<PAGE>
As filed with the Securities and Exchange Commission
on December 22, 2000
Securities Act File No.
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / x /
-------
Pre-Effective Amendment No. /____/ Post-Effective Amendment No./____/
KEMPER U.S. GOVERNMENT SECURITIES FUND
(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza, Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Philip J. Collora
Kemper U.S. Government Securities Fund
222 South Riverside Plaza
Chicago, Illinois 60606
(Name and Address of Agent for Service)
(312) 781-1121
(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 U.S. Government Securities Fund, a series of the Registrant
________________________________________________________________________________
It is proposed that this filing will become effective on January 21, 2001
pursuant to Rule 488 under the Securities Act of 1933.
________________________________________________________________________________
No filing fee is required because the Registrant has previously registered an
indefinite number of its shares under the Securities Act of 1933, as amended,
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended.
<PAGE>
PART A
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
KEMPER U.S. MORTGAGE FUND
Please take notice that a Special Meeting of Shareholders (the "Meeting")
of Kemper U.S. Mortgage Fund (the "Fund"), a series of Kemper Portfolios (the
"Trust"), will be held at the offices of Scudder Kemper Investments, Inc., 13th
Floor, Two International Place, Boston, MA 02110-4103, on May 15, 2001, at 4:00
p.m., Eastern time, for the following purposes:
Proposal 1: To elect Trustees of the Trust.
Proposal 2: To approve an Agreement and Plan of Reorganization for the
Fund (the "Plan"). Under the Plan, (i) all or substantially
all of the assets and all of the liabilities of the Fund
would be transferred to Kemper U.S. Government Securities
Fund, (ii) each shareholder of the Fund would receive shares
of Kemper U.S. Government Securities Fund of a corresponding
class to those held by the shareholder in the Fund in an
amount equal to the value of their holdings in the Fund, and
(iii) the Fund would then be terminated.
Proposal 3: To ratify the selection of Ernst & Young LLP as the
independent auditors for the Fund for the Fund's current
fiscal year.
The persons named as proxies will vote in their discretion on any other
business that may properly come before the Meeting or any adjournments or
postponements thereof.
Holders of record of shares of the Fund at the close of business on
March 5, 2001 are entitled to vote at the Meeting and at any adjournments or
postponements thereof.
In the event that the necessary quorum to transact business or the vote
required to approve any Proposal is not obtained at the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the Trust's (for a Trust-wide vote) or the Fund's (for a Fund-
wide vote) shares present in person or by proxy at the Meeting. The persons
named as proxies will vote FOR any such adjournment those proxies which they are
entitled to vote in favor of that Proposal and will vote AGAINST any such
adjournment those proxies to be voted against that Proposal.
By Order of the Board,
/s/ Philip J. Collora
Philip J. Collora
Secretary
March 6, 2001
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE (OR TO TAKE ADVANTAGE OF
THE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES DESCRIBED ON THE PROXY CARD(S)).
YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S) (OR YOUR VOTING BY OTHER
AVAILABLE MEANS) MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS. IF
YOU WISH TO ATTEND THE MEETING AND VOTE YOUR SHARES IN PERSON AT THAT TIME, YOU
WILL STILL BE ABLE TO DO SO.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................................... __
PROPOSAL 1: ELECTION OF TRUSTEES.............................................. __
PROPOSAL 2: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION.................. __
SYNOPSIS.......................................................... __
PRINCIPAL RISK FACTORS............................................ __
THE PROPOSED TRANSACTION.......................................... __
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT
AUDITORS.......................................................... __
ADDITIONAL INFORMATION......................................................... __
</TABLE>
<PAGE>
PROXY STATEMENT/PROSPECTUS
March [ ], 2001
Relating to the acquisition of the assets of
KEMPER U.S. MORTGAGE FUND,
a separate series of
KEMPER PORTFOLIOS (the "Acquired Trust")
222 South Riverside Plaza
Chicago, Illinois 60606
(800) [ ]
--------------------------
by and in exchange for shares of beneficial interest of
KEMPER U.S. GOVERNMENT SECURITIES FUND
222 South Riverside Plaza
Chicago, Illinois 60606
(800) [ ]
--------------------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of
Kemper U.S. Mortgage Fund (the "Fund") in connection with three proposals.
Proposal 1 describes the election of Trustees and Proposal 3 proposes the
ratification of the selection of the Fund's auditors.
In Proposal 2, shareholders are asked to vote on an Agreement and Plan of
Reorganization (the "Plan") pursuant to which all or substantially all of the
assets of the Fund would be acquired by Kemper U.S. Government Securities 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 U.S. Government Securities Fund and the assumption by Kemper U.S.
Government Securities Fund of all of the liabilities of the Fund, as described
more fully below (the "Reorganization"). Shares of Kemper U.S. Government
Securities 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 U.S. Government
Securities Fund and will receive shares of Kemper U.S. Government Securities
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 May 28, 2001.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Proposals 1 and 2 arise out of a restructuring program proposed by
Scudder Kemper Investments, Inc. ("Scudder Kemper" or the "Investment Manager"),
the investment manager of both the Fund and Kemper U.S. Government Securities
Fund, described in more detail below. The restructuring program is
1
<PAGE>
designed to respond to changing industry conditions and investor needs. Scudder
Kemper seeks to consolidate its fund line-up and offer all of the open-end funds
it advises under the "Scudder" name. In addition, Scudder Kemper anticipates
changing its name to "Zurich Scudder Investments, Inc." Scudder Kemper believes
that the combination of its open-end, directly-distributed funds (the "Scudder
Funds") with the funds in the Kemper Family of Funds (the "Kemper Funds") will
permit it to streamline its administrative infrastructure and focus its
distribution efforts. The restructuring program will not result in any reduction
in the services currently offered to Kemper Funds shareholders.
The Fund is a diversified series of shares of beneficial interest of
the Acquired Trust. The Acquired Trust is an open-end management investment
company organized as a Massachusetts business trust. Kemper U.S. Government
Securities Fund, which is also diversified, is the only active series of shares
of beneficial interest of Kemper U.S. Government Securities Fund (the "Acquiring
Trust"), an open-end management investment company organized as a Massachusetts
business trust.
In the descriptions of the Proposals below, the word "fund" is
sometimes used to mean an investment company or series thereof in general, and
not the Fund whose proxy statement this is. In addition, for simplicity,
actions are described in this Proxy Statement/Prospectus as being taken by
either the Fund or Kemper U.S. Government Securities Fund (which are
collectively referred to as the "Funds" and each referred to as a "Fund")
although all actions are actually taken by the Acquired Trust or by 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 U.S. Government Securities 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 U.S. Government Securities Fund, see Kemper U.S. Government
Securities Fund's prospectus dated January 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
January 1, 2001, as supplemented from time to time, which is also incorporated
herein by reference and a copy of which may be obtained upon request and without
charge by calling or writing the Fund at the telephone number or address listed
above.
Also incorporated herein by reference is Kemper U.S. Government
Securities Fund's statement of additional information dated January 1, 2001, as
supplemented from time to time, which may be obtained upon request and without
charge by calling or writing Kemper U.S. Government Securities 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 U.S.
Government Securities Fund at the telephone number or address listed above.
Shareholder inquiries regarding Kemper U.S. Government Securities Fund and 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.
The Board of Trustees that oversees the Fund is soliciting proxies
from shareholders of the Fund for the Special Meeting of Shareholders to be held
on May 15, 2001, at Scudder Kemper's offices, 13th Floor, Two International
Place, Boston, MA 02110-4103 at 4:00 p.m. (Eastern time), and at any and all
adjournments or postponements thereof (the "Meeting"). This Proxy
Statement/Prospectus, the Notice of
2
<PAGE>
Special Meeting and the proxy card(s) are first being mailed to shareholders on
or about March 6, 2001 or as soon as practicable thereafter.
The Board of Trustees unanimously recommends that shareholders vote
FOR the nominees listed in Proposal 1, and FOR Proposals 2 and 3.
PROPOSAL 1: ELECTION OF TRUSTEES
At the Meeting, shareholders will be asked to elect eleven individuals
to constitute the Board of Trustees of the Acquired Trust. Shareholders are
being asked to elect these individuals to the Board of Trustees in case the
Plan, as described under Proposal 2, is not approved by shareholders.
Shareholders of the Acquiring Trust are being asked to approve the same slate of
eleven individuals who, if approved by the Acquiring Trust's shareholders, will
oversee the combined fund if the Reorganization is approved (see Proposal 2).
As discussed further below, Scudder Kemper commenced an initiative to
restructure and streamline the management and operations of the funds it
advises. In connection with that initiative, the Independent Trustees (as
defined below) of the two separate boards of Kemper Funds proposed to
consolidate into a single board. The eleven individuals who have been nominated
for election as Trustees of the Acquired Trust were nominated after careful
consideration by the present Board of Trustees. The nominees are listed below.
Seven of the nominees are currently Trustees of the Acquired Trust and three of
the nominees are currently trustees or directors of other Kemper Funds. One of
the nominees, although not currently a trustee or director of any Kemper Fund,
is a senior executive officer of Scudder Kemper. These eleven nominees are also
being nominated for election as trustees or directors of most of the other
Kemper Funds. The proposed slate of nominees reflects an effort to consolidate
the two separate boards who have historically supervised different Kemper Funds.
The proposed consolidation is expected to provide administrative efficiencies to
both the Funds and Scudder Kemper.
The persons named as proxies on the enclosed proxy card(s) will vote
for the election of the nominees named below unless authority to vote for any or
all of the nominees is withheld in the proxy. Each Trustee so elected will
serve as a Trustee commencing on July 1, 2001 and until the next meeting of
shareholders, if any, called for the purpose of electing Trustees and until the
election and qualification of a successor or until such Trustee sooner dies,
resigns or is removed as provided in the governing documents of the Acquired
Trust. Each of the nominees has indicated that he or she is willing to serve as
a Trustee. If any or all of the nominees should become unavailable for election
due to events not now known or anticipated, the persons named as proxies will
vote for such other nominee or nominees as the current Trustees may recommend.
The following tables present information about the nominees and the Trustees not
standing for re-election. Each nominee's or Trustee's date of birth is in
parentheses after his or her name. Unless otherwise noted, (i) each of the
nominees and Trustees has engaged in the principal occupation(s) noted in the
following tables for at least the most recent five years, although not
necessarily in the same capacity, and (ii) the address of each nominee is c/o
Scudder Kemper Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois
60606.
Nominees for Election as Trustees:
--------------------------------------------------------------------------------
Name (Date of Birth), Principal Occupation and Affiliations Year First
--------------------------------------------------------------------------------
3
<PAGE>
------------------------------------------------------------------------------
Became a Board
Member
------------------------------------------------------------------------------
John W. Ballantine (2/16/46),/(1)/ Retired; formerly, First 1999
Chicago NBD Corporation/The First National Bank of
Chicago: 1996-1998 Executive Vice President and Chief Risk
Management Officer; 1995-1996 Executive Vice President and
Head of International Banking.
------------------------------------------------------------------------------
Lewis A. Burnham (1/8/33),/(1)/ Retired; formerly, Partner, 1982
Business Resources Group; formerly, Executive Vice
President, Anchor Glass Container Corporation.
------------------------------------------------------------------------------
Linda C. Coughlin (1/1/52),*/(2)/ Managing Director, Scudder 2000
Kemper.
------------------------------------------------------------------------------
Donald L. Dunaway (3/8/37),/(1)/ Retired; formerly, Executive 1982
Vice President, A.O. Smith Corporation (diversified
manufacturer).
------------------------------------------------------------------------------
James R. Edgar (7/22/46),/(3)/ Distinguished Fellow, Nominee
University of Illinois Institute of Government and Public
Affairs; Director, Kemper Insurance Companies (not
affiliated with the Kemper Funds); formerly, Governor,
State of Illinois.
------------------------------------------------------------------------------
William F. Glavin (8/30/58),* Managing Director, Scudder Nominee
Kemper.
------------------------------------------------------------------------------
Robert B. Hoffman (12/11/36),/(1)/ Retired; formerly, 1982
Chairman, Harnischfeger Industries, Inc. (machinery for
the mining and paper industries); formerly, Vice Chairman
and Chief Financial Officer, Monsanto Company
(agricultural, pharmaceutical and nutritional/food
products); formerly, Vice President, Head of International
Operations, FMC Corporation (manufacturer of machinery and
chemicals); Director, Harnischfeger Industries, Inc.
------------------------------------------------------------------------------
Shirley D. Peterson (9/3/41),/(1)/ Retired; formerly, 1995
President, Hood College; formerly, Partner, Steptoe &
Johnson (attorneys); prior thereto, Commissioner, Internal
Revenue Service; prior thereto, Assistant Attorney General
(Tax), U.S. Department of Justice; Director, Bethlehem
Steel Corp.
------------------------------------------------------------------------------
Fred B. Renwick (2/1/30),/(3)/ Professor of Finance, New York Nominee
University, Stern School of Business; Director, the
Wartburg Foundation; Chairman, Investment Committee of
Morehouse College Board of Trustees; Director, American
Bible Society Investment Committee; previously member of
the Investment Committee of Atlanta University Board of
Trustees; formerly
-------------------------------------------------------------------------------
4
<PAGE>
------------------------------------------------------------------------------
Director of Board of Pensions Evangelical Lutheran
Church in America.
------------------------------------------------------------------------------
William P. Sommers (7/22/33),/(1)/ Consultant and Director,
SRI Consulting; prior thereto, President and Chief 1982
Executive Officer, SRI International (research and
development); prior thereto, Executive Vice President,
Iameter (medical information and educational service
provider); prior thereto, Senior Vice President and
Director, Booz, Allen & Hamilton Inc. (management
consulting firm); Director, PSI Inc., Evergreen Solar,
Inc. and Litton Industries.
------------------------------------------------------------------------------
John G. Weithers (8/8/33),/(3)/ Formerly, Chairman of the Nominee
Board and Chief Executive Officer, Chicago Stock Exchange;
Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University.
------------------------------------------------------------------------------
* Interested person of the Acquired Trust, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
/(1)/ Messrs. Ballantine, Burnham, Dunaway, Hoffman, Sommers and Ms. Peterson
serve as board members of 26 investment companies, with 45 portfolios
managed by Scudder Kemper.
/(2)/ Ms. Coughlin serves as a board member of 52 investment companies with 97
portfolios managed by Scudder Kemper.
/(3)/ Messrs. Edgar, Renwick and Weithers serve as board members of 16
investment companies with 58 portfolios managed by Scudder Kemper.
Trustees Not Standing for Re-Election:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Present Office with the Acquired Trust;
Principal Occupation or Employment
Name (Date of Birth) and Directorships
------------------- -----------------
-----------------------------------------------------------------------------------------------
<S> <C>
Donald R. Jones (1/17/30) Trustee; Retired; Director, Motorola, Inc.
(manufacturer of electronic equipment and
components); formerly, Executive Vice
President and Chief Financial Officer,
Motorola, Inc.
-----------------------------------------------------------------------------------------------
Thomas W. Littauer (4/26/55)* Chairman, Trustee and Vice President;
Managing Director, Scudder Kemper; formerly,
Head of Broker Dealer Division of Putnam
Investment Management; formerly, President of
Client Management Services for Fidelity
Investments.
-----------------------------------------------------------------------------------------------
</TABLE>
* Interested person of the Acquired Trust, as defined in the 1940 Act.
5
<PAGE>
Appendix 1 lists the number of shares of each series of the Acquired Trust
owned directly or beneficially by the Trustees and by the nominees for election.
Responsibilities of the Board of Trustees -- Board and Committee Meetings
The primary responsibility of the Board is to represent the interests of
the shareholders of the Fund and to provide oversight of the management of the
Fund. The board that is proposed for election at this Meeting is comprised of
two individuals who are considered "interested" Trustees, and nine individuals
who have no affiliation with Scudder Kemper and who are not considered
"interested" Trustees (the "Independent Trustees"). The SEC has recently
proposed a rule that would require a majority of the board members of a fund to
be "independent" if the fund were to take advantage of certain exemptive rules
under the 1940 Act. If the proposed Board of Trustees is approved by
shareholders, more than 75% will be Independent Trustees. The Independent
Trustees have been selected and nominated solely by the current Independent
Trustees of the Acquired Trust.
The Trustees meet multiple times during the year to review the investment
performance of the Fund and other operational matters, including policies and
procedures designed to assure compliance with regulatory and other requirements.
