Revenue 12/1/2011, 5.75% 3,908,925 3,908,925
Inglewood, CA, Civic Center Improvement Project, Certificates of
Participation 8/1/2011, 7.0% 2,600,875 2,600,875
Inglewood, CA, Civic Center Improvement Project, Certificates of
Participation 8/1/2021, 6.5% 1,892,671 1,892,671
Inglewood, CA, Civic Center Improvement Project, Certificates of
Participation 8/1/2019, 7.0% 5,409,820 5,409,820
Inglewood, CA, Public Financing Authority, Revenue, Series B,
Prerefunded 5/1/2002, 7.0 % 8,368,966 8,368,966
Inglewood, CA, Public Financing Authority, Revenue, Series C,
Prerefunded 5/1/2002, 7.0%, 5/1/2022 936,992 936,992
Inland Empire Solid Waste Financing Authority, Califirnia Landfill
Improvement Financing Project, FSA Insured, Series 1996B 8/1/2006, 6.0% 1,082,310 1,082,310
Irvine Ranch Water District, CA, Conservation District, Daily Demand
Note 5/1/2009, 3.85% 1,600,000 1,600,000
Kern, CA, High School District, General Obligation, Series A
8/1/2012, 6.4% 3,588,467 3,588,467
Laguna Salada CA Unified School District, General Obligation, Series
B, Zero Coupon 8/1/2019 992,303 992,303
Laguna Salada, CA, Unified School District, General Obligation,
Series B, Zero Coupon 8/1/2020 675,540 675,540
Las Virgenes, CA, Unified School District, General Obligation, Series
A, Zero Coupon 11/1/2013 1,123,805 1,123,805
Las Virgenes, CA, Unified School District, General Obligation, Series
A, Zero Coupon 11/1/2014 514,227 514,227
Las Virgenes, CA, Unified School District, General Obligation, Series
A, Zero Coupon 11/1/2015 587,189 587,189
Las Virgenes, CA, Unified School District, Capital Appreciation, Zero
Coupon 11/1/2016 646,740 646,740
Lemon Grove, CA, Community Development Agency, Lemon Grove
Redevelopment Project, Tax Allocation, Prerefunded 8/1/2002, 6.65%,
8/1/2006 265,238 265,238
Lemon Grove, CA, Community Development Agency, Lemon Grove
Redevelopment Project, Tax Allocation, Prerefunded 8/1/2002, 6.9%,
8/1/2020 2,397,263 2,397,263
Long Beach Califonia BD Finance Authority, Lease Revenue, Rainbow
Harbor, Series 1999 A 5/1/2020, 5.125% 2,713,288 2,713,288
Long Beach California Harbor 5/15/2017, 6.0% 1,655,295 1,655,295
Long Beach, CA, Habor Revenue 5/15/2018, 6.0% 4,395,640 4,395,640
Long Beach, CA, Harbor Revenue 5/15/2016, 7.85% 5,119,792 5,119,792
Long Beach, CA, Harbor Revenue 5/15/2019, 7.85% 6,278,380 6,278,380
Long Beach, CAC10 5/15/2016, 5.75% 13,172,732 13,172,732
Los Angeles, CA, Convention and Exhibition Center Authority,
Certificates of Participation, Prerefunded 12/1/2005, 9.0%, 12/1/2020 1,220,870 1,220,870
Los Angeles County, California, Convention and Exhibition Center
Authority Lease Revenue, Series 1993A, MBIA/BIG Insured 8/15/2011, 6.125% 1,139,540 1,139,540
Los Angeles, CA, Department of Airports, Ontario International
Airport, Revenue, Series A 5/15/2012, 5.9% 3,479,340 3,479,340
Los Angeles, CA, Harbor Department Revenue, Series B 8/1/2026, 6.25% 2,456,022 2,456,022
Los Angeles, CA, State Building Authority Lease Revenue, California
Department, General Services, Series 1993A 5/1/2008, 5.6% 7,524,230 7,524,230
Los Angeles, CA, Unified School District, General Obligation, Series
A 7/1/2021, 5.0% 13,553,540 5,808,660 19,362,200
Los Angeles, CA, Unified School District, Inverse Floater, Rites-PA
589A, 10.40%, 7/1/2012 3,993,534 3,993,534
Los Angeles, CA, Unified School District, Inverse Floater, Rites-PA
589B, 10.40%, 7/1/2013 1,871,219 1,871,219
Los Angeles, CA, Unified School District, Inverse Floater, Rites-PA
589C, 10.40% 7/1/2014 3,659,994 3,659,994
Los Angeles, CA, Unified School District, Inverse Floater, Rites-PA
589D, 10.40% 7/1/2015 4,468,512 4,468,512
Los Angeles, CA, University School District 7/1/2015, 5.625% 4,358,608 4,358,608
Los Angeles, CA, University School District 7/1/2016,5.625% 11,210,658 11,210,658
Los Angeles, CA, University School District 7/1/2017,5.625% 3,660,755 3,660,755
Los Angeles, CA, University School District 7/1/2018,5.625% 5,196,037 5,196,037
Los Angeles County, CA, Certificates of Participation, Capital
Appreciation, Disney Parking Project, Zero coupon 9/1/2006 1,889,675 1,889,675
Los Angeles County, CA, Certificate of Participation, Capital
Appreciation, Disney Parking Project, Zero coupon 3/1/2008 1,936,909 1,936,909
</TABLE>
<TABLE>
<S> <C> <C> <C>
Los Angeles County, CA , Certificates of Participation, Capital
Appreciation, Disney Parking Project, Zero coupon 9/1/2008 3,306,157 3,306,157
Los Angeles County, CA, Certificate of Participation, Marina Del Ray,
Series A 7/1/2003, 6.25% 1,623,549 1,623,549
Los Angeles County, CA, Certificate of Participation, Marina Del Ray,
Series A 7/1/2008,6.5% 2,639,100 2,639,100
Los Angeles County, CA, Metropolitan Transportation Authority,
Revenue Bond, Series 1999 A 7/1/2019, 5.0% 1,956,100 1,956,100
Los Angeles County, CA, Metropolitan Transportation Authority, Sales
Tax Revenue, Series A 7/1/2017, 4.75% 4,310,581 4,310,581
Los Angeles County, CA, Metropolitan Transportation Authority, Sales
Tax Revenue, Series A 7/1/2019, 4.75% 4,635,264 4,635,264
Los Banos, CA,, Certificates of Participation 12/1/2019,6.0% 2,120,265 2,120,265
Lucia Mar, CA, Unified School District, General Obligation, Series A,
Zero Coupon 8/1/2016 436,900 436,900
M-S-R Public Power Agency, San Juan Project, Revenue, Series D, ETM
7/1/2020, 6.75% 2,372,420 2,372,420
Martinez, CA, Home Mortgage Revenue, ETM 2/1/2002, 10.375% 20,816 20,816
Merced, CA, Unified School District, General Obligation, Series A,
Zero Coupon 8/1/2014 1,014,443 1,014,443
Merced, CA, High School District, Capital Appreciation, Series 1999
A, Zero Coupon 8/15/2015 975,131 975,131
Merced, CA, High School District, Capital Appreciation Bond, Series A
8/1/2016 934,966 934,966
Metropolitan Water District, Southern California Waterworks, Revenue,
Series A 7/1/2021, 5.75% 2,152,420 2,152,420
Metropolitan Water District of Southern California, Waterworks
Revenue, Series A7/1/2022,4.75% 4,544,000 4,544,000
Midpeninsula Regional Open Space District, CA, Finance Authority
Revenue, Capital Appreciation, Zero Coupon 9/1/2020 399,328 399,328
Millbrae, CA, Residential Facilities, Revenue Magnolia of Millbrae
Project, Series 1997A AMT 9/1/2027, 7.375% 3,917,120 3,917,120
Modesto, CA, Certificate of Participation, Community Project, Series
A, AMBAC Insured 11/1/2014,5.6% 1,491,793 1,491,793
Modesto, CA, Irrigation District Financing Authority, Revenue, Series
A 10/1/2015, 6.0% 7,530,600 7,530,600
Modesto, CA, Wastewater Facilities Treatment Revenue, Series 1997,
AMT, MBIA insured 11/1/2011, 6.0% 1,418,840 1,418,840
Mojave Desert & Mountain Region, CA, Solid Waste Joint Powers
Authority 6/1/2020, 7.875% 2,492,880 2,492,880
Montebello, CA, Unified School District, General Obligation, Zero
Coupon 8/1/2012 1,065,166 1,065,166
Montebello, CA, Unified School District, General Obligation, Zero
Coupon 8/1/2013 1,029,508 1,029,508
Moreno Valley, CA, Towngate Community Facilities District, Special
Tax 10/1/2023, 7.125% 2,879,098 2,879,098
Moreno Valley, CA, Towngate Community Facilities District, Special
Tax 12/1/2009, 6.5% 3,821,901 3,821,901
Murrieta Valley, CA, Unified School District, General Obligation,
Series A, Zero Coupon 9/1/2016 1,087,450 1,087,450
Northern California Power Agency, Public Power Revenue, Prerefunded
01/01/2016, 7.0%, 7/1/2016 257,263 257,263
Northern California Power Agency, Public Power Revenue,,
Hydroelectric Project No. 1, Series A7/1/20175 2,479,025 2,479,025
Oakland, CA, Housing Finance Revenue 1/1/2010, 7.1% 1,150,436 1,150,436
Orange County, CA, Recovery Certificates of Participation 7/1/2026, 6.0% 13,648,570 13,648,570
Palmdale, CA, School District, School Building Project, Certificates
of Participation, Zero Coupon 10/1/2019 503,120 503,120
Pleasanton, CA, Joint Power Financing Series A 9/2/2012, 6.15% 9,135,214 9,135,214
Ponoma, CA, Unified School District, General Obligation, ETM, Series
1992B 8/1/2014, 6.25% 1,179,722 1,179,722
Oakland, CA, Port Revenue 11/1/2010, 5.5% 6,692,505 2,653,650 9,346,155
Oakland, CA, Port Revenue 11/1/2011, 5.625% 9,843,843 9,843,843
Oakland, CA, Port Revenue 11/1/2014, 5.75% 2,642,250 2,642,250
Puerto Rico Commonwealth, General Obligation 7/1/2015, 6.50%6.5 4,668,120 4,668,120
Puerto Rico Commonwealth, Inverse Floating Rate, Rites-PA 620 B
7/1/2014, 7.25% 4,319,840 1,851,360 6,171,200
Puerto Rico Commonwealth Highway & Transportation Authority, Highway
Revenue, Series 1996 Z 7/1/2014, 6.25% 1,141,830 1,141,830
Puerto Rico Commonwealth Highway and Transportation Authority,
Highway Revenue, Series Z, 07/01/2016 856,328 856,328
Puerto Rico Commonwealth Highway and Transportation Authority,
Highway Revenue, Revenue, Series Z 7/1/2018, 6.0% 8,068,598 8,068,598
Puerto Rico Commonwealth Highway and Transportation Authority,
Highway Revenue, Inverse Floater, 8.65%, 8/11/2010 4,623,183 4,623,183
Puerto Rico Commonwealth Highway and Transportation Authority,
Highway Revenue, Inverse Floater, 8.65%, 3/9/2012 3,622,582 3,622,582
Puerto Rico Commonwealth Highway and Transportation Authority,
Transportation Revenue, Series A 7/1/2014, 5.5% 5,328,100 5,328,100
Puerto Rico Commonwealth, Infrastructure Finance Authority, Series A
10/1/2020, 5.5% 1,534,935 511,645 2,046,580
Puerto Rico Public Building Authority, Government Facilities Revenue,
Series 1995 A 7/1/2013, 6.25% 1,140,320 1,140,320
Puerto Rico Electric Power Authority, Power Revenue, Series HH
7/1/2014, 5.75% 6,746,063 1,349,213 8,095,275