Furthermore, the Independent Trustees review the fees paid to the Investment
Manager and its affiliates for investment advisory services and other
administrative and shareholder services. The Trustees have adopted specific
policies and guidelines that, among other things, seek to further enhance the
effectiveness of the Independent Trustees in performing their duties. Many of
these are similar to those suggested in the Investment Company Institute's 1999
Report of the Advisory Group on Best Practices for Fund Directors (the "Advisory
Group Report"). For example, the Independent Trustees select independent legal
counsel to work with them in reviewing fees, advisory and other contracts and
overseeing fund matters, and regularly meet privately with their counsel.
Currently, the Board of Trustees has an Audit Committee and a Nominating
and Governance Committee, the responsibilities of which are described below. In
addition, the Board has a Valuation Committee and a Contract Renewal Committee.
During calendar year 2000, the Board of Trustees met eight times. Each then
current Trustee attended 75% or more of the respective meetings of the Board and
the Committees (if a member thereof) held during calendar year 2000.
Audit Committee
The Audit Committee makes recommendations regarding the selection of
independent auditors for the Fund, confers with the independent auditors
regarding the Fund's financial statements, the results of audits and related
matters, and performs such other tasks as the full Board of Trustees deems
necessary or appropriate. As suggested by the Advisory Group Report, the Audit
Committee is comprised of only Independent Trustees, receives annual
representations from the auditors as to their independence, and has a written
charter that delineates the committee's duties and powers. Currently, the
members of the Audit Committee are Donald L. Dunaway (Chairman), Robert B.
Hoffman and Donald R. Jones. The Audit Committee held five meetings during
calendar year 2000.
Nominating and Governance Committee
The Board of Trustees has a Nominating and Governance Committee, comprised
of only Independent Trustees, that seeks and reviews candidates for
consideration as nominees for membership on the Board and oversees the
administration of the Fund's Governance Procedures and Guidelines. The
6
<PAGE>
Nominating and Governance Committee has a written charter that delineates the
committee's duties and powers. Shareholders wishing to submit the name of a
candidate for consideration by the committee should submit their
recommendation(s) to the Secretary of the Acquired Trust. Currently, the members
of the Nominating and Governance Committee are Lewis A. Burnham (Chairman), John
W. Ballantine, Shirley D. Peterson and William P. Sommers. The Nominating and
Governance Committee held one meeting during calendar year 2000.
Officers
The following persons are officers of the Acquired Trust:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Name (Date of Birth) Present Office with the Acquired Year First Became an Officer/1/
-------------------- Trust; Principal Occupation or -------------------------------
Employment
----------
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mark S. Casady (9/21/60) President; Managing Director, 1998
Scudder Kemper; formerly,
Institutional sales Manager of an
unaffiliated mutual fund
distributor.
---------------------------------------------------------------------------------------------------------
Philip J. Collora (11/15/45) Vice President and Secretary; 1986
Attorney, Senior Vice
President, Scudder Kemper
---------------------------------------------------------------------------------------------------------
Thomas W. Littauer (4/26/55) Vice President; Managing 1998
Director, Scudder Kemper, Head of
Broker Dealer Division of an
unaffiliated investment
management firm during 1997;
prior thereto, President of
Client Management Services of an
unaffiliated investment
management firm from 1991 to 1996.
---------------------------------------------------------------------------------------------------------
Frank J. Rachwalski, Jr. Vice President; Managing 1984
(3/26/45) Director, Scudder Kemper.
---------------------------------------------------------------------------------------------------------
Kathryn L. Quirk (12/3/52) Vice President; Managing 1998
Director, Scudder Kemper.
---------------------------------------------------------------------------------------------------------
Richard L. Vandenberg (11/16/49) Vice President; Managing 1997
Director, Scudder Kemper;
formerly, Executive Vice
President and Senior Portfolio
---------------------------------------------------------------------------------------------------------
</TABLE>
_____________________
/1/ The President, Treasurer and Secretary each holds office until the first
meeting of Trustees in each calendar year and until his or her successor
has been duly elected and qualified, and all other offices hold office as
the Trustees permit in accordance with the By-laws of the Acquired Trust.
7
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manager with an unaffiliated
investment management firm.
---------------------------------------------------------------------------------------------------------
Linda J. Wondrack (9/12/64) Vice President; Senior Vice 1998
President, Scudder Kemper.
---------------------------------------------------------------------------------------------------------
John R. Hebble (6/27/58) Treasurer; Senior Vice President, 1998
Scudder Kemper.
---------------------------------------------------------------------------------------------------------
Brenda Lyons (2/21/63) Assistant Treasurer; Senior Vice 1998
President, Scudder Kemper.
---------------------------------------------------------------------------------------------------------
Maureen E. Kane (2/14/62) Assistant Secretary; Vice 1998
President, Scudder Kemper;
formerly, Assistant Vice
President of an unaffiliated
investment management firm; prior
thereto, Associate Staff Attorney
of an unaffiliated investment
management firm, and Associate,
Peabody & Arnold (law firm).
---------------------------------------------------------------------------------------------------------
Caroline Pearson (4/1/62) Assistant Secretary; Senior Vice 1998
President, Scudder Kemper;
formerly, Associate, Dechert
Price & Rhoads (law firm) from
1989-1997.
---------------------------------------------------------------------------------------------------------
</TABLE>
Compensation of Trustees and Officers
The Fund pays the Independent Trustees a monthly retainer and an attendance
fee, plus expenses, for each Board meeting and committee meeting attended. As
reflected below, the Trustees currently serve as board members of various other
Kemper Funds. Scudder Kemper supervises the Fund's investments, pays the
compensation and expenses of its personnel who serve as Trustees and officers on
behalf of the Fund and receives a management fee for its services. Several of
the officers and Trustees are also officers, directors, employees or
stockholders of Scudder Kemper and participate in the fees paid to that firm,
although the Fund makes no direct payments to them.
To facilitate the restructuring of the boards of the Kemper Funds, certain
Independent Trustees agreed not to stand for re-election. Independent Trustees
of the Acquired Trust are not entitled to benefits under any pension or
retirement plan. However, the Board of each Kemper Fund determined that,
particularly given the benefits that would accrue to the Kemper Funds from the
restructuring of the boards, it was appropriate to provide the four Independent
Trustees who were not standing for re-election for various Kemper Funds a one-
time benefit. The cost of such benefit is being allocated among all the Kemper
Funds, with Scudder Kemper agreeing to bear one-half of the cost of such
benefit, given that Scudder Kemper also benefits from administrative
efficiencies of a consolidated board. Mr. Jones, an Independent Trustee of the
Acquired Trust who is not standing for re-election, will receive such a one-time
benefit. The amount received on behalf of each fund for which he serves as a
trustee ranges from $1,071 to $8,078.
The following Compensation Table provides in tabular form the following
data:
8
<PAGE>
Column (1) All Trustees who receive compensation from the Fund.
Column (2) Aggregate compensation received by each Trustee from the Fund
during calendar year 2000.
Column (3) Total compensation received by each Trustee from funds advised
by Scudder Kemper (collectively, the "Fund Complex") during calendar year 2000.
Compensation Table
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Aggregate Compensation Total Compensation From
Name of Trustee from Fund Fund Complex/(2)//(3)/
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
John W. Ballantine $ [ ] $ [ ]
---------------------------------------------------------------------------------------------------------
Lewis A. Burnham $ [ ] $ [ ]
---------------------------------------------------------------------------------------------------------
Donald L. Dunaway/(1)/ $ [ ] $ [ ]
---------------------------------------------------------------------------------------------------------
Robert B. Hoffman $ [ ] $ [ ]
---------------------------------------------------------------------------------------------------------
Donald R. Jones $ [ ] $ [ ]
---------------------------------------------------------------------------------------------------------
Shirley D. Peterson $ [ ] $ [ ]
---------------------------------------------------------------------------------------------------------
William P. Sommers $ [ ] $ [ ]
---------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ Includes deferred fees. Pursuant to deferred compensation agreements with
the Fund, deferred amounts accrue interest monthly at a rate equal to the yield
of Zurich Money Funds -- Zurich Money Market Fund. Total deferred fees
(including interest thereon) payable from the Fund to Mr. Dunaway are $_______.
/(2)/ Includes compensation for service on the boards of [ ] Kemper
trusts/corporations comprised of [ ] funds. Each trustee currently serves on the
boards of [ ] Kemper trusts/corporations comprised of [ ] funds.
/(3)/ Aggregate compensation does not reflect amounts paid to the Trustees for
special meetings in connection with the Scudder Kemper restructuring initiative.
Such amounts totaled $_______, $_______, $_______, $_______, $_______, $_______
and $_______ for Messrs. Ballantine, Burnham, Dunaway, Hoffman, Jones, Sommers
and Ms. Peterson, respectively.
The Board of Trustees unanimously recommends
that the shareholders of the Fund vote FOR each nominee.
PROPOSAL 2: APPROVAL OF AGREEMENT
AND PLAN OF REORGANIZATION
I. SYNOPSIS
Introduction
The Board of Trustees, including all of the Independent Trustees, approved
the Plan at a meeting held on November 29, 2000. Subject to its approval by the
shareholders of the Fund, the Plan provides for (a) the transfer of all or
substantially all of the assets and all of the liabilities of the Fund to Kemper
9
<PAGE>
U.S. Government Securities Fund in exchange for Class A, Class B and Class C
shares of Kemper U.S. Government Securities Fund; (b) the distribution of such
shares to the shareholders of the Fund in complete liquidation of the Fund; and
(c) the termination of the Fund. As a result of the Reorganization, each
shareholder of the Fund will become a shareholder of Kemper U.S. Government
Securities Fund, a fund with similar investment characteristics and managed by
the same investment manager as the Fund. Immediately after the Reorganization,
each shareholder of the Fund will hold shares of the class of shares of Kemper
U.S. Government Securities Fund that corresponds to the class of shares of the
Fund held by that shareholder on the Valuation Date, having an aggregate net
asset value equal to the aggregate net asset value of such shareholder's shares
of the Fund on the Valuation Date.
Scudder Kemper is the investment manager of both Funds. If the
Reorganization is completed, the Fund's shareholders will continue to enjoy all
of the same shareholder privileges as they currently enjoy, such as access to
professional service representatives, exchange privileges and automatic dividend
reinvestment. Services provided to the Class A, Class B and Class C shareholders
of Kemper U.S. Government Securities Fund following the Reorganization will be
identical to those currently provided to shareholders of the corresponding class
of the Fund. See "Purchase, Redemption and Exchange Information."
Background of the Reorganization
The Reorganization is part of a broader restructuring program to respond to
changing industry conditions and investor needs. The mutual fund industry has
grown dramatically over the last ten years. During this period of rapid growth,
investment managers expanded the range of fund offerings that are available to
investors in an effort to meet the growing and changing needs and desires of an
increasingly large and dynamic group of investors. With this expansion has come
increased complexity and competition among mutual funds, as well as the
potential for increased confusion among investors. The group of funds advised by
Scudder Kemper has followed this pattern.
As a result, Scudder Kemper has sought ways to restructure and streamline
the management and operations of the funds it advises by consolidating all of
the retail mutual funds that it currently sponsors into a single product line
offered under the "Scudder" name. Scudder Kemper believes, and has advised the
boards, that further reducing the number of funds it advises and adding the
classes of shares currently offered on all Kemper Funds to the Scudder Funds
will benefit fund shareholders. Scudder Kemper has, therefore, proposed the
combination of many Scudder Funds and Kemper Funds that have similar or
compatible investment objectives and policies. Scudder Kemper believes that the
larger funds, along with the fewer number of funds, that result from these
combinations may help to enhance investment performance and increase efficiency
of operations. The restructuring program will not result in any changes in the
shareholder services currently offered to shareholders of the Kemper Funds.
Most of the Scudder Funds have recently adopted a new fee structure for
certain administrative services. Under this fee structure, in exchange for
payment by a fund of a single administrative fee rate, Scudder Kemper provides
or pays for substantially all services that the fund normally requires for its
operations, other than those provided under the fund's investment management
agreement and certain other expenses. This administrative fee enables investors
to determine with greater certainty the expense level that a fund will
experience, and, for the term of the administration agreement, transfers
substantially all of the risk of increased costs to Scudder Kemper. Likewise,
Scudder Kemper receives all of the benefits of economies of scale from increases
in asset size
10
<PAGE>
or decreased operating expenses. As part of the restructuring effort, Scudder
Kemper has proposed extending this administrative fee structure to those funds
currently offered under the Kemper name.
The fund consolidations and the consolidation of the boards currently
overseeing the Kemper Funds (see Proposal 1 above) are expected to have a
positive impact on Scudder Kemper, as well. These changes are likely to result
in reduced costs (and the potential for increased profitability) for Scudder
Kemper in advising or servicing funds.
Reasons for the Proposed Reorganization; Board Approval
Since receiving Scudder Kemper's proposals on May 24, 2000, the Independent
Trustees have conducted a thorough review of all aspects of the proposed
restructuring program. They have been assisted in this regard by their
independent counsel and by independent consultants with special expertise in
financial and mutual fund industry matters. In the course of discussions with
representatives of Scudder Kemper, the Independent Trustees have requested, and
Scudder Kemper has accepted, numerous changes designed to protect and enhance
the interests of shareholders. See "The Proposed Transaction - Board Approval of
the Proposed Transaction" below.
In determining whether to recommend that the shareholders of the Fund
approve the Reorganization, the Board of Trustees considered that:
. The combined fund would be subject to the lower fee schedule of the
two Funds' investment advisory agreements.
. The fixed rate under the new Administration Agreement (after waivers)
is expected to be equal to or less than the estimated current
applicable operating expenses the Fund would otherwise pay.
. It is a condition of the Reorganization that each Fund receive an
opinion of tax counsel that the transaction would be a tax-free
transaction.
. Although the Fund agreed to pay the estimated costs of the
Reorganization allocated to Class A and Class B shares and a portion
of the estimated costs of the Reorganization allocated to Class C
shares, management has estimated that such allocated costs will be
recoverable from lower overall expense rates within six months of
completion of the Reorganization. Scudder Kemper agreed to pay a
portion of the estimated costs of the Reorganization allocated to
Class C shares and all of the costs of the Reorganization that exceed
estimated costs.
For these reasons, as more fully described below under "The Proposed
Transaction -- Board Approval of the Proposed Transaction," the Board of
Trustees, including the Independent Trustees, has concluded that:
. the Reorganization is in the best interests of the Fund and its
shareholders; and
. the interests of the existing shareholders of the Fund will not be
diluted as a result of the Reorganization.
11
<PAGE>
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 U.S. Government Securities Fund. Please be aware that
this is only a summary. More complete information may be found in the Funds'
prospectuses.
The investment objectives, policies and restrictions of the Funds are
similar. Some differences do exist. The investment objective of Kemper U.S.
Government Securities Fund is to seek high current income, liquidity and
security of principal. The investment objective of the Fund is to seek to
provide maximum current return from U.S. government securities. There can be no
assurance that either Fund will achieve its investment objective.
Kemper U.S. Government Securities Fund normally invests all of its assets
in securities issued by the U.S. government, its agencies or instrumentalities.
The Fund normally invests at least 65% of its total assets in mortgage-backed
securities issued by the U.S. government, it agencies and instrumentalities.
Kemper U.S. Government Securities Fund focuses on Ginnie Maes but may also
invest in other mortgage-backed securities issued by government issuers and U.S.
Treasuries. The Fund invests in securities issued by Ginnie Mae, Fannie Mae and
Freddie Mac and may also invest in U.S. Treasury securities.
Both Funds have the same portfolio management teams and are managed in a
similar manner. In deciding which types of securities to buy and sell for Kemper
U.S. Government Securities Fund, the Investment Manager first considers the
relative attractiveness of Treasuries compared to other U.S. government and
agency securities and determines allocations for each. In deciding which types
of securities to buy and sell for the Fund, the Investment Manager first
considers the relative attractiveness of mortgage-backed securities compared to
U.S. Treasuries and decides on allocations for each. The Investment Manager's
decisions with respect to each Fund generally are based on a number of factors,
including changes in supply and demand within the bond market and interest rate
outlooks. The Investment Manager may adjust the duration (a measure of
sensitivity to interest rate movements) of each Fund's portfolio, depending on
its outlook for interest rates. Currently the average duration of each Fund's
portfolio is approximately the same.
In choosing individual bonds for each Fund, the Investment Manager reviews
each bond's fundamentals, compares the yields of shorter maturity bonds to those
of longer maturity bonds and uses technical analysis to project prepayment rates
and other factors that could affect a bond's attractiveness. The securities in
which each Fund primarily invests are generally considered to be among the very
highest quality securities.