Puerto Rico Electric Power Authority , Power Revenue, Series HH
7/1/2015, 5.75% 2,470,683 2,470,683
Puerto Rico Electric Power Authority 7/1/2016, 5.75% 5,345,400 5,345,400
Puerto Rico Municipal Finance Authority, Inverse Floating Rate,
RITES-PA 645B 8/1/2013, 6.32% 1,448,900 1,327,192 2,776,092
Puerto Rico Municipal Finance Authority, Inverse Floater 8/1/2014, 6.531% 2,926,975 2,926,975
Puerto Rico Municipal Finance Authority, Inverse Floating Rate,
RITES-PA 645D 8/1/2015, 7.17% 1,182,420 1,448,465 2,630,885
Redondo Beach, CA, Public Financing Authority, South Bay Center
Redevelopment Project, Revenue 7/1/2016, 7.0% 1,078,240 1,078,240
Redondo Beach, CA, Public Financing Authority, South Bay Center
Recevelopment Project, Revenue 7/1/2026, 7.125% 2,155,320 2,155,320
Reedley, CA, Sierra View Homes, Certificates of Participation,
Prerefunded 03/01/2001, 7.6%, 3/1/2021 3,917,143 3,917,143
Richmond, CA , Joint Powers Finance Authority, Series 1996 9/1/2006, 5.875% 528,165 528,165
Richmond, CA , Joint Powers Finance Authority, Series 1996 9/1/2016, 6.6% 1,075,290 1,075,290
Richmond, CA, Wastewater Revenue, Capital Appreciation, Zero Coupon
8/1/2020 842,736 842,736
Riverside County, CA, Asset Leasing Corp., Leasehold Revenue Project,
Series 1997, Zero Coupon 6/1/2015 817,793 817,793
Riverside County, CA, Asset Leasing Corp., Leasehold Revenue Project,
Series 1997, Zero coupon, MBIA/BIG Insured 6/1/2016 1,047,693 1,047,693
Rocklin, CA, Unified School District, Community Facilities, Zero
Coupon 9/1/2019 598,377 598,377
Rocklin, CA, Unified School District, Community Facilities, Zero
Coupon 9/1/2020 475,751 475,751
Sacramento, CA, Financing Authority Lease Revenue, Series 1993 B
11/1/2014, 5.0% 4,273,710 4,273,710
Sacramento, CA, City Financing Authority Lease Revenue
Refunding,11/1/2020, 5.4% 5,176,500 5,176,500
Sacremento, CA, City Financing Authority Revenue, Capital
Appreciation, Tax Allocation, Series 1993B, MBIA/BIG, Zero Coupon
11/1/2016 1,157,665 1,157,665
Sacramento, CA, City Financing Authority, Revenue Bond, Convention
Center Hotel, Series A 1/1/2030, 6.25% 9,762,500 3,905,000 13,667,500
Sacramento, CA, Cogeneration Authority, Procter and Gamble Project,
Revenue, Prerefunded 7/1/2005, 6.5%, 7/1/2021 8,636,678 8,636,678
Sacramento, CA, Cogeneration Authority, Procter and Gamble Project,
Revenue, Prerefunded 07/01/2005, 6.375%, 7/1/2010 2,994,948 2,994,948
</TABLE>
<TABLE>
<S> <C> <C> <C>
Sacramento, CA, Cogeneration Authority, Procter and Gamble Project,
Revenue 7/1/2010, 6.375% 2,464,726 2,464,726
Sacramento, CA, Municipal Utility District, Electric Revenue, Series
G 9/1/2013, 6.5% 1,496,022 1,496,022
Sacramento, California Municipal Utilities District Electrict
Revenue Series K 7/1/2018, 5.75% 5,616,688 5,616,688
Sacramento, CA, Municipal Utility District, Electric Revenue, Series
A 8/15/2006, 6.2% 1,050,850 1,050,850
Sacramento, CA, Municipal Utility District, Electric Revenue, Series
1997 L 7/1/2022, 5.125% 1,714,125 1,714,125
Sacramento, CA, Power Authority Cogeneration Project, Revenue Bonds,
Series 1995 7/1/2004, 6.5% 2,114,400 2,114,400
Sacramento California Power Authority Gogeneration Preject Revenue
7/1/2022, 6.0% 5,246,250 5,246,250
Sacramento County, CA, Sanitation District Financing Authority,
Revenue, Series A 12/1/2014, 6.0% 5,543,300 5,543,300
Sacramento County, CA, Community Facilities District Number 1,
Special Tax 9/1/2011, 6.0% 898,170 898,170
Sacramento County, CA, Community Facilities District Number 1,
Special Tax 9/1/2021, 6.3% 1,539,045 1,539,045
Sacramento County, CA, Community Facilities District Number 1,
Special Tax 9/1/2014, 6.125% 631,572 631,572
Sacramento County, CA, Community Facilities District Number 1,
Special Tax 12/1/2010, 5.5% 1,117,599 1,117,599
Saddleback Valley Unified School District, Public Financing
Authority, Special Tax Revenue, Series 1997A, FSA Insured 9/1/2013, 6.0% 1,131,270 1,131,270
Saddleback Valley Unified School District, Public Financing
Authority, Special Tax Revenue, Series 1997A 9/1/2014, 6.0% 1,350,302 1,129,960 2,480,262
Saddleback Valley Unified School District, Public Financing
Authority, Special Tax Revenue, Series 1997A, FSA Insured 9/1/2015, 6.0% 1,128,570 1,128,570
Saddleback Valley, CA, Unified School District, Public Finance
Authority, Special Tax Revenue, Series A 9/1/2020, 4.75% 2,968,345 2,968,345
Salinas, CA, Capital Improvement Projects, Certificates of
Participation, Series A 10/1/2017, 5.625% 2,019,240 2,019,240
San Bernardino, CA, School Health Care System, Sisters of Charity,
Revenue, Series A, Prerefunded 07/01/2001, 7.0%, 7/1/2011 5,191,700 5,191,700
San Bernardino County, CA, West Valley Detention Center, Certificates
of Participation 11/1/2012, 6.5% 8,463,920 8,463,920
San Bernadino, CA, Certificate of Participation, Medical Center
Financing Project, Series 1994, MBIA/BIG Ins 8/1/2017, 5.5% 4,198,697 4,198,697
San Bernadino, CA, Certificate of Participation, Medical Center
Financing Project, Refunding Revenue, Series 1994, MBIA/BIG 8/1/2009, 6.0% 3,339,240 3,339,240
San Bruno Park, CA, School District, General Obligation, Zero Coupon,
8/1/2014 501,021 501,021
San Bruno Park, CA, School District, General Obligation, Zero Coupon
8/1/2016 436,900 436,900
San Bruno Park, CA, School District, General Obligation, Zero Coupon
8/1/2017 407,730 407,730
San Bruno Park, CA, School District, General Obligation, Zero Coupon
8/1/2019 394,768 394,768
San Diego, CA, Detention Facility, Certificates of Participation,
Revenue 6/1/2002, 8.0% 2,799,938 2,799,938
San Diego, CA, Redevelopment Agency, Horton Project, Tax Allocation,
Series B 11/1/2017, 6.625% 2,151,260 2,151,260
San Francisco, CA, City and County Airport Communication,
International Airport Revenue, Series 12A 5/1/2013, 5.7% 5,682,947 5,682,947
San Francisco, CA, City and County Airport Communucation,
International Airport Revenue, Series 12A 5/1/2014, 5.7% 7,027,117 7,027,117
San Francisco, CA, City and County Airports, Inverse Floater
5/1/2015, 6.9599% 1,294,326 1,294,326
San Francisco, CA, City and County Airports, Inverse Floater
5/1/2017, 6.4599% 1,469,436 1,469,436
San Francisco, CA, City and County Airports, Inverse Floater
5/1/2015, 6.4599% 1,545,999 1,545,999
San Francisco, CA, City and County Airports, Inverse Floater
5/1/2010, 7.134% 1,616,435 1,616,435
San Francisco California City and County ARPTS Rites-PA 5/1/2015, 6.9979% 1,695,026 1,695,026
San Francisco California City and County ARPTS Rites-PA 5/1/2016, 7.2329% 1,815,353 1,815,353
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
San Francisco, CA, City and County Airports, Inverse Floater
5/1/2015, 6.4599% 1,365,000 1,365,000
San Francisco, CA, City and County Airports, Inverse Floater
5/1/2010, 7.134% 1,445,000 1,445,000
San Francisco, CA, City and County Airports, Inverse Floater
5/1/2010, 6.4599% 1,535,000 1,535,000
San Francisco, CA, City and County Redevelopment Agency, George R.
Moscone Convention Center, Lease Revenue 7/1/2015, 6.75% 2,200,000 2,200,000
San Francisco, CA, Redevelopment Finance Agency, Tax Allocation
Revenue, Series A, Zero Coupon, FGIC Insured 8/1/2003 1,080,000 1,080,000
San Francisco, CA, City and County Redevelopment Agency Residential
Facility, Coventry Park Project, Series 1996 A 12/1/2026, 8.5% 2,000,000 2,000,000
San Francisco, CA, Hotel Tax Revenue, Series 1998 7/1/2018, 5.0% 4,000,000 4,000,000
San Joaquin, CA, Transportation Corridor Agency, Toll Revenue, Junior
Lien, Series 1993, Zero Coupon 1/1/2004 1,000,000 1,000,000
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Senior Lien, Step-up Coupon, 0% to 1/1/02, 7.3% to 1/1/04,
1/1/2005 2,500,000 2,500,000
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Senior Lien, Zero Coupon 1/1/2007 6,000,000 6,000,000
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Senior Lien, Zero coupon, ETM 1/1/2014 1,180,000 2,500,000 3,680,000
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Junior Lien, Series 1993, Zero Coupon 1/1/2002 515,000 515,000
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Junior Lien, Zero Coupon 1/1/2006 200,000 200,000
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Junior Lien, Series 1993, Zero coupon 1/1/2010 1,500,000 1,500,000
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Series A, zero coupon 1/15/2011 5,450,000 5,450,000
San Joaquin Hills, CA, Revenue, Capital Appreciation, Series 1997 A,
Zero Coupon 1/15/2012 22,920,000 2,500,000 25,420,000
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Series A, Zero Coupon 1/15/2015 10,000,000 2,065,000 12,065,000
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Series A, zero coupon 1/15/2016 3,485,000 3,485,000
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Series A, Zero Coupon 1/15/2017 3,965,000 3,965,000
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Series A, Zero Coupon 1/15/2018 2,640,000 2,640,000
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Series A, Zero Coupon 1/15/2019 3,185,000 3,185,000
San Joaquin Hills, CA, Transportation
Corridor Agency 1/1/2033, 5.0% 1,000,000 1,000,000
San Jose, CA, Redevelopment Agency, Tax
Allocation 8/1/2023, 4.75% 5,300,000 5,300,000
San Jose, CA, Financing Revenue, Community
Facilities Project, Zero Coupon 11/15/2003 735,000 735,000
San Jose, CA, Financing Revenue, Community
Facilities Project, Zero Coupon 11/15/2004 1,605,000 1,605,000
San Jose, CA, Financing Revenue, Community