The Funds' fundamental investment restrictions, as set forth under
"Investment Restrictions" in each Fund's statement of additional information,
are identical. Fundamental investment restrictions may not be changed without
the approval of Fund shareholders. The Funds' non-fundamental investment
restrictions (which may be changed by the Board without shareholder approval),
as set forth under "Investment Restrictions" in each Fund's statement of
additional information, are identical, except that Kemper U.S. Government
Securities Fund may not lend portfolio securities in an amount greater than 5%
12
<PAGE>
of its total assets, while the Fund may not lend portfolio securities in an
amount greater than one third of its total assets. Investors should refer to
each Fund's statement of additional information for more detailed description of
the Fund's investment policies and restrictions.
Portfolio Turnover
The portfolio turnover rate for Kemper U.S. Government Securities 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 October 31, 2000 was 199%. The portfolio
turnover rate for the Fund for the fiscal year ended September 30, 2000 was
221%. A higher portfolio turnover rate involves greater brokerage and
transaction expenses to a fund and may result in the realization of net capital
gains, which would be taxable to shareholders when distributed.
Comparative Considerations
The portfolio characteristics of the combined Fund after the Reorganization
will reflect the blended characteristics of the Fund and Kemper U.S. Government
Securities Fund. The following characteristics are as of ____, 2000 for both
Funds and also reflect the blended characteristics of both Funds after the
Reorganization as of that same date.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Yield(1) Avg. Avg. Portfolio Composition
Maturity Duration
(Years)(2) (Years)(2)
---------------------------------------------------
% in GNMA % in FNMA/ % in % in Cash
FHLMC Treasuries
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund
Kemper U.S.
Government
Securities Fund
Pro Forma
(Combined)
--------------------------------------------------------------------------------------------------------
</TABLE>
(1) The yield provided for the Fund represents the yield for its Class A shares
and the yield provided for Kemper U.S. Government Securities Fund represents the
yield for its Class [A] shares, for the 30 days ended ____________, 2000. The
yield is computed by dividing the net investment income per share earned during
a specified one month or 30-day period by the maximum offering price per share
on the last day of the period. In the case of the Class [A] shares of Kemper
U.S. Government Securities Fund, the maximum offering price was calculated using
the up-front sales charge [and the current expense ratio] applicable to the
Fund's Class A shares. The pro forma yield reflects the Class A shares up-front
sales charge and estimated expense ratio of the combined Fund, giving effect to
the Reorganization, and, therefore, is not necessarily indicative of the actual
yield to any particular shareholder. The yield for other classes of shares would
vary.
(2) Both dollar-weighted average maturity and duration reflect the sensitivity
of a Fund to interest rate fluctuations. The average dollar-weighted maturity of
a Fund is the dollar-weighted average of the stated maturities of all debt
instruments held by the Fund. Duration is the weighted present value of
principal and interest payments expressed in years and may more accurately
measure a Fund's sensitivity to incremental changes in interest rates than
average maturity. Other factors being equal (e.g., portfolio quality), a Fund
with a longer maturity and duration reacts more strongly to interest rate
changes than a Fund with a shorter maturity and duration. For example, a Fund
with a duration of five (5) years is expected to experience a price decrease of
roughly five percent (5%) for each percent increase in interest rates while a
comparable Fund with a duration of four (4) years is expected to experience a
price decrease of roughly four percent (4%) for the same change in interest
rates.
(3) Reflects the blended characteristics of the Fund and Kemper U.S. Government
Securities Fund as of ______________, 2000.
Performance
13
<PAGE>
The following table shows how the returns of the Fund and Kemper U.S.
Government Securities 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]
For management's discussion of Kemper U.S. Government Securities Fund's
performance for the fiscal year ended October 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. 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 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 October 31, 2000, Kemper U.S. Government Securities Fund had total net
assets of $2,576,510,811. For the fiscal year ended October 31, 2000, Kemper
U.S. Government Securities Fund paid the Investment Manager a fee of 0.42% of
its average daily net assets. As of September 30, 2000, the Fund had total net
assets of $1,472,294,592. For the fiscal year ended September 30, 2000, the Fund
paid the Investment Manager a fee of 0.52% of its average daily net assets.
Based upon each Fund's average net assets for the twelve months ended September
30, 2000, the effective advisory fee rate for Kemper U.S. Government Securities
Fund after the Reorganization would be 0.41% of average daily net assets.
The fee schedule for the combined fund after the Reorganization will be
identical to the current fee schedule for Kemper U.S. Government Securities
Fund. Currently the fee schedules for the Fund and Kemper U.S. Government
Securities Fund are as follows:
--------------------------------------------------------------------------------
Fund Kemper U.S. Government Securities Fund
--------------------------------------------------------------------------------
Average Daily Net Assets Fee Rate Average Daily Net Assets Fee Rate
------------------------ -------- ------------------------ --------
First $250 million 0.55% First $250 million 0.45%
$250 million - $1 billion 0.52% $250 million - $1 billion 0.43%
$1 billion - $2.5 billion 0.50% $1 billion - $2.5 billion 0.41%
$2.5 billion - $5 billion 0.48% $2.5 billion - $5 billion 0.40%
$5 billion - $7.5 billion 0.45% $5 billion - $7.5 billion 0.38%
$7.5 billion - $10 billion 0.43% $7.5 billion - $10 billion 0.36%
$10 billion - $12.5 billion 0.41% $10 billion - $12.5 billion 0.34%
Over $12.5 billion 0.40% Over $12.5 billion 0.32%
--------------------------------------------------------------------------------
14
<PAGE>
Administrative Fee
On the date of Closing, Kemper U.S. Government Securities 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 U.S.
Government Securities Fund (other than those provided by Scudder Kemper under
its investment management agreement with that Fund) in exchange for the payment
by Kemper U.S. Government Securities Fund of an annual administrative services
fee (the "Administrative Fee") equal to 0.200%, 0.250% and 0.175% of average
daily net assets attributable to the Class A, Class B and Class C shares,
respectively (after giving effect to a contractual waiver for Class A, Class B
and Class C shares of 0.125%, 0.125% and 0.175%, respectively). In addition,
Scudder Kemper has agreed to waive an additional 0.004% of the Administrative
Fee for Class A shares of Kemper U.S. Government Securities Fund for a period of
one year following the date of the Closing. The fees for the services provided
by Kemper Distributors, Inc. ("KDI") under its current services agreement and
underwriting and distribution services agreement with Kemper U.S. Government
Securities Fund are not covered by, and are in addition to, the Administrative
Fee. One effect of this arrangement is to make Kemper U.S. Government Securities
Fund's future expense ratio more predictable. On the other hand, the
administrative fee rate will not decrease with economies of scale from increases
in asset size or decreased operating expenses. The details of this arrangement
(including expenses that are not covered) are set out below.
Various service providers (the "Service Providers"), some of which are
affiliated with Scudder Kemper, provide certain services to Kemper U.S.
Government Securities Fund pursuant to separate agreements. Scudder Fund
Accounting Corporation, a subsidiary of Scudder Kemper, computes net asset value
for Kemper U.S. Government Securities Fund and maintains its accounting records.
State Street Bank and Trust Company ("State Street") is the transfer agent and
dividend-paying agent for the Kemper U.S. Government Securities Fund. Pursuant
to a services agreement with State Street, Kemper Service Company, an affiliate
of Scudder Kemper, serves as "Shareholder Service Agent" of such Fund, and as
such, performs all of State Street's duties as transfer agent and dividend
paying agent. As custodian, State Street holds the portfolio securities of
Kemper U.S. Government Fund, pursuant to a custodian agreement. Other Service
Providers include the independent public accountants and legal counsel for
Kemper U.S. Government Securities Fund.
Once the Administration Agreement becomes effective, each Service Provider
will continue to provide the services to Kemper U.S. Government Securities Fund
described above, except that Scudder Kemper will pay these entities for the
provision of their services to Kemper U.S. Government Securities Fund and will
pay most other fund expenses, including insurance, registration, printing and
postage fees. In return, Kemper U.S. Government Securities Fund will pay Scudder
Kemper the Administrative Fee.
The Administration Agreement will remain in effect with respect to the
Class A, Class B and Class C shares for an initial term ending September 30,
2003, subject to earlier termination by the trustees that oversee Kemper U.S.
Government Securities Fund. The fee payable by Kemper U.S. Government Securities
Fund to Scudder Kemper pursuant to the Administration Agreement would be reduced
by the amount of any credit received from Kemper U.S. Government Securities
Fund's custodian for cash balances.
Certain expenses of Kemper U.S. Government Securities 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
15
<PAGE>
independent counsel). Kemper U.S. Government Securities Fund will continue to
pay the fees required by its investment management agreement with Scudder
Kemper. In addition, it will pay the fees under its services agreement and
underwriting and distribution services agreement with KDI, as described in
"Distribution and Service Fees" below.
Comparison of Expenses
The tables and examples below are designed to assist you in understanding
the various costs and expenses that you will bear directly or indirectly as an
investor in the Class A, Class B and Class C shares of Kemper U.S. Government
Securities Fund, and compares these with the expenses of the Fund. As indicated
below, it is expected that the total expense ratio of Class A and Class B of
Kemper U.S. Government Securities Fund following the Reorganization will be
lower than the current expense ratio of the comparable class of the Fund. In
addition, the expense ratio of Class C of Kemper U.S. Government Securities Fund
is expected to be lower, after giving effect to expense waivers, than the
current expense ratio of Class C 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 September 30, 2000 and on a pro forma basis as of that
date and for the twelve month period then ended, assuming the Reorganization had
been in effect for the period.
Expense Comparison Table
Class A Shares
<TABLE>
<CAPTION>
Kemper U.S.
Government
Securities Pro Forma
Fund Fund Combined(1)
---- ---- --------
Shareholder Fees
----------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases 4.50% 4.50% 4.50%
(as % of offering price)
Maximum Contingent Deferred Sales Charge (Load) None None None
(as % of redemption proceeds)(2)
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 0.52% 0.42% 0.41%
Rule 12b-1/ASF Fees 0.24% 0.22% 0.22%
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C>
Other Expenses 0.21% 0.18% 0.33%
Total Annual Fund Operating Expenses 0.97% 0.82% 0.96%
Expense Waiver -- -- 0.13%
Net Annual Fund Operating Expenses 0.97% 0.82% 0.83%(4)
Expense Example of Total Operating
----------------------------------
Expenses at the End of the Period(3)
---------------------------------
One Year $ 545 $ 530 $ 531
Three Years $ 745 $ 700 $ 730
Five Years $ 962 $ 885 $ 945
Ten Years $1,586 $1,418 $1,564
</TABLE>
________________
Notes to Expense Comparison Table:
----------------------------------
(1) The Pro Forma column reflects expenses estimated for the Reorganized Fund
subsequent to the Reorganization and reflects the effect of the
Reorganization, including the implementation of the Administration
Agreement.
(2) Class A shares purchased under the Large Order NAV Purchase Privilege have
a 1% contingent deferred sales charge for shares sold during the first year
after purchase and .50% for the second year after purchase.
(3) 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.
(4) By contract, Scudder Kemper has agreed to waive 0.125% of the
Administrative Fee for Class A shares until September 30, 2003, the initial
term of the Administration Agreement. In addition, Scudder Kemper has
agreed to waive an additional 0.004% of the Administrative Fee for Class A
shares for a period of one year following the date of the Closing.
Expense Comparison Table
Class B Shares
<TABLE>
<CAPTION>
Kemper U.S.
Government
Securities Pro Forma
Fund Fund Combined(1)
---- ---- --------
Shareholder Fees
----------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on None None None
Purchases (as % of offering price)
Maximum Contingent Deferred Sales Charge 4.00% 4.00% 4.00%
(Load) (as % of redemption proceeds)(2)
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C> <C>
Maximum Deferred Sales Charge (Load) None None None
imposed on reinvested dividends
Redemption Fee (as a percentage of amount None None None
redeemed, if applicable)
Annual Fund Operating Expenses (unaudited)
------------------------------
(as a % of average net assets)
------------------------------
Management Fees .52% .42% .41%
Rule 12b-1/ASF Fees 1.00% 1.00% 1.00%
Other Expenses 0.32% 0.35% 0.38%
Total Annual Fund Operating Expenses 1.84% 1.77% 1.79%
Expense Waiver -- -- 0.13%
Net Annual Fund Operating Expenses 1.84% 1.77% 1.66%(4)
Expense Example of Total Operating
----------------------------------
Expenses Assuming Redemption at the
-----------------------------------
End of the Period(3)
-----------------
One Year $ 587 $ 580 $ 569
Three Years $ 879 $ 857 $ 851
Five Years $1,195 $1,159 $1,158
Ten Years $1,721 $1,601 $1,674
Expense Example of Total Operating
----------------------------------
Expenses Assuming No Redemption at the
--------------------------------------
End of the Period(3)
-----------------
One Year $ 187 $ 180 $ 169
Three Years $ 579 $ 557 $ 551
Five Years $ 995 $ 959 $ 958
Ten Years $1,721 $1,601 $1,674
</TABLE>
___________
Notes to Expense Comparison Table:
----------------------------------
(1) The Pro Forma column reflects expenses estimated for the Reorganized Fund
subsequent to the Reorganization and reflects the effect of the
Reorganization, including the implementation of the Administration
Agreement.
18
<PAGE>
(2) Contingent deferred sales charges on Class B shares during the first six
years of ownership are 4% in the first year, 3% in the second and third
year, 2% in the fourth and fifth year, and 1% in the sixth year.
(3) Expense examples reflect what an investor would pay on a $10,000
investment, assuming a 5% annual return, the reinvestment of all dividends
and total operating expenses remain the same. Assumes conversion to Class
A shares six years after purchase.
(4) By contract, Scudder Kemper has agreed to waive 0.125% of the
Administrative Fee for Class B shares until September 30, 2003, the initial
term of the Administration Agreement.
Expense Comparison Table
Class C Shares
<TABLE>
<CAPTION>
Kemper U.S.
Government
Securities Pro Forma
Fund Fund Combined(1)
---- ---- --------
<S> <C> <C> <C>
Shareholder Fees
----------------
Maximum Sales Charge (Load) Imposed on Purchases None None None
(as % of offering price)
Maximum Contingent Deferred Sales Charge (Load) 1.00% 1.00% 1.00%
(as % of redemption proceeds)(2)
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 .52% .42% .41%
Rule 12b-1/ASF Fees 1.00% 1.00% 1.00%
Other Expenses 0.09% 0.25% 0.35%
Total Annual Fund Operating Expenses 1.61% 1.67% 1.76%
Expense Waiver -- -- 0.18%
Net Annual Fund Operating Expenses 1.61% 1.67% 1.58%(4)
</TABLE>
19
<PAGE>
Expense Example of Total Operating
----------------------------------
Expenses Assuming Redemption at the End of
------------------------------------------
the Period(3)
----------
One Year $ 264 $ 270 $ 261
Three Years $ 508 $ 526 $ 537
Five Years $ 876 $ 907 $ 937
Ten Years $1,911 $1,976 $2,058
Expense Example of Total Operating
----------------------------------
Expenses Assuming No Redemption at the
--------------------------------------
End of the Period(3)
-----------------
One Year $ 164 $ 170 $ 161
Three Years $ 508 $ 526 $ 537
Five Years $ 876 $ 907 $ 937
Ten Years $1,911 $1,976 $2,058
___________
Notes to Expense Comparison Table:
----------------------------------
(1) The Pro Forma column reflects expenses estimated for the Reorganized Fund
subsequent to the Reorganization and reflects the effect of the
Reorganization, including the implementation of the Administration
Agreement.
(2) Contingent deferred sales charge on Class C shares is 1% for shares sold
during the first year after purchase.
(3) 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.
(4) By contract, Scudder Kemper has agreed to waive 0.175% of the
Administrative Fee for Class C shares until September 30, 2003, the initial
term of the Administration Agreement.
Financial Highlights
The financial highlights table for Kemper U.S. Government Securities Fund,
which is intended to help you understand Kemper U.S. Government Securities
Fund's financial performance for the past five years, is included in Kemper U.S.
Government Securities Fund's prospectus dated January 1, 2001, which is included
in the materials that have been provided to you with this document.
Distribution and Services Fees
Pursuant to an underwriting and distribution services agreement with Kemper
U.S. Government Securities Fund, KDI, 222 South Riverside Plaza, Chicago,
Illinois 60606, an affiliate of the Investment Manager, will act as the
principal underwriter and distributor of the Class A, Class B and Class C shares
of that Fund and will act as agent of the Fund in the continuing offer of such
shares. Kemper U.S. Government Securities Fund has adopted distribution
plans on behalf of the Class A, Class B and Class C shares in accordance with
Rule 12b-1 under the 1940 Act that are substantially identical to the existing
distribution plans adopted by the Fund, with one exception. As under the current
distribution plans for the Fund, Kemper
20
<PAGE>
U.S. Government Securities Fund pays KDI an asset-based fee at an annual rate of
0.75% of Class B and Class C shares. The distribution plans for Kemper U.S.