Facilities Project, Zero Coupon 11/15/2005 1,605,000 1,605,000
San Jose, CA, Financing Revenue, Community
Facilities Project, Zero Coupon 11/15/2006 1,605,000 1,605,000
San Jose, CA, Unified School District,
General Obligation, Series A, Zero Coupon 08/01/2015 2,570,000 2,570,000
San Jose, CA, Unified School District,
General Obligation, Series A, Zero Coupon 8/1/2017 1,350,000 1,350,000
San Ysidro, CA, School District, General
Obligation 8/1/2021, 6.125% 1,400,000 1,400,000
Santa Ana, CA, Finance Authority, Lease Revenue Bonds, Police
Administration And Holding Facility, Series 1994A, MBIA Ins 7/1/2024,
6.25% 2,000,000 2,000,000
Santa Clara County, CA, Finance Authority, Lease Revenue, VMC
Replacement Project, AMBAC Insured 11/15/2008, 7.75% 3,250,000 3,250,000
Santa Cruz County, CA, Certificates of Participation, Capital Facilities
Project, Series 1997, MBIA/BIG Insured 9/1/2017, 5.5% 1,005,000 1,005,000
Santa Cruz County, CA, Certificates of Participation,
Capital Facilities Project, Series 1997, MBIA/BIG Insured 9/1/2018, 5.5% 1,060,000 1,060,000
Santa Cruz County, CA, Certificates of Participation,
Capital Facilities Project, Series 1997, MBIA/BIG Insured 9/1/2019, 5.6% 1,115,000 1,115,000
Santa Cruz County, CA, Certificates of Participation, Capital
Facilities Project, Series 1997, MBIA/BIG Insured 9/1/2020, 5.6% 1,180,000 1,180,000
Santa Cruz County, CA, Certificates of Participation, Capital Facilities
Project, Series 1997, MBIA/BIG Insured 9/1/2024, 5.65% 1,445,000 1,445,000
Santa Cruz County, CA, Certificates of Participation,
Capital Facilities Project, Series 1997, MBIA/BIG Insured 9/1/2025,
5.65% 1,520,000 1,520,000
Santa Cruz County, CA, Certificates of Participation, Capital
Facilities Project, Series 1997, MBIA/BIG Insured 9/1/2026, 5.65% 1,605,000 1,605,000
Santa Cruz County, CA, Housing Authority, Multi-Family
Revenue, Series A 7/1/2023, 7.75% 2,000,000 2,000,000
Santa Margarita/Dana Point, CA, Improvement Districts 1-2-
2A and 8, MBIA Insured, Series 1994A 8/1/2006, 7.25% 465,000 465,000
Santa Margarita/Dana Point, CA, Improvement Districts 3, 3A, 4 and 4A,
Series B, MBIA Insured 8/1/2005, 7.25% 2,895,000 2,895,000
Santa Margarita/Dana Point, CA,
Improvement Districts, 3,400,000 3,400,000
Revenue, Series B 8/1/2013, 7.25%
Santa Margarita/Dana Point, CA,
Improvement Districts, Revenue, Series B
8/1/2012, 7.25% 3,675,000 3,675,000
Santaluz Sptx, CAC07, 6.25%, 9/1/2021 1,000,000 1,000,000 2,000,000
Santaluz Sptx, CAC07, 6.375%, 9/1/2030 3,000,000 1,000,000 4,000,000
Santaluz Sptx, CAC07, 6.375% 1,000,000 1,000,000
Snowline, CA, Joint Unified School District, Certificates of
Participation, Prerefunded 7/1/2003, 6.3%, 7/1/2011 2,500,000 2,500,000
Snowline, CA, Joint Unified School
District, Certificates of Participation
7/1/2018, 6.4% 1,195,000 1,195,000
South Placer Wastewater Authority
California Wasterwater Revenue, Series A
11/1/2013, 5.5% 1,000,000 1,000,000
South Placer Water
Authority 11/1/2014, 5.5% 2,000,000 2,000,000
South San Francisco, CA, Capital Improvements Financing
Authority, South San Francisco Conference Center, Revenue 9/1/2018,
6.125% 3,925,000 3,925,000
South Tahoe, CA, Joint Powers Finance
Authority, Series 1997 A 10/1/2007, 7.3% 10,000,000 2,500,000 12,500,000
Southern California Home Finance Authority, Single Family
Mortgage Revenue, Series A 9/1/2024, 7 .35% 370,000 370,000
Southern California Home Finance Authority, Single Family
Mortgage Revenue, Series A 9/1/2022, 6 .75% 565,000 565,000
Southern California Public Power Authority, Series
1989 7/1/2010, 6.75% 6,000,000 6,000,000
Southern California Public Power Authority, Transmission Project
Revenue, Capital Appreciation, Zero Coupon 7/1/2015 2,000,000 2,000,000
Stockton, CA, Community Facilities District,
Brookside Estates, Special Tax Revenue
8/1/2015, 6.2% 2,000,000 2,000,000
Sunnyvale, CA, Financing Authority, Wasterwater, Refuse
and Sludge, Utilities Revenue 10/1/2017, 6 .3% 4,000,000 4,000,000
Tahoe Truckee CA, Unified School District,
General Obligation, Series A, Zero Coupon 8/1/2022 3,600,000 3,600,000
Temple City, CA, Unified School
District, General Obligation, Series A,
Zero Coupon 8/1/2015 1,250,000 1,250,000
Torrance, CA, Torrance Memorial Hospital
Medical Center, Revenue 1/1/2012, 6.75% 5,000,000 5,000,000
Tustin, CA, Unified School District, Community Facilities
District No. 97-1, Special Tax 9/1/2021, 6.25% 750,000 750,000
Tustin, CA, Unified School District 9/1/2035, 6.375% 2,000,000 2,000,000
University of California Revenue Ser K
9/1/2021, 5.0% 10,650,000 10,650,000
Virgin Islands, Public Finance Authority, Matching Fund Loan Notes, ETM,
Series 1992 A 10/1/2002, 7.0% 1,000,000 1,000,000
Virgin Islands Public Finance Authority,
Revenue Bond, Series 1999 A, 6.50%, 10/01/2024 5,000,000 2,500,000 7,500,000
Virgin Islands, Special
Tax Bonds, Hugo Bonds, Prerefunded
10/01/2001, 7.75%, 10/1/2006 1,180,000 1,180,000
Washington Township, CA, Health Care
District, Revenue
Bond, Series 1999 7/1/2023, 5.125% 1,205,000 1,205,000
Watsonville, CA, Community Hospital
Revenue, Series 1996 7/1/2007, 5.95% 1,135,000 1,135,000
West Covina, CA, Queen of the Valley Hospital, Certificate
of Participation, Hospital Revenue, Series 1994 8/15/2001, 5.8% 750,000 750,000
West Covina, CA, Redevelopment Agency Facility, Series
1996, ETM 9/1/2009, 5.75% 865,000 865,000
Westminster, CA, Redevelopment Agency, Tax Allocation Revenue,
Community Development, Project No. 1, Series 1991 A, Prerefunded
8/1/2001, 7.3%, 8/1/2021 2,500,000 2,690,000 5,190,000
Yosemite, CA, Community College District, Certificate of
Participation, Prerefunded 7/1/2001, 7.75%, 7/1/2011 1,395,000 1,395,000
Total Long-Term Municipal Investments ($ 728,674,874, $293,824,513, and
$1,022,499,387 respectively)
Total Investment Portfolio 100% (Cost of $751,329,874, $295,824,513, and
$1,047,154,387
respectively)
San Francisco, CA, City and County Airports, Inverse Floater
5/1/2018, 6.9819% 1,635,884 1,635,884
San Francisco, CA, City and County Airports, Inverse Floater
5/1/2007, 6.4798% 1,652,401 1,652,401
San Francisco, CA, City and County Airports, Inverse Floater
5/1/2010, 6.4599% 1,738,541 1,738,541
San Francisco, CA, City and County Redevelopment Agency, George R.
Moscone Convention Center, Lease Revenue 7/1/2015, 6.75% 2,408,472 2,408,472
San Francisco, CA, Redevelopment Finance Agency, Tax Allocation
Revenue, Series A, Zero Coupon, FGIC Insured 8/1/2003 965,693 965,693
San Francisco, CA, City and County Redevelopment Agency Residential
Facility, Coventry Park Project, Series 1996 A 12/1/2026, 8.5% 1,889,660 1,889,660
San Francisco, CA, Hotel Tax Revenue, Series 1998 7/1/2018, 5.0% 3,937,760 3,937,760
San Joaquin, CA, Transportation Corridor Agency, Toll Revenue, Junior
Lien, Series 1993, Zero Coupon 1/1/2004 1,002,420 1,002,420
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Senior Lien, Step-up Coupon, 0% to 1/1/02, 7.3% to 1/1/04,
1/1/2005 2,564,800 2,564,800
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Senior Lien, Zero Coupon 1/1/2007 6,404,340 6,404,340
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Senior Lien, Zero coupon, ETM 1/1/2014 605,434 1,282,700 1,888,134
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Junior Lien, Series 1993, Zero Coupon 1/1/2002 493,030 493,030
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Junior Lien, Zero Coupon 1/1/2006 160,086 160,086
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Junior Lien, Series 1993, Zero coupon 1/1/2010 981,315 981,315
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Series A, zero coupon 1/15/2011 3,343,303 3,343,303
San Joaquin Hills, CA, Revenue, Capital Appreciation, Series 1997 A,
Zero Coupon 1/15/2012 13,238,592 1,444,000 14,682,592
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Series A, Zero Coupon 1/15/2015 4,786,400 988,392 5,774,792
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Series A, zero coupon 1/15/2016 1,562,430 1,562,430
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Series A, Zero Coupon 1/15/2017 1,659,511 1,659,511
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Series A, Zero Coupon 1/15/2018 1,036,438 1,036,438
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Series A, Zero Coupon 1/15/2019 1,173,577 1,173,577
San Joaquin Hills, CA, Transportation
Corridor Agency 1/1/2033, 5.0% 940,000 940,000
San Jose, CA, Redevelopment Agency, Tax
Allocation 8/1/2023, 4.75% 4,816,852 4,816,852
San Jose, CA, Financing Revenue, Community
Facilities Project, Zero Coupon 11/15/2003 644,058 644,058
San Jose, CA, Financing Revenue, Community
Facilities Project, Zero Coupon 11/15/2004 1,341,363 1,341,363
San Jose, CA, Financing Revenue, Community
Facilities Project, Zero Coupon 11/15/2005 1,276,328 1,276,328
San Jose, CA, Financing Revenue, Community
Facilities Project, Zero Coupon 11/15/2006 1,214,439 1,214,439
San Jose, CA, Unified School District,
General Obligation, Series A, Zero Coupon 08/01/2015 1,199,085 1,199,085
San Jose, CA, Unified School District,
General Obligation, Series A, Zero Coupon 8/1/2017 550,436 550,436
San Ysidro, CA, School District, General
Obligation 8/1/2021, 6.125% 1,555,050 1,555,050
Santa Ana, CA, Finance Authority, Lease Revenue Bonds, Police
Administration And Holding Facility, Series 1994A, MBIA Ins 7/1/2024,
6.25% 2,293,820 2,293,820
Santa Clara County, CA, Finance Authority, Lease Revenue, VMC