Government Securities Fund, however, unlike the distribution plans for the Fund,
also authorize the payment to KDI of the 0.25% services fee with respect to the
Class A, Class B and Class C shares pursuant to the services agreement described
below. Neither KDI nor the Trustees of the Fund believe that the services
performed by KDI under the services agreement have been primarily intended to
result in sales of fund shares (i.e., "distribution" services) as defined in
Rule 12b-1, but rather are post-sale administrative and other services provided
to existing shareholders. Nonetheless, to avoid legal uncertainties due to the
ambiguity of the language contained in Rule 12b-1 and eliminate any doubt that
may arise in the future regarding whether the services performed by KDI under
the services agreement are "distribution" services, the distribution plans for
Kemper U.S. Government Securities Fund authorize the payment of the services
fee. The fact that the services fee is authorized by Kemper U.S. Government
Securities Fund's distribution plans does not change the fee rate or affect the
nature or quality of the services provided by KDI.
Pursuant to the services agreement with Kemper U.S. Government Securities
Fund, which is substantially identical to the current services agreement with
the Fund, KDI receives a services fee of up to 0.25% per year with respect
to the Class A, Class B and Class C shares. KDI uses the services fee to
compensate financial services firms ("firms") for providing personal services
and maintenance of accounts for their customers that hold those classes of
shares of Kemper U.S. Government Securities Fund, and may retain any portion of
the fee not paid to firms to compensate itself for administrative functions
performed for the Fund. All fee amounts are payable monthly and are based on
the average daily net assets of each Fund attributable to the relevant class of
shares.
Purchases, Exchanges, and Redemptions
Both Funds are part of the Scudder Kemper complex of mutual funds. The
procedures for purchases, exchanges, and redemptions of Class A, Class B and
Class C shares of Kemper U.S. Government Securities Fund are identical to those
of the Fund. Shares of Kemper U.S. Government Securities Fund are exchangeable
for shares of the same class of most other open-end funds advised by Scudder
Kemper offering such shares.
Corresponding classes of shares of Kemper U.S. Government Securities Fund
have identical sales charges to those of the Fund. Kemper U.S. Government
Securities Fund has a maximum initial sales charge of 4.50% on Class A shares.
Shareholders who purchase $1 million or more of Class A shares pay no initial
sales charge but may have to pay a contingent deferred sales charge (a "CDSC")
of up to 1% if the shares are sold within 2 years of the date on which they were
purchased. Class B shares are sold without a front-end sales charge, but may be
subject to a CDSC upon redemption, depending on the length of time the shares
are held. The CDSC begins at 4% for shares sold in the first year, declines to
1% in the sixth year and is eliminated after the sixth year. After six years,
Class B shares automatically convert to Class A shares. Class C shares are sold
without a front-end sales charge, but may be subject to a CDSC of up to 1% if
the shares are sold within one year of purchase.
Class A, Class B and Class C shares of Kemper U.S. Government Securities
Fund received in the Reorganization will be issued at net asset value, without a
sales charge, and no CDSC will be imposed on any shares of the Fund exchanged
for shares of Kemper U.S. Government Securities Fund as a result of the
Reorganization. However, following the Reorganization, any CDSC that applies to
shares of the Fund will continue to apply to shares of Kemper U.S. Government
Securities Fund received in the
21
<PAGE>
Reorganization, using the original purchase date for such shares to calculate
the holding period, rather than the date such shares are received in the
Reorganization.
Services available to shareholders of Class A, Class B and Class C shares
of Kemper U.S. Government Securities Fund will be identical to those available
to shareholders of the corresponding classes of the Fund and include the
purchase and redemption of shares through an automated telephone system and over
the Internet, telephone redemptions, and exchanges by telephone to most other
Scudder Kemper funds that offer Class A, Class B and Class C shares, and
reinvestment privileges. Please see Kemper U.S. Government Securities Fund's
prospectus for additional information.
Dividends and Other Distributions
Each Fund intends to declare dividends from its net investment income
and distribute them monthly. Each Fund intends to distribute net realized
long-term capital gains in December, or otherwise as needed. 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
Officers.
The officers of the Fund and Kemper U.S. Government Securities Fund
are nearly identical, with the one exception being that Frank J. Rachwalski
is not an officer of Kemper U.S. Government Securities Fund. (See Proposal
1 and the Statement of Additional Information for further information.)
Fiscal Year.
The Fund's fiscal year-end is September 30. Kemper U.S. Government
Securities Fund's fiscal year-end is October 31.
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."
* * *
22
<PAGE>
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 U.S. Government Securities Fund are
similar to those presented by the Fund. The main risks applicable to each Fund
include, among others, risk associated with interest rates, risk associated with
credit quality and management risk (i.e., securities selection by the Investment
Manager). An increase in a Fund's duration would make the Fund more sensitive
to interest rate risk. In addition, if interest rates drop significantly,
holders of mortgages represented by mortgage-backed securities are more likely
to refinance, thus prepaying their obligations and potentially forcing a Fund,
to the extent that it invests in mortgage-backed securities, to reinvest in
securities that pay lower interest rates. Some securities issued by U.S.
government agencies or instrumentalities are supported only by the credit of
that agency or instrumentality. There is no guarantee that the U.S. government
will provide support to such agencies or instrumentalities and such securities
may involve risk of loss of principal and interest. Lastly, the Funds are not
insured or guaranteed by the FDIC or any other government agency. Share prices
will go up and down, so be aware that you could lose money.
For a further discussion of the investment techniques and risk factors
applicable to Kemper U.S. Mortgage Fund and the Fund, see "Investment
Objectives, Policies and Restrictions of the Funds" herein, and the prospectuses
and statements of additional information for the Funds.
III. THE PROPOSED TRANSACTION
Description of the Plan
As stated above, the Plan provides for the transfer of all or substantially
all of the assets of the Fund to Kemper U.S. Government Securities Fund in
exchange for that number of full and fractional Class A, Class B and Class C
shares having an aggregate net asset value equal to the aggregate net asset
value of the shares of the corresponding classes of the Fund as of the close of
business on the Valuation Date. Kemper U.S. Government Securities Fund will
assume all of the liabilities of the Fund. The Fund will distribute the Class
A, Class B and Class C shares received in the exchange to the shareholders of
the 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 A, Class B and Class C Shares
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares of the corresponding class held in the Fund as of the
close of business on the Valuation Date. Such shares will be held in an account
with Kemper U.S. Government Securities Fund identical in all material respects
to the account currently maintained by the Fund for such shareholder. In the
interest of economy and convenience, Class A, Class B and Class C shares issued
to the Fund's shareholders in the Reorganization will be in uncertificated form.
If Class A, Class B or Class C shares of the Fund are represented by
certificates prior to the Closing, such certificates should be returned to the
Fund's shareholder servicing agent. Any Class A, Class B or Class C shares of
Kemper U.S. Government Securities Fund distributed in the Reorganization to
shareholders in exchange
23
<PAGE>
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
requests received after and purchase requests received on or after the Valuation
Date by the transfer agent will be treated as requests received for the
redemption or purchase of Class A, Class B or Class C shares of Kemper U.S.
Government Securities Fund received by the shareholder in connection with the
Reorganization.
The obligations of each Trust on behalf of the respective Funds under the
Plan are subject to various conditions, as stated therein. 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 unforseen 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 U.S. Government Securities Fund to be issued to
the Fund in the Plan to the detriment of the Fund's shareholders without their
approval. For a complete description of the terms and conditions of the
Reorganization, please refer to the Plan at Exhibit A.
Board Approval of the Proposed Transaction
As discussed above, the Reorganization is part of a Scudder Kemper
initiative that is intended to restructure and streamline the management and
operations of the funds Scudder Kemper advises. Scudder Kemper first proposed
the Reorganization to the Trustees of the Fund at a meeting held on May 24,
2000, see "Synopsis--Background of the Reorganization" above. This initiative
includes five major components:
(i) A change in branding to offer virtually all funds advised by Scudder
Kemper under the Scudder Investments name, with a concentration on
intermediary distribution;
(ii) The combination of funds with similar investment objectives and
policies, including in particular the combination of the Kemper Funds
with similar Scudder Funds currently offered to the general public;
(iii) The liquidation of certain small funds which have not achieved market
acceptance and which are unlikely to reach an efficient operating
size;
(iv) The implementation of an administration agreement for the Kemper
Funds similar to that recently adopted by the Scudder Funds covering,
for a single fee rate, substantially all services required for the
operation of the fund (other than those provided under the fund's
investment management agreement) and most expenses; and
24
<PAGE>
(v) The consolidation of certain boards overseeing funds advised by
Scudder Kemper.
The Independent Trustees of the Fund reviewed the potential implications of
these proposals for the Fund as well as the various other funds for which they
serve as board members. They were assisted in this review by their independent
legal counsel and by independent consultants with special expertise in financial
and mutual fund industry matters. Following the May 24th meeting, the
Independent Trustees met in person or by telephone on numerous occasions
(including committee meetings) to review and discuss these proposals, both among
themselves and with representatives of Scudder Kemper, including the
"interested" Trustees. In the course of their review, the Independent Trustees
requested and received substantial additional information and suggested numerous
changes to Scudder Kemper's proposals.
Following the conclusion of this process, the Trustees of the Fund, the
board members of other funds involved and Scudder Kemper reached general
agreement on the elements of a restructuring plan that they believed were in the
best interests of shareholders and, where required, agreed to submit elements of
the plan for approval to shareholders of those funds.
On November 29, 2000, the Board of Trustees, including the Independent
Trustees, unanimously approved the terms of the Reorganization and certain
related proposals. The Trustees have also unanimously agreed to recommend that
the Reorganization be approved by the Fund's shareholders.
In determining whether to recommend that the shareholders of the Fund
approve the Reorganization, the Board of Trustees considered that:
. The combined fund would be subject to the lower fee schedule of the
two Funds' investment advisory agreements.
. The fixed rate under the new Administration Agreement (after waivers)
is expected to be equal to or less than the estimated current
applicable operating expenses the Fund would otherwise pay.
. It is a condition of the Reorganization that each Fund receive an
opinion of tax counsel that the transaction would be a tax-free
transaction.
. Although the Fund agreed to pay the estimated costs of the
Reorganization allocated to Class A and Class B shares and a portion
of the estimated costs of the Reorganization allocated to Class C
shares, management has estimated that such allocated costs will be
recoverable from lower overall expense rates within six months of
completion of the Reorganization. Scudder Kemper agreed to pay a
portion of the estimated costs of the Reorganization allocated to
Class C shares and all of the costs of the Reorganization that exceed
estimated costs.
As part of their deliberations, the Trustees considered, among other
things: (a) the fees and expense ratios of the Funds, including comparisons
between the expenses of the Fund and the estimated operating expenses of Kemper
U.S. Government Securities Fund after the Reorganization, and between the
estimated operating expenses of Kemper U.S. Government Securities Fund and other
mutual funds with similar investment objectives; (b) the terms and conditions of
the Reorganization and whether the Reorganization would result in the dilution
of shareholder interests; (c) the compatibility of the Funds' investment
objectives, policies, restrictions and portfolios; (d) the service features
available to
25
<PAGE>
shareholders of each Fund; (e) prospects for Kemper U.S. Government Securities
Fund to attract additional assets; and (f) the investment performance of each
Fund.
As part of their analysis, the Trustees considered direct and indirect
costs to shareholders including: (a) the direct costs of the Reorganization to
be borne by existing shareholders; (b) the potential costs of any necessary
rebalancing of the Fund's portfolio; and (c) the potential tax consequences to
shareholders as a result of differences in the Funds' realized or unrealized
capital gains or losses and capital loss carry-forwards.
Costs. The anticipated costs of the Reorganization allocable to the
Fund are $674,120, which includes board meeting fees, legal,
accounting and other consultant fees, and proxy solicitation costs.
Class A shares and Class B shares of the Fund will pay $611,440 and
$60,226, respectively, which represents 100% of the estimated costs
allocable to such classes. Class C shares will pay a portion of their
allocable costs of the Reorganization, or $1,561 out of $2,454
(63.6%). Scudder Kemper is bearing the remaining costs , including
any cost overruns (except that Kemper U.S. Government Securities Fund
is bearing the SEC and state registration and notice fees which are
estimated to be $_________).
The costs of the Reorganization borne by the Fund have been (or will
soon be) expensed, resulting in a reduction of net asset value per
share of $0.0028 for Class A shares, $0.0054 for Class B shares and
$0.0035 for Class C shares, based on [ ], 2000 net assets of the
Fund. Management of the Fund expects that reduced operating expenses
resulting from the Reorganization should allow for recovery of the
allocated costs of the Reorganization within six months after the
Closing.
Portfolio Transaction Costs. To consider the potential costs of any
necessary rebalancing of the Fund's portfolio as a result of the
Reorganization, the Independent Trustees asked for, and Scudder Kemper
provided, an estimate of the expected turnover of the securities of
the Fund, as a percentage of the assets of the combined Fund, as a
result of the Reorganization. Scudder Kemper estimated that such
turnover would be 0%, resulting in transaction costs of less than
$0.01 per share of the Fund, which the Trustees considered immaterial.
Potential Tax Consequences. Although the Reorganization will be
achieved on a federally tax-free basis (see "Federal Income Tax
Consequences" below), there are differences in the Funds' realized
or unrealized capital gains or losses and capital loss carry forwards,
which at [ ], 200[ ] were as follows (although they may differ at
the time of the Closing):
[Charts to be inserted]
As noted above, under the terms of the Plan, shareholders of the Fund
will receive shares of Kemper U.S. Government Securities Fund in an
amount equal to the relative net asset value of their Fund shares.
The
26
<PAGE>
Trustees considered whether an adjustment in this formula should be
made for the above tax differentials. The Trustees determined that no
adjustment should be made because the potential tax consequences were
not material, quantifiable or predictable because of (1) uncertainties
as to the amounts of any actual future realization of capital gains or
losses in view of future changes in portfolio values, (2) the
exemption of some shareholders from federal income taxation, and (3)
the differing consequences of federal and various other income
taxation upon a distribution received by each shareholder whose tax
liability (if any) is determined by the net effect of a multitude of
considerations that are individual to the shareholder. Shareholders
should, however, review their own tax situation to determine what
effect, if any, these potential tax differences may have on them.
The Trustees also gave extensive consideration to possible economies of
scale that might be realized by Scudder Kemper in connection with the
Reorganization, as well as the other fund combinations included in Scudder
Kemper's restructuring proposal.
Based on all the foregoing, the Board concluded that the Fund's
participation in the Reorganization would be in the best interests of the Fund
and would not dilute the interests of the Fund's shareholders. The Board of
Trustees, including the Independent Trustees, unanimously recommends that
shareholders of the Fund approve the Reorganization.
Description of the Securities to Be Issued
Kemper U.S. Government Securities Fund is 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, without par value. The Trustees of the Acquiring Trust
are authorized to divide the Acquiring Trust's shares into separate series, but
have not currently created separate series. The Trustees of the Acquiring Trust
are also authorized to further divide the shares of the Acquiring Trust and/or
any series of the Acquiring Trust into classes. The shares of Kemper U.S.
Government Securities Fund are currently divided into four classes, Class A,
Class B, Class C and Class I. Although shareholders of different classes of a
series have an interest in the same portfolio of assets, shareholders of
different classes bear different expense levels because distribution costs and
certain other expenses approved by the Trustees of the Acquiring Trust are borne
directly by the class incurring such expenses.
Each share of each class of Kemper U.S. Government Securities Fund
represents an interest in Kemper U.S. Government Securities Fund that is equal
to and proportionate with each other share of that class of Kemper U.S.
Government Securities Fund. Kemper U.S. Government Securities Fund shareholders
are entitled to one vote per share held on matters on which they are entitled to
vote. In the areas of shareholder voting and the powers and conduct of the
Trustees, there are no material differences between the rights of shareholders
of the Fund and the rights of shareholders of Kemper U.S. Government Securities
Fund.
Federal Income Tax Consequences
27
<PAGE>
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 U.S. Government Securities Fund
of all or substantially all of the assets of the Fund in exchange solely for
Class A, Class B and Class C shares and the assumption by Kemper U.S. Government
Securities 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
U.S. Government Securities 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 U.S. Government Securities Fund in exchange solely
for Class A, Class B and Class C shares and the assumption by Kemper U.S.
Government Securities Fund of all of the liabilities of the Fund or upon the
distribution of the Class A, Class B and Class C shares to shareholders of the
Fund in exchange for their shares of the Fund; (iii) the basis of the assets of
the Fund in the hands of Kemper U.S. Government Securities 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 U.S.
Government Securities Fund will include the period during which such assets were
held by the Fund; (v) no gain or loss will be recognized by Kemper U.S.
Government Securities Fund upon the receipt of the assets of the Fund in
exchange for Class A, Class B and Class C shares and the assumption by Kemper
U.S. Government Securities Fund of all of the liabilities of the Fund; (vi) no
gain or loss will be recognized by the shareholders of the Fund upon the receipt
of the Class A, Class B and Class C shares solely in exchange for their shares
of the Fund as part of the transaction; (vii) the basis of the Class A, Class B
and Class C shares received by each shareholder of the Fund will be the same as
the basis of the shares of the Fund exchanged therefor; and (viii) the holding
period of Class A, Class B and Class C shares received by each shareholder of
the Fund will include the holding period during which the shares of the Fund
exchanged therefor were held, provided that at the time of the exchange the
shares of the Fund were held as capital assets in the hands of such shareholder
of the Fund.
After the Closing, Kemper U.S. Government Securities 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 U.S. Government Securities Fund will be passed on by
Dechert, Ten Post Office Square, South, Boston, Massachusetts 02109.
28
<PAGE>
Capitalization
The following table shows on an unaudited basis the capitalization of
Kemper U.S. Government Securities Fund and the Fund as of September 30, 2000 and
on a pro forma basis as of that date, giving effect to the Reorganization(1):
<TABLE>
<CAPTION>
Kemper U.S.
Government Securities Pro Forma Pro Forma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Net Assets
Class A Shares $2,417,741,463 $1,404,854,786 /(3)/ $ 3,822,596,249
Class B Shares $ 118,154,286 $ 64,343,296 /(4)/ $ 182,497,582
Class C Shares $ 34,530,940 $ 3,096,510 /(5)/ $ 37,627,450
Class I Shares $ 3,765,603 - /(6)/ $ 3,765,603
-------------- -------------- -----------------------
Total Net Assets $2,574,192,292 $1,472,294,592 $ 4,046,486,884 /(2)/
============== ============== =======================
Shares Outstanding
Class A Shares 289,737,753 290,192,265 (40,744,449) 458,185,569
Class B Shares 14,180,274 9,558,602 (1,834,217) 21,904,559
Class C Shares 4,130,643 460,995 (90,599) 4,501,039
Class I Shares 451,186 - 451,186
Net Asset Value per Share
Class A Shares $ 8.34 $ 6.71 $ 8.34
Class B Shares $ 8.33 $ 6.73 $ 8.33
Class C Shares $ 8.36 $ 6.71 $ 8.36
Class I Shares $ 8.35 $ 8.35
</TABLE>
(1) Assumes the Reorganization had been consummated on September 30, 2000, and
is for informational purposes only. No assurance can be given as to how
many shares of the Kemper U.S. Government Securities 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 the Kemper U.S. Government Securities 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 implementation of an administrative fee for Kemper U.S.
Government Securities Fund.
(3) Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $[0] and $[611,440] to be borne by Class A Shares of
Kemper U.S. Government Securities Fund and the Fund, respectively.
<PAGE>
(4) Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $[3,559] and $[60,226] to be borne by Class B Shares of
Kemper U.S. Government Securities Fund and the Fund, respectively.
(5) Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $[354] and $[1,561] to be borne by Class C Shares of
Kemper U.S. Government Securities Fund and the Fund, respectively.
(6) Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $[84] to be borne by Class I Shares of Kemper U.S.
Government Securities Fund.
<PAGE>
The Board of Trustees unanimously recommends that the shareholders of the
Fund vote in favor of this Proposal 2.
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT
AUDITORS
The Board of Trustees, including all of the Independent Trustees, has
selected Ernst & Young LLP to act as independent auditors of the Fund for the
Fund's current fiscal year and recommends that shareholders ratify such
selection. One or more representatives of Ernst & Young LLP are expected to be
present at the Meeting and will have an opportunity to make a statement if they
so desire. Such representatives are expected to be available to respond to
appropriate questions posed by shareholders or management.
The Board of Trustees unanimously recommends that shareholders of the
Fund vote in favor of this Proposal 3.
ADDITIONAL INFORMATION
Information about the Funds
Additional information about the Trusts, the Funds and the Reorganization
has been filed with the SEC and may be obtained without charge by writing to
Scudder Investor Services, Inc., Two International Place, Boston, MA 02110-4103,
or by calling 1-800-[ ].
The Trusts are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act, and in accordance therewith,
file reports, proxy material and other information about each of the Funds with
the SEC. Such reports, proxy material and other information filed by the
Acquiring Trust, and those filed by the Acquired Trust, can be inspected and
copied at the Public Reference Room maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following SEC Regional Offices:
Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, NY 10048;
Southeast Regional Office, 1401 Brickell Avenue, Suite 200, Miami, FL 33131;
Midwest Regional Office, Citicorp Center, 500 W. Madison Street, Chicago, IL
60661-2511; Central Regional Office, 1801 California Street, Suite 4800, Denver,
CO 80202-2648; and Pacific Regional Office, 5670 Wilshire Boulevard, 11th Floor,
Los Angeles, CA 90036-3648. Copies of such material can also be obtained from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The SEC maintains an Internet World
Wide Web site (at http://www.sec.gov) which contains the prospectuses and
statements of additional information for the Funds, materials that are
incorporated by reference into the prospectuses and statements of additional
information, and other information about the Trusts and the Funds.
General
Proxy Solicitation. Proxy solicitation costs will be considered
Reorganization expenses and will be allocated accordingly. See "The Proposed
Transaction - Board Approval of the Proposed Transaction." In addition to
solicitation by mail, certain officers and representatives of the Acquired
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<PAGE>
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
each Proposal.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of at least 30% of the shares of the Acquired Trust (for a trust-wide
vote) or the Fund (for a fund-wide vote) entitled to be cast shall be necessary
and sufficient to constitute a quorum for the transaction of business. In the
event that the necessary quorum to transact business or the vote required to
approve any Proposal is not obtained at the Meeting, the persons named as
proxies may propose one or more adjournments of the Meeting in accordance with
applicable law to permit further solicitation of proxies with respect to that
Proposal. Any such adjournment as to a matter will require the affirmative vote
of the holders of a majority of the Acquired Trust's (for a trust-wide vote) or
the Fund's (for a fund-wide vote) shares present in person or by proxy at the
Meeting. The persons named as proxies will vote in favor of any such adjournment
those proxies which they are entitled to vote in favor of that Proposal and will
vote against any such adjournment those proxies to be voted against that
Proposal. For purposes of determining the presence of a quorum for transacting
business at the Meeting, abstentions and broker "non-votes" will be treated as
shares that are present but which have not been voted. Broker non-votes are
proxies received by the Fund from brokers or nominees when the broker or nominee
has neither received instructions from the beneficial owner or other persons
entitled to vote nor has discretionary power to vote on a particular matter.
Accordingly, shareholders are urged to forward their voting instructions
promptly.
The election of the Trustees under Proposal 1 requires the affirmative vote
of a plurality of the shares of the Acquired Trust voting on such election.
Approval of Proposal 2 requires the affirmative vote of the holders of a
majority of the Fund's shares outstanding and entitled to vote thereon. Approval
of Proposal 3 requires the affirmative vote of a majority of the shares of the
Fund voting at the Meeting. Abstentions and broker non-votes will not be counted
in favor of, but will have no other effect on, Proposals 1 and 3, and will have
the effect of a "no" vote on Proposal 2.
Holders of record of the shares of the Fund at the close of business
on March 5, 2001 will be entitled to one vote per share on all business of the
Meeting. As of February 5, 2001, there were [ ] Class A shares, [ ]
Class B shares and [ ] Class C shares of the Fund outstanding.
[As of December 31, 2000, the officers and Trustees of the Acquiring Trust
as a group owned beneficially less than 1% of the outstanding shares of each
class of Kemper U.S. Government Securities Fund.] Appendix 2 hereto sets forth
the beneficial owners of more than 5% of each class of each Fund's shares, as
well as the beneficial owners of more than 5% of each class of shares of each
other 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 Appendix 2.
32
<PAGE>
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 Proposals
on the proxy card(s), and ask for the shareholder's instructions on the
Proposals. Although the SCC representative is permitted to answer questions
about the process, he or she is not permitted to recommend to the shareholder
how to vote, other than to read any recommendation set forth in the Proxy
Statement/Prospectus. SCC will record the shareholder's instructions on the
card. Within 72 hours, the shareholder will be sent a letter or mailgram to
confirm his or her vote and asking the shareholder to call SCC immediately if
his or her instructions are not correctly reflected in the confirmation.
Shareholders may also provide their voting instructions through telephone
touch-tone voting or Internet voting. These options require shareholders to
input a control number which is located on each voting instruction card. After
inputting this number, shareholders will be prompted to provide their voting
instructions on the Proposals. Shareholders will have an opportunity to review
their voting instructions and make any necessary changes before submitting their
voting instructions and terminating their telephone call or Internet link.
Shareholders who vote on the Internet, in addition to confirming their voting
instructions prior to submission, will also receive an e-mail confirming their
instructions.
If a shareholder wishes to participate in the Meeting, but does not wish to
give a proxy by telephone or electronically, the shareholder may still submit
the proxy card(s) originally sent with the Proxy Statement/Prospectus or attend
in person. Should shareholders require additional information regarding the
proxy or replacement proxy card(s), they may contact SCC toll-free at
1-800-[ ]. Any proxy given by a shareholder is revocable until voted at the
Meeting.
Shareholder Proposals for Subsequent Meetings. Shareholders wishing to
submit proposals for inclusion in a proxy statement for a shareholder meeting
subsequent to the Meeting, if any, should send their written proposals to the
Secretary of the Acquired Trust, c/o Scudder Kemper Investments, Inc., 222 South
Riverside Plaza, Chicago, Illinois 60606, within a reasonable time before the
solicitation of proxies for such meeting. The timely submission of a proposal
does not guarantee its inclusion.
Other Matters to Come Before the Meeting. The Board is not aware of any
matters that will be presented for action at the Meeting other than the matters
described in this material. Should any other matters requiring a vote of
shareholders arise, the proxy in the accompanying form will confer upon the
person or persons entitled to vote the shares represented by such proxy the
discretionary authority to vote
33
<PAGE>
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/ Philip J. Collora
Philip J. Collora
Secretary
34
<PAGE>
INDEX OF EXHIBITS AND APPENDICES
EXHIBIT A: FORM OF AGREEMENT AND PLAN OF REORGANIZATION......................
EXHIBIT B: MANAGEMENT'S DISCUSSION OF KEMPER U.S. GOVERNMENT SECURITIES
FUND'S PERFORMANCE................................................
APPENDIX 1: TRUSTEE AND NOMINEE SHAREHOLDINGS.................................
APPENDIX 2: BENEFICIAL OWNERS OF FUND SHARES..................................
35
<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 U.S. Government Securities
Fund (the "Acquiring Trust"), a Massachusetts business trust, on behalf of
Kemper U.S. Government Securities Fund (the "Acquiring Fund"), the only active
series of the Acquiring Trust, Kemper Portfolios (the "Acquired Trust" and,
together with the Acquiring Trust, each a "Trust" and collectively the
"Trusts"), a Massachusetts business trust, on behalf of Kemper U.S. Mortgage
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 and the Acquired Trust is 222 South
Riverside Plaza, Chicago, Illinois 60606.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization")
will consist of the transfer of all or substantially all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for Class A, Class B and
Class C voting shares of beneficial interest (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 A, Class B and Class C shareholders of the
Acquired Fund in complete liquidation of the Acquired Fund as provided herein,
all upon the terms and conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES
AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer to the Acquiring Fund all or substantially all of the Acquired
Fund's assets as set forth in section 1.2, and the Acquiring Fund agrees in
exchange therefor (i) to deliver to the Acquired Fund that number of full and
fractional Class A, Class B and Class C Acquiring Fund Shares determined by
dividing the value of the Acquired Fund's assets net of any liabilities of the
Acquired Fund with respect to the Class A, Class B and Class C shares of the
Acquired Fund, computed in the manner and as of the time and date set forth in
section 2.1, by the net asset value of one Acquiring Fund Share of the
corresponding class, computed in the manner and as of the time and date set
forth in section 2.2; and (ii) to assume all of the liabilities of the Acquired
Fund, including, but not limited to, any deferred compensation to Acquired Fund
board members. All Acquiring Fund Shares delivered to the Acquired Fund shall be
delivered at net asset value without sales load, commission or other similar fee
being imposed. Such transactions shall take place at the closing provided for in
section 3.1 (the "Closing").
<PAGE>
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(the "Assets") shall consist of all assets, including, without limitation, all
cash, cash equivalents, securities, commodities and futures interests and
dividends or interest or other receivables that are owned by the Acquired Fund
and any deferred or prepaid expenses shown on the unaudited statement of assets
and liabilities of the Acquired Fund prepared as of the effective time of the
Closing in accordance with generally accepted accounting principles ("GAAP")
applied consistently with those of the Acquired Fund's most recent audited
balance sheet. The Assets shall constitute at least 90% of the fair market value
of the net assets, and at least 70% of the fair market value of the gross
assets, held by the Acquired Fund immediately before the Closing (excluding for
these purposes assets used to pay the dividends and other distributions paid
pursuant to section 1.4).
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in section 3.6.
1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of Assets provided for in section 1.1,
the Acquired Fund will distribute to the Acquired Fund's shareholders of record
with respect to each class of its shares (the "Acquired Fund Shareholders"),
determined as of the Valuation Time (as defined in section 2.1), on a pro rata
basis within that class, the Acquiring Fund Shares of the same class received by
the Acquired Fund pursuant to section 1.1 and will completely liquidate. Such
distribution and liquidation will be accomplished with respect to each class of
the Acquired Fund by the transfer of the Acquiring Fund Shares then credited to
the account of the Acquired Fund on the books of the Acquiring Fund to open
accounts on the share records of the Acquiring Fund in the names of the Acquired
Fund Shareholders. The Acquiring Fund shall have no obligation to inquire as to
the validity, propriety or correctness of such records, but shall assume that
such transaction is valid, proper and correct. The aggregate net asset value of
Class A, Class B and Class C Acquiring Fund Shares to be so credited to the
Class A, Class B and Class C Acquired Fund Shareholders shall, with respect to
each class, be equal to the aggregate net asset value of the Acquired Fund
shares of the same class owned by such shareholders as of the Valuation Time.
All issued and outstanding shares of the Acquired Fund will simultaneously be
cancelled on the books of the Acquired Fund, although share certificates
representing interests in Class A, Class B and Class C shares of the Acquired
Fund will represent a number of Acquiring Fund Shares after the Closing Date as
determined in accordance with section 2.3. The Acquiring Fund will not issue
certificates representing Acquiring Fund Shares in connection with such
exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
<PAGE>
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, shall be
available to the Acquiring Fund from and after the Closing Date and shall be
turned over to the Acquiring Fund as soon as practicable following the Closing
Date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. (the "NYSE") on the business day
immediately preceding the Closing Date, as defined in section 3.1 (the
"Valuation Time") after the declaration and payment of any dividends and/or
other distributions on that date, using the valuation procedures set forth in
the Acquiring Trust's Declaration of Trust, as amended, and then-current
prospectus or statement of additional information, copies of which have been
delivered to the Acquired Fund.
2.2. The net asset value of a Class A, Class B or Class C Acquiring Fund
Share shall be the net asset value per share computed with respect to that class
as of the Valuation Time using the valuation procedures referred to in section
2.1.
2.3. The number of the Class A, Class B and Class C Acquiring Fund Shares
to be issued (including fractional shares, if any) in exchange for the Assets
shall be determined with respect to each such class by dividing the value of the
Assets with respect to Class A, Class B and Class C shares of the Acquired Fund,
as the case may be, determined in accordance with section 2.1 by the net asset
value of an Acquiring Fund Share of the same class determined in accordance with
section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall be subject to confirmation by each Fund's respective independent
accountants upon the reasonable request of the other Fund.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this Agreement shall
be May 28, 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
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
<PAGE>
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. State Street, as transfer agent for the Acquired Fund, on behalf of
the Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that its records contain the names and addresses of the Acquired
Fund Shareholders and the number and percentage ownership (to three decimal
places) of outstanding Class A, Class B and Class C Acquired Fund shares owned
by each such shareholder immediately prior to the Closing. The Acquiring Fund
shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to
be credited on the Closing Date to the Acquired Fund or provide evidence
satisfactory to the Acquired Fund that such Acquiring Fund Shares have been
credited to the Acquired Fund's account on the books of the Acquiring Fund. At
the Closing, each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request to effect the transactions
contemplated by this Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the NYSE
or another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund shall be closed to trading or trading thereupon shall be
restricted, or (b) trading or the reporting of trading on such Exchange or
elsewhere shall be disrupted so that, in the judgment of the Board members of
either party to this Agreement, accurate appraisal of the value of the net
assets with respect to the Class A, Class B and Class C shares of the Acquiring
Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed
until the first business day after the day when trading shall have been fully
resumed and reporting shall have been restored.