Replacement Project, AMBAC Insured 11/15/2008, 7.75% 3,993,405 3,993,405
Santa Cruz County, CA, Certificates of Participation, Capital Facilities
Project, Series 1997, MBIA/BIG Insured 9/1/2017, 5.5% 1,067,953 1,067,953
Santa Cruz County, CA, Certificates of Participation,
Capital Facilities Project, Series 1997, MBIA/BIG Insured 9/1/2018, 5.5% 1,119,869 1,119,869
Santa Cruz County, CA, Certificates of Participation,
Capital Facilities Project, Series 1997, MBIA/BIG Insured 9/1/2019, 5.6% 1,182,948 1,182,948
Santa Cruz County, CA, Certificates of Participation, Capital
Facilities Project, Series 1997, MBIA/BIG Insured 9/1/2020, 5.6% 1,250,529 1,250,529
Santa Cruz County, CA, Certificates of Participation, Capital Facilities
Project, Series 1997, MBIA/BIG Insured 9/1/2024, 5.65% 1,536,049 1,536,049
Santa Cruz County, CA, Certificates of Participation,
Capital Facilities Project, Series 1997, MBIA/BIG Insured 9/1/2025,
5.65% 1,617,782 1,617,782
Santa Cruz County, CA, Certificates of Participation, Capital
Facilities Project, Series 1997, MBIA/BIG Insured 9/1/2026, 5.65% 1,705,537 1,705,537
Santa Cruz County, CA, Housing Authority, Multi-Family
Revenue, Series A 7/1/2023, 7.75% 2,042,740 2,042,740
Santa Margarita/Dana Point, CA, Improvement Districts 1-2-
2A and 8 , MBIA Insured, Series 1994A 8/1/2006, 7.25% 535,220 535,220
Santa Margarita/Dana Point, CA, Improvement Districts 3, 3A, 4 and 4A,
Series B, MBIA Insured 8/1/2005, 7.25% 3,268,889 3,268,889
Santa Margarita/Dana Point, CA,
Improvement Districts, 4,233,306 4,233,306
Revenue, Series B 8/1/2013, 7.25%
Santa Margarita/Dana Point, CA,
Improvement Districts, Revenue, Series B 8/1/2012, 7.25% 4,555,934 4,555,934
Santaluz Sptx, CAC07, 6.25%, 9/1/2021 1,001,790 1,001,790 2,003,580
Santaluz Sptx, CAC07, 6.375%, 9/1/2030 3,013,500 1,004,500 4,018,000
Santaluz Sptx, CAC07, 6.375% 1,004,500 1,004,500
Snowline, CA, Joint Unified School District, Certificates of
Participation, Prerefunded 7/1/2003, 6.3%, 7/1/2011 2,684,000 2,684,000
Snowline, CA, Joint Unified School
District, Certificates of Participation
7/1/2018, 6.4% 1,285,856 1,285,856
South Placer Wastewater Authority
California Wasterwater Revenue, Series A
11/1/2013, 5.5% 1,066,360 1,066,360
South Placer Water
Authority 11/1/2014, 5.5% 2,118,700 2,118,700
South San Francisco, CA, Capital Improvements Financing
Authority, South San Francisco Conference Center, Revenue 9/1/2018,
6.125% 3,984,228 3,984,228
South Tahoe, CA, Joint Powers Finance
Authority,
Series 1997 A 10/1/2007, 7.3% 10,049,800 2,512,450 12,562,250
Southern California Home Finance Authority, Single Family
Mortgage Revenue, Series A 9/1/2024, 7 .35% 378,221 378,221
Southern California Home Finance Authority, Single Family
Mortgage Revenue, Series A 9/1/2022, 6 .75% 574,950 574,950
Southern California Public Power Authority , Series
1989 7/1/2010, 6.75% 6,962,820 6,962,820
Southern California Public Power Authority, Transmission Project
Revenue, Capital Appreciation, Zero Coupon 7/1/2015 927,900 927,900
Stockton, CA, Community Facilities
District, Brookside Estates, Special Tax Revenue
8/1/2015, 6.2% 2,059,680 2,059,680
Sunnyvale, CA, Financing Authority, Wasterwater, Refuse
and Sludge, Utilities Revenue 10/1/2017, 6 .3% 4,086,360 4,086,360
Tahoe Truckee CA, Unified School District,
General Obligation, Series A, Zero Coupon 8/1/2022 1,075,212 1,075,212
Temple City, CA, Unified School
District, General Obligation, Series A,
Zero Coupon 8/1/2015 583,213 583,213
Torrance, CA, Torrance Memorial Hospital
Medical Center, Revenue 1/1/2012, 6.75% 5,008,600 5,008,600
Tustin, CA, Unified School District, Community Facilities
District No. 97-1, Special Tax 9/1/2021, 6.25% 757,268 757,268
Tustin, CA, Unified School District 9/1/2035, 6.375%
University of California Revenue Ser K 2,025,240 2,025,240
9/1/2021, 5.0% 10,295,462 10,295,462
Virgin Islands, Public Finance Authority, Matching Fund Loan Notes, ETM,
Series 1992 A 10/1/2002, 1,051,170 1,051,170
7.0%
Virgin Islands Public Finance Authority,
Revenue Bond, Series 1999 A, 6.50%, 10/01/2024 5,186,500 2,593,250 7,779,750
Virgin Islands, Special
Tax Bonds, Hugo Bonds, Prerefunded 1,226,468 1,226,468
10/01/2001, 7.75%, 10/1/2006
Washington Township, CA, Health Care
District, Revenue 1,122,602 1,122,602
Bond, Series 1999 7/1/2023, 5.125%
Watsonville, CA, Community Hospital
Revenue Series 1996 7/1/2007, 5.95% 1,242,394 1,242,394
West Covina, CA, Queen of the Valley Hospital, Certificate
of Participation, Hospital Revenue, Series 1994 8/15/2001, 5.8% 760,890 760,890
West Covina, CA, Redevelopment Agency Facility, Series
1996, ETM 9/1/2009, 5.75% 927,886 927,886
Westminster, CA, Redevelopment Agency, Tax Allocation Revenue,
Community Development, Project No. 1, Series 1991 A, Prerefunded
8/1/2001, 7.3%, 8/1/2021 2,607,650 2,805,831 5,413,481
Yosemite, CA, Community College District, Certificate of
Participation, Prerefunded 7/1/2001, 7.75%, 7/1/2011 1,438,984 1,438,984
---------------------------------------------------------
Total Long-Term Municipal Investments ($ 728,674,874, $293,824,513, and
$1,022,499,387 respectively) 768,063,530 309,976,790 1,078,040,320
=========================================================
---------------------------------------------------------
Total Investment Portfolio 100% (Cost of $751,329,874, $295,824,513, and
$1,047,154,387 respectively) 790,718,530 311,976,790 1,102,695,320
=========================================================
</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 California Scudder California Pro Forma Pro Forma
Tax-Free Income Tax Free Adjustments Combined
------------------- -------------------- --------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Investments, at value $ 790,718,530 $ 311,976,790 $ 1,102,695,320
Cash 162,677 165,683 328,360
Other assets less liabilities (2,384,162) 1,242,625 $ - (2) (1,141,537)
------------------- -------------------- --------------------- ----------------------
Total Net assets $ 788,497,045 $ 313,385,098 $ - $ 1,101,882,143
=================== ==================== ===================== ======================
Net Assets
Class S Shares $ 313,310,966 $ 313,310,966
Class AARP Shares $ 74,132 $ 74,132
Class A Shares $ 753,160,570 $ 753,160,570
Class B Shares $ 31,638,978 $ 31,638,978
Class C Shares $ 3,697,497 $ 3,697,497
Shares Outstanding
Class S Shares 28,739,770 14,416,010 43,155,780
Class AARP Shares 6,802 3,409 10,211
Class A Shares 103,803,874 103,803,874
Class B Shares 4,354,958 4,354,958
Class C Shares 512,625 512,625
Net Asset Value per Share
Class S Shares 10.90 $ 7.26
Class AARP Shares 10.90 $ 7.26
Class A Shares 7.26 $ 7.26
Class B Shares 7.27 $ 7.27
Class C Shares 7.21 $ 7.21
</TABLE>
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED NOVEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Kemper California Scudder California Pro Forma Pro Forma
Tax-Free Income Tax Free Adjustments Combined
--------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest income $ 46,235,100 17,442,732 $ -- $ 63,677,832
------------------------------------------------------------------------------
Total Investment Income 46,235,100 17,442,732 63,677,832
Expenses
Management fees 4,118,324 1,886,192 (232,219) (3) 5,772,297
12B-1 Fees 2,007,615 - 2,007,615
Trustees Fees 23,824 28,293 (4) 52,117
All other expenses 750,193 466,665 (141,351) (5) 1,075,507
------------------------------------------------------------------------------
Total expenses before reductions 6,899,956 2,381,150 (373,570) 8,907,536
Expense reductions - - - -
------------------------------------------------------------------------------
Expenses, net 6,899,956 2,381,150 (373,570) 8,907,536
------------------------------------------------------------------------------
Net investment income (loss) 39,335,144 15,061,582 373,570 54,770,296
------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain (loss) from investments (2,072,089) (179,597) -- (2,251,686)
Net increase in unrealized appreciation
of investments during the period 30,930,645 10,972,692 -- 41,903,337
------------------------------------------------------------------------------
Net increase in net assets from
operations $ 68,193,700 $ 25,854,677 $ 373,570 $ 94,421,947
==============================================================================
</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 California Tax-Free Income Fund and
Scudder California 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 California Tax-
Free Income Fund and Scudder California Tax Free Fund, respectively.
3. Represents reduction in management fees resulting from the utilization of
Kemper California Tax- Free Income Fund's investment management agreement for
the entire year.
4. Reduction in trustee fees resulting from the Reorganization.
5. Represents decrease 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.
SIGNATURE TITLE DATE
--------- ----- ----
/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
---------------------------
John R. Hebble and Accounting Officer)
*By: /s/ Caroline Pearson January 5, 2001
-----------------------------
Caroline Pearson, Attorney-in-fact
*Executed pursuant to powers of attorney filed herein as an exhibit to the
Registrant's Registration Statement on form N-14.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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