3.6. The liabilities of the Acquired Fund shall include all of the Acquired
Fund's liabilities, debts, obligations, and duties of whatever kind or nature,
whether absolute, accrued, contingent, or otherwise, whether or not arising in
the ordinary course of business, whether or not determinable at the Closing
Date, and whether or not specifically referred to in this Agreement including
but not limited to any deferred compensation to the Acquired Fund's board
members.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Trust, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) The Acquired Trust is a voluntary association with transferable
shares commonly referred to as a Massachusetts business trust duly organized and
validly existing under the laws of The Commonwealth of Massachusetts with power
under the Acquired Trust's Declaration of Trust, as amended, to own all of its
properties and assets and to carry on its business as it is now being conducted
and, subject to approval of shareholders of the Acquired Fund, to carry out the
Agreement. The Acquired Fund is a separate series of the Acquired Trust duly
designated in accordance with the applicable provisions of the Acquired Trust's
Declaration of Trust. The Acquired Trust and Acquired Fund are qualified to do
business in all jurisdictions in which they are required to be so qualified,
except jurisdictions in which the failure to so qualify would not have material
adverse effect on the Acquired
<PAGE>
Trust or Acquired Fund. The Acquired Fund has all material federal, state and
local authorizations necessary to own all of the properties and assets and to
carry on its business as now being conducted, except authorizations which the
failure to so obtain would not have a material adverse effect on the Acquired
Fund;
(b) The Acquired Trust is registered with the Commission as an open-
end management investment company under the 1940 Act, and such registration is
in full force and effect and the Acquired Fund is in compliance in all material
respects with the 1940 Act and the rules and regulations thereunder;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund of
the transactions contemplated herein, except such as have been obtained under
the Securities Act of 1933, as amended (the "1933 Act"), the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the 1940 Act and such as may be
required by state securities laws;
(d) Other than with respect to contracts entered into in connection
with the portfolio management of the Acquired Fund which shall terminate on or
prior to the Closing Date, the Acquired Trust is not, and the execution,
delivery and performance of this Agreement by the Acquired Trust will not result
(i) in violation of Massachusetts law or of the Acquired Trust's Declaration of
Trust, as amended, or By-Laws, (ii) in a violation or breach of, or constitute a
default under, any material agreement, indenture, instrument, contract, lease or
other undertaking to which the Acquired Fund is a party or by which it is bound,
and the execution, delivery and performance of this Agreement by the Acquired
Fund will not result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Acquired Fund is a party or by which it is
bound, or (iii) in the creation or imposition of any lien, charge or encumbrance
on any property or assets of the Acquired Fund.
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Acquired Fund or any properties or
assets held by it. The Acquired Fund knows of no facts which might form the
basis for the institution of such proceedings which would materially and
adversely affect its business and is not a party to or subject to the provisions
of any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate the
transactions herein contemplated;
(f) The Statements of Assets and Liabilities, Operations, and Changes
in Net Assets, the Financial Highlights, and the Investment Portfolio of the
Acquired Fund at and for the fiscal year ended September 30, 2000, have been
audited by Ernst & Young LLP, independent auditors, and are in accordance with
GAAP consistently applied, and such statements (a copy of each of which has been
furnished to the Acquiring Fund) present fairly, in all material respects, the
financial position of the Acquired Fund as of such date in accordance with GAAP,
and there are no known contingent liabilities of the Acquired Fund required to
be reflected on a balance sheet (including the notes thereto) in accordance with
GAAP as of such date not disclosed therein;
(g) Since September 30, 2000, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than
<PAGE>
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 State Street, 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 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;
<PAGE>
(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 the Acquiring Fund is in compliance in all material
respects with the 1940 Act and the rules and regulations thereunder;
<PAGE>
(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 October 31, 2000, have been
audited by Ernst & Young LLP, independent accountants, and are in accordance
with GAAP consistently applied, and such statements (a copy of each of which has
been furnished to the Acquired Fund) present fairly, in all material respects,
the financial position of the Acquiring Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the Acquiring Fund
required to be reflected on a balance sheet (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein;
(g) Since October 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 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;
<PAGE>
(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 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;
<PAGE>
(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 15, 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.
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.
<PAGE>
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 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,
<PAGE>
as is reasonably necessary to enable Wilkie 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 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,
<PAGE>
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:
(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,
<PAGE>
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 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.
<PAGE>
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.
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
<PAGE>
reasonable costs of investigation) to which jointly and severally, the Acquiring
Fund or any of its Board members or officers may become subject, insofar as any
such loss, claim, damage, liability or expense (or actions with respect thereto)
arises out of or is based on any breach by the Acquired Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
10. FEES AND EXPENSES
10.1. Each of the Acquiring Trust, on behalf of the Acquiring Fund, and
the Acquired Trust, on behalf of the Acquired Fund, represents and warrants to
the other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
10.2. Each Fund will pay its own allocable share of expenses associated
with the Reorganization, except that Scudder Kemper will bear any such expenses
in excess of $[ ] for the Acquiring Fund and $[ ] for the Acquired Fund
(approximately $[ ] and $[ ] per share, respectively, based on [ ], 200[ ] net
assets for each Fund). Any such expenses which are so borne by Scudder Kemper
will be solely and directly related to the Reorganization within the meaning of
Revenue Ruling 73-54, 1973-1 C.B. 187. Acquired Fund Shareholders will pay their
own expenses, if any, incurred in connection with the Reorganization.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The Acquiring Fund and the Acquired Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this
section 11.2, the representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
The covenants to be performed after the Closing and the obligations of each of
the Acquiring Fund and Acquired Fund in sections 9.1 and 9.2 shall survive the
Closing.
12. TERMINATION
12.1. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned by either party by (i) mutual agreement of
the parties, or (ii) by either party if the Closing shall not have occurred on
or before [ ], 2001, unless such date is extended by mutual agreement of the
parties, or (iii) by either party if the other party shall have materially
breached its obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective Board members or
officers, except for any such material breach or intentional misrepresentation,
as to each of which all remedies at law or in equity of the party adversely
affected shall survive.
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
<PAGE>
by the Acquired Fund pursuant to section 5.3 of this Agreement, no such
amendment may have the effect of changing the provisions for determining the
number of the Acquiring Fund Shares to be issued to the Acquired Fund
Shareholders under this Agreement to the detriment of such shareholders without
their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, 222 South Riverside Plaza, Chicago, Illinois 60606, with a copy
to Dechert, Ten Post Office Square South, Boston, MA 02109-4603, Attention:
Joseph R. Fleming, Esq., or to the Acquiring Fund, 222 South Riverside Plaza,
Chicago, Illinois 60606, with a copy to Dechert, Ten Post Office Square South,
Boston, MA 02109-4603, Attention: Joseph R. Fleming, Esq., or to any other
address that the Acquired Fund or the Acquiring Fund shall have last designated
by notice to the other party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and the shareholders of the
Acquiring Fund and the Acquired Fund and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
15.4. References in this Agreement to each Trust mean and refer to the
Board members of each Trust from time to time serving under its Declaration of
Trust on file with the Secretary of State of The Commonwealth of Massachusetts,
as the same may be amended from time to time, pursuant to which each Trust
conducts its business. It is expressly agreed that the obligations of each Trust
hereunder shall not be binding upon any of the Board members, shareholders,
nominees, officers, agents, or employees of the Trusts or the Funds personally,
but bind only the respective property of the Funds, as provided in each Trust's
Declaration of Trust. Moreover, no series of either Trust other than the Funds
shall be responsible for the obligations of the Trusts hereunder, and all
persons shall look only to the assets of the Funds to satisfy the obligations of
the Trusts hereunder. The execution and the delivery of this Agreement have been
authorized by each Trust's Board members, on behalf of the applicable Fund, and
this Agreement 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.
<PAGE>
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 U.S. GOVERNMENT SECURITIES FUND
on behalf of Kemper U.S. Government
Securities Fund
_________________________
Secretary
_________________________________
By:______________________________
Its:_____________________________
Attest: KEMPER PORTFOLIOS
on behalf of Kemper U.S. Mortgage 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 U.S. Government Securities Fund's Performance
<PAGE>
PERFORMANCE UPDATE
[VANDENBERG PHOTO]
RICHARD VANDENBERG JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1996 AND IS A
MANAGING DIRECTOR. HE IS LEAD PORTFOLIO MANAGER OF KEMPER U.S. GOVERNMENT
SECURITIES FUND. VANDENBERG HAS 25 YEARS OF FIXED-INCOME PORTFOLIO MANAGEMENT
EXPERIENCE.
[DUGENSKE PHOTO]
JOHN DUGENSKE IS A PORTFOLIO MANAGER FOR KEMPER U.S. GOVERNMENT SECURITIES FUND.
HE IS A VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, HAVING JOINED THE FIRM IN
1998.
[DOLAN PHOTO]
SCOTT DOLAN IS A PORTFOLIO MANAGER FOR KEMPER U.S. GOVERNMENT SECURITIES FUND.
HE JOINED SCUDDER KEMPER INVESTMENTS IN 1989 AND IS A VICE PRESIDENT.
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.
THIS PAST YEAR WAS MARKED BY EXCEPTIONAL VOLATILITY IN INTEREST RATES.
SHORT-TERM RATES ROSE AS THE FEDERAL RESERVE TIGHTENED CREDIT TO REDUCE FUTURE
INFLATION, WHILE LONG-TERM RATES FELL IN RESPONSE TO THE TREASURY'S DEBT BUYBACK
PROGRAM. BELOW, THE FUND'S PORTFOLIO MANAGERS DISCUSS KEMPER U.S. GOVERNMENT
SECURITIES FUND'S POSITIONING DURING THIS PERIOD AND GIVE THEIR VIEWS ON THE
YEAR AHEAD.
Q HOW DID THE GOVERNMENT BOND MARKET BEHAVE BETWEEN OCTOBER 1999 AND OCTOBER
2000?
A Strong economic growth prompted the Federal Reserve to raise its
short-term interest-rate target by 125 basis points (1.25 percent) to 6.50
percent. However, between October 31, 1999, and October 31, 2000, long-term
Treasury bond prices rose, inverting the yield curve for the first time since
the mid-1990s. By October 31, 2000, three-month Treasury bills yielded 6.38
percent, some 62 basis points more than 10-year Treasury bonds. Mortgage
interest rates for consumers reached their highest levels in five years,
increasing the income potential of mortgage securities. Crude oil prices soared
past $35 a barrel. Overall consumer prices were relatively tame, but as the
fiscal year drew to a close, many economists remained concerned about the
inflationary impact of high heating oil prices and natural gas shortages.
[LINE GRAPH]
<TABLE>
<CAPTION>
10/31/99 10/31/00
-------- --------
<S> <C> <C>
3-month 5.08 6.38
6-month 5.27 6.35
1-year 5.41 6.16
2-year 5.78 5.92
5-year 5.94 5.81
10-year 6.02 5.76
30-year 6.16 5.79
</TABLE>
Source: Bloomberg Business News.
Q HOW DID KEMPER U.S. GOVERNMENT SECURITIES FUND PERFORM IN THIS
ENVIRONMENT?
A Kemper U.S. Government Securities Fund's total return of 6.44 percent (for
Class A shares, unadjusted for sales charge) was less than the average return of
comparable mutual funds investing in government and mortgage securities for the
12-month period ended October 31, 2000. The unmanaged Lehman Brothers GNMA index
rose 7.87 percent for the period, while the average fund rose 6.79 percent. The
unmanaged Salomon Smith Barney 30-Year GNMA index rose 7.80 percent.
This past winter, the mortgage market was negatively affected by comments from
the Treasury about the implicit government guarantees associated with Fannie Mae
(FNMA) and Freddie Mac (FHLMC) securities. Some bond investors also grew
concerned about the regulatory environment
<PAGE>
PERFORMANCE UPDATE
for Fannie Mae and Freddie Mac, two of the largest private mortgage market
participants. In general, mortgages backed by the Government National Mortgage
Association (GNMA, or Ginnie Mae) outperformed FNMA securities and other forms
of mortgage debt between October and March.
The fund's positioning of a majority of its portfolio in GNMA securities (see
Portfolio Composition) helped its performance during the first half of fiscal
year 2000. During the second half, however, FNMA and FHLMC bonds outperformed
GNMAs as legal uncertainties abated, and the fund underperformed its peers for
the six months ended October 31, 2000. Our goal is to be in the top 25 percent
of government securities funds over the long term. The fund's returns placed it
in the top half of its peer group for the three years ended October 31, 2000. We
realize we have further to go, and we are closely monitoring our positioning and
refining our long-term strategy in an effort to improve our results.
Q IN WHAT TYPES OF SECURITIES DID THE FUND INVEST?
A Within the mortgage market, we attempted to avoid exposing the fund to
adverse risks. Mortgage securities generally did well this past fiscal year
because of their superior income characteristics and because relatively few home
owners refinanced their properties. Overall, mortgage securities were attractive
to risk-sensitive, income-oriented investors this past year. Income potential
rose sharply, and price volatility was less than long-term Treasuries.
To identify securities with the highest potential returns, we undertake an
extensive analysis of the prepayment expectations -- the rate at which home
owners may pay off their mortgages early or refinance mortgages to take
advantage of lower interest rates. We try to manage the fund's exposure to
prepayment risk by analyzing refinancing possibilities. This includes adjusting
the fund's weighting between seasoned, or older, mortgages, which tend to have
more predictable prepayment characteristics, and those that have been issued
more recently. We also invest in Treasury securities, which have lower yields
but tend to provide better performance when interest rates are declining.
Q THE FEDERAL RESERVE HASN'T RAISED INTEREST RATES SINCE MAY. WHAT IMPACT
HAS THIS HAD ON THE MARKETS?
A First, the yield curve has steepened, with short-term interest rates
declining more than long-term rates, which may indicate some investor concern
about long-term trends in inflation or government spending. Second, the spreads
(the difference in interest rates) between 10-year Treasuries and
comparable-maturity GNMA securities have narrowed. Compare this with the first
half of the fiscal year, when yield spreads were somewhat volatile, ranging from
120 to 180 basis points (1.2 to 1.8 percentage points). In the second half, the
trading range was narrower, with GNMAs yielding from 160 to 180 basis points
(1.6 to 1.8 percentage points) more than Treasuries. In July, short- and
intermediate-term securities began outperforming long-term securities, partly
reversing the strong performance we had been getting from longer-term bonds.
We've positioned the fund in intermediate-term securities to maximize income
potential, while at the same time being mindful that spreads between Treasuries
and mortgages could again be more volatile in the months ahead.
Q IS THERE ANY WAY TO ESTIMATE HOW MUCH A GIVEN CHANGE IN INTEREST RATES CAN
AFFECT TOTAL RETURN FROM BONDS?
A
Generally, a 100-basis-point increase in interest rates translates into a
price decline of slightly more than 1 percent for a bond or fixed-income mutual
fund that has a duration of one year. Bond prices and fixed-income mutual fund
net asset values are also affected by market factors such as credit risk and,
for mortgage securities, the risk that borrowers will prepay loans. (Operating
expenses also have an effect on mutual fund net asset values.) We think a period
of stable interest rates would be beneficial for the fund. Typically, mortgages
outperform Treasuries in a stable rate environment because investors are more
willing to assume some risk in exchange for higher yield. We believe the fund's
mortgage position can serve us well in such an environment.
Q WHAT'S YOUR OVERALL OUTLOOK FOR THE YEAR AHEAD?
A While it appears that the Federal Reserve has tamed inflation for the
moment and that U.S. economic growth is slowing, a lot of variables remain that
could cause a resurgence in interest rates, particularly energy, national fiscal
policy and relatively high levels of consumer consumption. Higher oil prices
usually translate into increased inflation risk. However, we are encouraged by
other strong trends in the economy that have been supportive of low inflation,
particularly high productivity levels. In addition, as a result of tax
<PAGE>
PERFORMANCE UPDATE
increases and nine years of economic growth, the U.S. government posted a record
budget surplus of $237 billion for its fiscal year ended September 30, 2000,
which may enable it to pay off some of the nation's debt. When Washington
borrows less and repays debt, it frees up resources that generally can be put to
more productive use in the private sector.
At the start of the fund's fiscal year, 10-year Treasuries yielded 6.02
percent, 94 basis points higher than three-month Treasury bills (5.08 percent).
By October 31, 2000, the yield curve had completely inverted, so that
three-month Treasury bills yielded more than any other segment of the curve.
While the Treasury's buyback program should support long-term Treasury prices in
the coming months, history has shown that the yield curve does not remain
inverted for an extended period.
If interest rates fall modestly, we believe that Kemper U.S. Government
Securities Fund may be in a strong position to benefit. We are comfortable with
a positioning that can allow us to provide an attractive level of income
consistent with our efforts to preserve principal. For investors seeking to
reduce the volatility of a lower-quality bond portfolio or an equity portfolio,
we think the fund can be an attractive alternative.
Fannie Mae Mortgage Commitment Rates
(60-day, 30-year fixed loans) October 31, 1990, to October 31, 2000
[LINE GRAPH]
<TABLE>
<CAPTION>
FNMA COMMITMENT 30 YR 60 DAY
----------------------------
<S> <C>
10/31/90 10.13
9.83
9.69
9.47
9.42
9.50
9.38
9.37
9.55
9.34
9.06
8.73
8.57
8.62
7.98
8.68
8.60
8.89
8.75
5/31/92 8.49
8.27
7.97
7.81
7.72
8.22
8.29
8.06
7.68
7.38
7.32
7.31
5/31/93 7.36
7.06
7.06
6.75
6.80
6.79
7.13
7.10
6.88
7.41
8.28
8.53
5/31/94 8.63
8.66
8.55
8.57
8.91
9.06
9.34
9.36
9.07
8.65
8.77
8.52
5/31/95 7.87
7.86
8.03
7.93
7.85
7.65
7.46
7.20
7.21
7.65
8.00
8.24
5/31/96 8.35
8.29
8.37
8.34
8.17
7.87
7.63
7.82
7.97
8.00
8.30
8.19
5/31/97 8.04
7.82
7.44
7.70
7.49
7.34
7.32
7.22
7.03
7.16
7.16
7.16
5/31/98 7.01
7.03
7.01
6.81
6.48
6.65
6.71
6.71
6.70
7.08
7.03
6.99
5/31/99 7.39
7.78
7.92
8.08
7.87
7.87
7.99
8.13
8.50
8.38
8.37
8.53
8.68
8.28
8.32
8.16
7.95
10/31/00 7.94
</TABLE>
Source: Bloomberg Business News. This chart shows the average loan rate a home
buyer could have expected to pay for a 30-year-term, fixed-rate loan for a home
purchase within 60 days.
<PAGE>
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED OCTOBER 31, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF FUND
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER U.S. GOVERNMENT SECURITIES
FUND CLASS A 1.71% 4.86% 6.82% 8.43% (since 10/1/79)
..................................................................................................
KEMPER U.S. GOVERNMENT SECURITIES
FUND CLASS B 2.55 4.72 n/a 5.75 (since 5/31/94)
..................................................................................................
KEMPER U.S. GOVERNMENT SECURITIES
FUND CLASS C 5.50 4.91 n/a 5.82 (since 5/31/94)
..................................................................................................
</TABLE>
KEMPER U.S. GOVERNMENT SECURITIES FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 1/31/80 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER U.S. GOVERNMENT SALOMON BROTHERS 30-YR U.S. CONSUMER PRICE
SECURITIES FUND CLASS A1 MORTGAGE INDEX+ INDEX++
------------------------ ---------------------- -------------------
<S> <C> <C> <C>
1/31/80 9553.00 10000.00 10000.00
9817.00 10544.00 11093.00
9871.00 10669.00 12082.00
12687.00 15076.00 12545.00
13817.00 16716.00 13021.00
15509.00 19345.00 13535.00
12/31/85 18868.00 24303.00 14049.00
21932.00 27576.00 14203.00
22520.00 28696.00 14833.00
23949.00 31233.00 15488.00
27301.00 36003.00 16208.00
29943.00 39938.00 17198.00
35109.00 46211.00 17725.00
12/31/92 36727.00 49639.00 18239.00
39043.00 53091.00 18740.00
37846.00 52331.00 19242.00
44800.00 61289.00 19730.00
46068.00 64655.00 20386.00
50230.00 70816.00 20733.00
53763.00 75769.00 21067.00
53925.00 77037.00 21632.00
10/31/00 57657.00 83294.00 22344.00
</TABLE>
KEMPER U.S. GOVERNMENT SECURITIES FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 5/31/94 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER U.S. GOVERNMENT SALOMON BROTHERS 30-YR U.S. CONSUMER PRICE
SECURITIES FUND CLASS B1 MORTGAGE INDEX+ INDEX++
------------------------ ---------------------- -------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9936.00 9966.00 10034.00
9934.00 10042.00 10129.00
9904.00 10107.00 10149.00
10395.00 10641.00 10264.00
10989.00 11203.00 10339.00
11165.00 11442.00 10386.00
11629.00 11837.00 10407.00
3/31/96 11373.00 11787.00 10556.00
11345.00 11869.00 10624.00
11570.00 12122.00 10698.00
11831.00 12487.00 10753.00
11820.00 12499.00 10847.00
12208.00 12973.00 10868.00
12532.00 13356.00 10929.00
12795.00 13677.00 10936.00
12965.00 13904.00 10997.00
13172.00 14143.00 11051.00
9/30/98 13550.00 14513.00 11092.00
13566.00 14633.00 11112.00
13576.00 14778.00 11186.00
13449.00 14712.00 11268.00
13517.00 14844.00 11383.00
13488.00 14878.00 11410.00
13691.00 15109.00 11607.00
13912.00 15461.00 11688.00
14254.00 15963.00 11776.00
10/31/00 14320.00 16086.00 11786.00
</TABLE>
KEMPER U.S. GOVERNMENT SECURITIES FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 05/31/94 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER U.S. GOVERNMENT SALOMON BROTHERS 30-YR U.S. CONSUMER PRICE
SECURITIES FUND CLASS C1 MORTGAGE INDEX+ INDEX++
------------------------ ---------------------- -------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9948.00 9966.00 10034.00
9948.00 10042.00 10129.00
9931.00 10107.00 10149.00
10423.00 10641.00 10264.00
11018.00 11203.00 10339.00
11195.00 11442.00 10386.00
11662.00 11837.00 10407.00
3/31/96 11407.00 11787.00 10556.00
11367.00 11869.00 10624.00
11592.00 12122.00 10698.00
11869.00 12487.00 10753.00
11844.00 12499.00 10847.00
12234.00 12973.00 10868.00
12573.00 13356.00 10929.00
12837.00 13677.00 10936.00
12993.00 13904.00 10997.00
13201.00 14143.00 11051.00
9/30/98 13593.00 14513.00 11092.00
13610.00 14633.00 11112.00
13636.00 14778.00 11186.00
13511.00 14712.00 11268.00
13583.00 14844.00 11383.00
13541.00 14878.00 11410.00
13763.00 15109.00 11607.00
13989.00 15461.00 11688.00
14335.00 15963.00 11776.00
10/31/00 14385.00 16086.00 11786.00
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES
REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE WITH CHANGING
MARKET CONDITIONS, SO THAT WHEN
REDEEMED, SHARES MAY BE WORTH MORE OR
LESS THAN ORIGINAL COST.
*THE MAXIMUM SALES CHARGE FOR CLASS A
SHARES IS 4.5%. FOR CLASS B SHARES,
THE MAXIMUM CONTINGENT DEFERRED SALES
CHARGE (CDSC) IS 4%. CLASS C SHARES
HAVE NO SALES CHARGE ADJUSTMENT, BUT
REDEMPTIONS WITHIN ONE YEAR OF
PURCHASE MAY BE SUBJECT TO A CDSC OF
1%. SHARE CLASSES INVEST IN THE SAME
UNDERLYING PORTFOLIO. 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
SHARE AND THE CONTINGENT DEFERRED
SALES CHARGE IN EFFECT AT THE END OF
THE PERIOD FOR CLASS B SHARES. IN
COMPARING KEMPER U.S. GOVERNMENT
SECURITIES FUND CLASS A SHARE
PERFORMANCE WITH THE SALOMON
BROTHERS 30-YEAR GNMA INDEX, YOU
SHOULD ALSO NOTE THAT THE FUND'S
PERFORMANCE REFLECTS THE APPLICABLE
SALES CHARGE, WHILE NO SUCH CHARGES
ARE REFLECTED IN THE PERFORMANCE OF
THE INDEX.
+THE SALOMON BROTHERS 30-YEAR GNMA
INDEX IS UNMANAGED, IS ON A TOTAL
RETURN BASIS WITH ALL DIVIDENDS
REINVESTED, AND COMPRISES GNMA 30-YEAR
PASS-THROUGHS OF SINGLE-FAMILY AND
GRADUATED-PAYMENT MORTGAGES. IN ORDER
FOR A GNMA COUPON TO BE INCLUDED IN
THE INDEX, IT MUST HAVE AT LEAST $200
MILLION OF OUTSTANDING COUPON PRODUCT.
SOURCE: WIESENBERGER(R).
++THE U.S. 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. SOURCE:
WIESENBERGER(R).
<PAGE>
APPENDIX 1
Trustee and Nominee Shareholdings
The following table sets forth, for each nominee and Trustee, the number of
shares owned in each series of the Acquired Trust as of December 31, 2000. [Each
nominee's and Trustee's individual shareholdings of any series of the Acquired
Trust constitute less than 1% of the outstanding shares of such fund.] [As a
group, the Trustees and officers own less than 1% of the shares of any series of
the Acquired Trust.]
[To be provided]
<PAGE>
APPENDIX 2
Beneficial Owners of Fund Shares
<PAGE>
This Proxy Statement/Prospectus is accompanied by Kemper U.S. Government
Securities Fund's prospectus dated January 1, 2001, which was previously filed
with the Securities and Exchange Commission (the "Commission") via EDGAR on
October 13, 2000 (File No. 811-02719), and is incorporated by reference herein.
Kemper U.S. Mortgage Fund's prospectus dated January 1, 2001, which was
previously filed with the Commission via EDGAR on October 13, 2000 (File No.
811-03440), is incorporated by reference herein.
Kemper U.S. Government Securities Fund's statement of additional
information dated January 1, 2001, which was previously filed with the
Commission via EDGAR on October 13, 2000 (File No. 811-02719), is incorporated
by reference herein.
<PAGE>
PART B
KEMPER U.S. GOVERNMENT SECURITIES FUND
----------------------------------------------
Statement of Additional Information
March [_], 2001
----------------------------------------------
Acquisition of the Assets of By and in Exchange for Shares of
Kemper U.S. Mortgage Fund, a series of Kemper U.S. Government Securities
Kemper Portfolios Fund (the "Acquiring Trust")
222 South Riverside Plaza 222 South Riverside Plaza
Chicago, IL 60606 Chicago, IL 60606
This Statement of Additional Information is available to the shareholders
of Kemper U.S. Mortgage Fund in connection with a proposed transaction whereby
Kemper U.S. Government Securities Fund will acquire all or substantially all of
the assets and all of the liabilities of Kemper U.S. Mortgage Fund in exchange
for shares of the Kemper U.S. Government Securities Fund (the "Reorganization").
This Statement of Additional Information of the Acquiring Trust contains
material which may be of interest to investors but which is not included in the
Prospectus/Proxy Statement of the Acquiring Trust relating to the
Reorganization. This Statement of Additional Information consists of this cover
page and the following documents:
1. Kemper U.S. Government Securities Fund's statement of additional
information dated January 1, 2001, which was previously filed with the
Securities and Exchange Commission (the "Commission") via EDGAR on October 13,
2000 (File No. 811-02719) and is incorporated by reference herein.
2. Kemper U.S. Government Securities Fund's annual report to shareholders for
the fiscal year ended October 31, 2000, which was previously filed with the
Commission via EDGAR on December 21, 2000 (File No. 811-02719) and is
incorporated by reference herein.
3. Kemper U.S. Mortgage Fund's prospectus dated January 1, 2001, which was
previously filed with the Commission via EDGAR on October 13, 2000 (File No.
811-03440) and is incorporated by reference herein.
4. Kemper U.S. Mortgage Fund's statement of additional information dated
January 1, 2001, which was previously filed with the Commission via EDGAR on
October 13, 2000 (File No. 811-03440) and is incorporated by reference herein.
<PAGE>
5. Kemper U.S. Mortgage Fund's annual report to shareholders for the fiscal
year ended September 30, 2000, which was previously filed with the Commission
via EDGAR on December 1, 2000 (File No. 811-03440) and is incorporated by
reference herein.
6. The financial statements and schedules of Kemper U.S. Government Securities
Fund and Kemper U.S. Mortgage Fund required by Regulation S-X for the periods
specified in Article 3 thereof, which are filed herein.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated March [ ], 2001 relating to the Reorganization
may be obtained by writing Kemper U.S. Mortgage Fund at 222 South Riverside
Drive, Chicago, IL 60606 or by calling [ ] at 1-800-[ ]. This Statement of
Additional Information should be read in conjunction with the Prospectus/Proxy
Statement.
<PAGE>
Pro Forma
Portfolio of Investments
as of September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Kemper U.S. Kemper U.S. Pro Forma
Government Mortgage Combined
Securities Par/Share Par/Share
Share Amount ($) Amount Amount
--------------------------------------------
<S> <C> <C> <C>
Repurchase Agreements .1%
-------------------------
Repurchase Agreement with State Street 3,994,000 2,335,000 6,329,000
Bank, 6.48%, 10/02/2000
Total Repurchase Agreements (Cost of $3,994,000, $2,335,000, and $6,329,000
respectively)
Short Term Investments 1.7%
---------------------------
Morgan Stanley Government, 6.60%, 10/02/2000
TRP Bear Stearns Government, 6.68%, 10/02/2000 20,000,000 20,000,000 40,000,000
Total Short Term Investments (Cost of $20,000,000, $50,000,000, and
$70,000,000 respectively)
U.S. Treasury Obligations 6.4%
------------------------------
U.S. Treasury Bond, 8.00%, 11/15/2021 76,100,000 36,550,000 112,650,000
U.S. Treasury Bond, 12.50%, 08/15/2014 50,600,000 33,300,000 83,900,000
U.S. Treasury Bond, 8.125%, 05/15/2021 8,100,000 8,100,000
Total U.S. Treasury Obligations (Cost of $169,132,487, $105,384,839, and
$274,517,326 respectively)
Government National Mortgage Association 76.8%
----------------------------------------------
Government National Mortgage Association Pass-thru, 6.50%, 01/15/2024 77,857,782 65,038,968 142,896,750
Government National Mortgage Association Pass-thru, 6.00%, 01/20/2029 51,012,627 22,667,556 73,680,183
Government National Mortgage Association Pass-thru, 6.50%, 06/15/2028 2,981,762 2,981,762
Government National Mortgage Association Pass-thru, 6.50%, 11/15/2028 1,515,284 509,560 2,024,844
Government National Mortgage Association Pass-thru, 6.50%, 01/01/2030 472,933,041 214,372,223 687,305,264
Government National Mortgage Association Pass-thru, 7.00%, 06/15/2029 629,661,262 629,661,262
Government National Mortgage Association Pass-thru, 7.00%, 12/15/2029 216,470,177 216,470,177
Government National Mortgage Accosiation Pass-thru, 7.50%, 02/15/2023 107,116
Government National Mortgage Association Pass-thru, 7.50%, 10/01/2029 57,838,240 4,609,901 62,448,141
Government National Mortgage Association Pass-thru, 7.50%, 07/15/2029 449,860,619 88,365,523 538,226,142
Government National Mortgage Association Pass-thru, 8.00%, 07/15/2023 3,050,721 4,053,390 7,104,111
Government National Mortgage Association Pass-thru, 8.00%, 12/01/2029 385,780,965 52,333,636 438,114,601
Government National Mortgage Association Pass-thru, 8.50%, 12/15/2029 90,404,840 40,043,062 130,447,902
Government National Mortgage Association Pass-thru, 9.00%, 02/01/2030 156,153,882 93,352,805 249,506,687
Government National Mortgage Association Pass-thru, 9.50%, 05/15/2027 18,626,617 18,626,617
Government National Mortgage Association Pass-thru, 9.50%, 12/15/2022 13,942,302 13,942,302
Government National Mortgage Association Pass-thru, 10.00%, 08/15/2022 17,760,018 17,760,018
Government National Mortgage Association Pass-thru, 10.00%, 08/15/2019 1,570,246 1,570,246
Government National Mortgage Association Pass-thru, 10.50%, 12/15/2017 7,166,622 2,059,011 9,225,633
Government National Mortgage Association Pass-thru, 11.00%, 04/20/2019 84,975 84,975
Total Government National Mortgage Association (Cost of $2,403,148,717,
$802,734,112 and $3,205,882,829 respectively)
Federal Home Loan Mortgage Corp 4%
----------------------------------
Federal Home Loan Mortgage Corp., 6.50%, with various maturities thru 07/01/2029 301,850 301,850
Federal Home Loan Mortgage Corp., 6.50%, with various maturities thru 05/01/2029 189,149 189,149
Federal Home Loan Mortgage Corp., 7.00%, with various maturities thru 12/01/2028 1,050,000 1,050,000
Federal Home Loan Mortgage Corp., 7.00%, with various maturities thru 05/01/2029 89,806,495 89,806,495
Federal Home Loan Mortgage Corp., 8.00%, with various maturities thru 06/01/2030 63,000,996 63,000,996
Federal Home Loan Mortgage Corp., 7.50%, with various matutiries thru 09/01/2029 1,510,648 2,799,627 4,310,275
Federal Home Loan Mortgage Corp., 8.50%, with various matutiries thru 06/01/2030 163,502 198,738 362,240
Federal Home Loan Mortgage Corp., 9.50%, with various maturities thru 10/01/2020 9,667,141 9,667,141
Total Federal Home Loan Mortgage Corp. (Cost of $2,861,190, $165,259,735, and
$168,120,925 respectively)
Federal National Mortgage Association 11%
-----------------------------------------
Federal National Mortgage Association, 0.00%, with various maturities thru 05/01/2017 23,115
Federal National Mortgage Association, 5.50%, with various maturities thru 12/01/2028 666,642 585,408
Federal National Mortgage Association, 8.00%, with various maturities thru 06/01/2024 2,439,807
Federal National Mortgage Association, 8.00%, with various maturities thru 08/01/2024 2,741,631
Federal National Mortgage Association, 11.50%, with various maturities thru 05/01/2018 178,696
Federal National Mortgage Association, 6.00%, with various maturities thru 07/01/2029 51,322,528
Federal National Mortgage Association, 6.50%, with various maturities thru 09/01/2029 269,318 70,699,769
Federal National Mortgage Association, 7.00%, with various maturities thru 08/01/2029 16,245,351
Federal National Mortgage Association, 7.00%, with various maturities thru 03/01/2015 138,194 75,094,111
Federal National Mortgage Association, 7.50%, with various maturities thru 01/01/2029 1,052,885 208,198,223
Federal National Mortgage Association, 8.50%, with various maturities thru 07/01/2030 15,500,007 1,900,001
Federal National Mortgage Association, 9.00%, with various maturities thru 03/01/2030 149,909 1,573,700
Federal National Mortgage Association, 9.5%, with various maturities thru 10/01/2020 13,911,253
Total Federal National Mortgage Association (Cost of $35,400,516, $415,549,136 and
$450,949,652 respectively)
<CAPTION>
Kemper U.S. Kemper U.S. Pro Forma
Government Mortgage Combined
Securities Market Market
Market Value ($) Value ($) Value ($)
-----------------------------------------------
<S> <C> <C> <C>
Repurchase Agreements .1%
-------------------------
Repurchase Agreement with State Street 3,994,000 2,335,000 6,329,000
Bank, 6.48%, 10/02/2000
---------------------------------------------
Total Repurchase Agreements (Cost of $3,994,000, $2,335,000, and $6,329,000
respectively) 3,994,000 2,335,000 6,329,000
---------------------------------------------
Short Term Investments 1.7%
---------------------------
Morgan Stanley Government, 6.60%, 10/02/2000 30,000,000 30,000,000
TRP Bear Stearns Government, 6.68%, 10/02/2000 20,000,000 20,000,000 40,000,000
---------------------------------------------
Total Short Term Investments (Cost of $20,000,000, $50,000,000, and
$70,000,000 respectively) 20,000,000 50,000,000 70,000,000
---------------------------------------------
U.S. Treasury Obligations 6.4%
------------------------------
U.S. Treasury Bond, 8.00%, 11/15/2021 92,937,125 44,636,688 137,573,813
U.S. Treasury Bond, 12.50%, 08/15/2014 72,429,346 47,665,953 120,095,299
U.S. Treasury Bond, 8.125%, 05/15/2021 9,985,761 9,985,761
---------------------------------------------
Total U.S. Treasury Obligations (Cost of $169,132,487, $105,384,839, and
$274,517,326 respectively) 165,366,471 102,288,402 267,654,873
---------------------------------------------
Government National Mortgage Association 76.8%
----------------------------------------------
Government National Mortgage Association Pass-thru, 6.50%, 01/15/2024 75,376,065 62,965,851 138,341,916
Government National Mortgage Association Pass-thru, 6.00%, 01/20/2029 47,733,959 21,212,000 68,945,959
Government National Mortgage Association Pass-thru, 6.50%, 06/15/2028 2,873,673 2,873,673
Government National Mortgage Association Pass-thru, 6.50%, 11/15/2028 1,460,355 491,088 1,951,443
Government National Mortgage Association Pass-thru, 6.50%, 01/01/2030 456,044,599 206,729,933 662,774,532
Government National Mortgage Association Pass-thru, 7.00%, 06/15/2029 620,854,127 620,854,127
Government National Mortgage Association Pass-thru, 7.00%, 12/15/2029 213,567,226 213,567,226
Government National Mortgage Accosiation Pass-thru, 7.50%, 02/15/2023 107,886
Government National Mortgage Association Pass-thru, 7.50%, 10/01/2029 57,729,793 4,601,257 62,331,050
Government National Mortgage Association Pass-thru, 7.50%, 07/15/2029 452,323,387 88,979,425 541,302,812
Government National Mortgage Association Pass-thru, 8.00%, 07/15/2023 3,117,456 4,142,057 7,259,513
Government National Mortgage Association Pass-thru, 8.00%, 12/01/2029 393,226,477 53,463,201 446,689,678
Government National Mortgage Association Pass-thru, 8.50%, 12/15/2029 92,961,632 41,164,214 134,125,846
Government National Mortgage Association Pass-thru, 9.00%, 02/01/2030 161,848,510 96,759,304 258,607,814
Government National Mortgage Association Pass-thru, 9.50%, 05/15/2027 19,435,711 19,435,711
Government National Mortgage Association Pass-thru, 9.50%, 12/15/2022 14,547,921 14,547,921
Government National Mortgage Association Pass-thru, 10.00%, 08/15/2022 19,552,670 19,552,670
Government National Mortgage Association Pass-thru, 10.00%, 08/15/2019 1,728,743 1,728,743
Government National Mortgage Association Pass-thru, 10.50%, 12/15/2017 8,001,982 2,299,003 10,300,985
Government National Mortgage Association Pass-thru, 11.00%, 04/20/2019 93,419 93,419
---------------------------------------------
Total Government National Mortgage Association (Cost of $2,403,148,717,
$802,734,112 and $3,205,882,829 respectively) 2,412,648,282 812,744,642 3,225,392,924
---------------------------------------------
Federal Home Loan Mortgage Corp 4%
----------------------------------
Federal Home Loan Mortgage Corp., 6.50%, with various maturities thru 07/01/2029 289,964 289,964
Federal Home Loan Mortgage Corp., 6.50%, with various maturities thru 05/01/2029 181,879 181,879
Federal Home Loan Mortgage Corp., 7.00%, with various maturities thru 12/01/2028 1,031,461 1,031,461
Federal Home Loan Mortgage Corp., 7.00%, with various maturities thru 05/01/2029 88,822,701 88,822,701
Federal Home Loan Mortgage Corp., 8.00%, with various maturities thru 06/01/2030 63,906,535 63,906,535
Federal Home Loan Mortgage Corp., 7.50%, with various matutiries thru 09/01/2029 1,509,232 2,797,002 4,306,234
Federal Home Loan Mortgage Corp., 8.50%, with various matutiries thru 06/01/2030 167,666 203,830 371,496
Federal Home Loan Mortgage Corp., 9.50%, with various maturities thru 10/01/2020 10,298,526 10,298,526
---------------------------------------------
Total Federal Home Loan Mortgage Corp. (Cost of $2,861,190, $165,259,735, and
$168,120,925 respectively) 2,890,238 166,318,558 169,208,796
---------------------------------------------
Federal National Mortgage Association 11%
-----------------------------------------
Federal National Mortgage Association, 0.00%, with various maturities thru 05/01/2017 16,462 16,462
Federal National Mortgage Association, 5.50%, with various maturities thru 12/01/2028 601,124 527,873 1,128,997
Federal National Mortgage Association, 8.00%, with various maturities thru 06/01/2024 2,485,145 2,485,145
Federal National Mortgage Association, 8.00%, with various maturities thru 08/01/2024 2,788,252 2,788,252
Federal National Mortgage Association, 11.50%, with various maturities thru 05/01/2018 200,140 200,140
Federal National Mortgage Association, 6.00%, with various maturities thru 07/01/2029 48,000,715 48,000,715
Federal National Mortgage Association, 6.50%, with various maturities thru 09/01/2029 258,503 67,860,735 68,119,238
Federal National Mortgage Association, 7.00%, with various maturities thru 08/01/2029 15,912,829 15,912,829
Federal National Mortgage Association, 7.00%, with various maturities thru 03/01/2015 137,438 74,683,444 74,820,882
Federal National Mortgage Association, 7.50%, with various maturities thru 01/01/2029 1,050,582 209,016,638 210,067,220
Federal National Mortgage Association, 8.50%, with various maturities thru 07/01/2030 15,860,868 1,944,236 17,805,104
Federal National Mortgage Association, 9.00%, with various maturities thru 03/01/2030 154,406 1,620,994 1,775,400
Federal National Mortgage Association, 9.5%, with various maturities thru 10/01/2020 14,819,822 14,819,822
Total Federal National Mortgage Association (Cost of $35,400,516, $415,549,136 and ---------------------------------------------
$450,949,652 respectively) 35,384,350 422,555,856 457,940,206
---------------------------------------------
---------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100% (Cost of $2,634,536,910, $1,541,262,823, and
$4,175,799,732 respectively) $2,640,283,341 $1,556,242,458 $4,196,525,799
=============================================
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Kemper US Gov't Kemper US Pro Forma Pro Forma
Securities Fund Mortgage Fund Adjustments Combined
----------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Investments, at value $ 2,640,283,341 $ 1,556,242,458 $ 4,196,525,799
Cash 369,124 22,308 $ 391,432
Other assets less liabilities (66,460,173) (83,970,174) $ -- (2) $ (150,430,347)
--------------- --------------- ------------- ---------------
Total Net assets $ 2,574,192,292 $ 1,472,294,592 -- $ 4,046,486,884
=============== =============== ============= ===============
Net Assets
Class A Shares $ 2,417,741,463 $ 1,404,854,786 $ 3,822,596,249
Class B Shares $ 118,154,286 $ 64,343,296 $ 182,497,582
Class C Shares $ 34,530,940 $ 3,096,510 $ 37,627,450
Class I Shares $ 3,765,603 $ 3,765,603
Share Outstanding $ --
Class A Shares 289,737,753 209,192,265 (40,744,449) 458,185,569
Class B Shares $ 14,180,274 9,558,502 (1,834,217) 21,904,559
Class C Shares 4,130,643 460,995 (90,599) 4,501,039
Class I Shares 451,186 451,186
Net Asset Value per Share
Class A Shares $ 8.34 $ 6.72 $ 8.34
Class B Shares $ 8.33 $ 6.73 $ 8.33
Class C Shares $ 8.36 $ 6.72 $ 8.36
Class I Shares $ 8.35 $ 8.35
</TABLE>
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Kemper US Gov't Kemper US Pro Forma Pro Forma
Securities Fund Mortgage Fund Adjustments Combined
----------------- -------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest and dividend income $ 201,941,303 117,009,883 $ -- $ 318,951,186
----------------------------------------------------------------------------
Total Investment Income 201,941,303 117,009,883 318,951,186
Expenses
Management fees 11,463,282 8,259,280 (1,885,444)(3) 17,837,118
12B-1 7,222,525 4,515,761 11,738,286
Trustees Fees 152,524 43,890 -- (4) 196,414
All other expenses 5,024,712 3,628,806 5,543,037 (5) 14,196,555
----------------------------------------------------------------------------
Total expenses before reductions 23,863,043 16,447,737 3,657,593 43,968,373
Expense reductions -- (136,412) 136,412 --
----------------------------------------------------------------------------
Expenses, net 23,863,043 16,311,325 3,794,005 43,968,373
----------------------------------------------------------------------------
Net investment income (loss) 178,078,260 100,698,558 (3,794,005) 274,982,813
----------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain (loss) from investments (45,926,245) (40,385,538) -- (86,311,783)
Net unrealized appreciation (depreciation)
of investments 30,644,659 27,869,005 -- 58,513,664
----------------------------------------------------------------------------
Net increase in net assets from operations $ 162,796,674 $ 88,182,025 $ (3,794,005) $ 247,184,694
============================================================================
</TABLE>
Notes to Pro Forma Combining Financial Statements
(Unaudited)
September 30, 2000
1. These financial statements set forth the unaudited pro forma condensed
Statement of Assets and Liabilities as of September 30, 2000, and the
unaudited pro forma condensed Statement of Operations for the twelve month
period ended September 30, 2000 for Kemper US Government Securities Fund and
Kemper US Mortgage 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 US Government
Securities Fund and Kemper US Mortgage Fund, respectively.
3. Represents reduction in management fees resulting from a new investment
management agreement.
4. Reduction in trustee fees resulting from the Reorganization.
5. Represents reduction in other expenses resulting from the implementation of
an administrative fee contract.
<PAGE>
PART C. OTHER INFORMATION
Item 15. Indemnification.
-------- ----------------
Article VIII of the Registrant's Agreement and Declaration of
Trust (Exhibit 1 hereto, which is 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 the 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.
-------- ---------
<PAGE>
(1) (a)(1) Amended and Restated Agreement and Declaration of Trust.
(Incorporated by reference to Post-Effective Amendment No.
23 to the Registrant's Registration Statement on Form N-1A,
as amended (the "Registration Statement") filed on November
30, 1995.)
(a)(2) Text of Share Certificate. (Incorporated by reference to
Post-Effective Amendment No. 23 to the Registration
Statement filed on November 30, 1995.)
(a)(3) Amended and Restated Written Instrument Establishing and
Designating Separate Classes of Shares dated March 9, 1996.
(Incorporated by reference to Post-Effective Amendment No.
30 to the Registration Statement filed on December 29,
1999.)
(2) By-laws. (Incorporated by reference to Post-Effective
Amendment No. 23 to the Registration Statement filed on
November 30, 1995.)
(3) Inapplicable.
(4) Form of Agreement and Plan of Reorganization is filed herein
as Exhibit A to Part A.
(5) Inapplicable.
(6) (d)(1) Revised Investment Management Agreement between the
Registrant and Scudder Kemper Investments, Inc., dated
September 7, 1998. (Incorporated by reference to Post-
Effective Amendment No. 28 to the Registration Statement
filed on October 18, 1999.)
(7) (e)(1) Underwriting and Distribution Services Agreement between the
Registrant and Kemper Distributors, Inc., dated September 7,
1998. (Incorporated by reference to Post-Effective Amendment
No. 27 to the Registration Statement filed on December 30,
1998.)
(8) Inapplicable.
(9) (g)(1) Custodian Contract between Registrant and State Street Bank
and Trust Company dated April 5, 1999. (Incorporated by
reference to Post-Effective Amendment No. 28 to the
Registration Statement filed on October 18, 1999.)
(10) (m)(1) Amended and Restated 12b-1 Plan between the Registrant
(Class B shares) and Kemper Distributors, Inc., dated August
1, 1998. (Incorporated by reference to Post-Effective
Amendment No. 27 to the Registration Statement filed on
December 30, 1998.)
<PAGE>
(m)(2) Amended and Restated 12b-1 Plan between the Registrant
(Class C shares) and Kemper Distributors, Inc., dated
August 1, 1998. (Incorporated by reference to Post-
Effective Amendment No. 27 to the Registration
Statement filed on December 30, 1998.)
(11) Opinion and Consent of Dechert is filed herewith.
(12) Opinion and Consent of Wilkie, Farr & Gallagher to be
filed by post-effective amendment.
(13) (h)(1) Agency Agreements. (Incorporated by reference to Post-
Effective Amendment No. 23 to the Registration
Statement filed on November 30, 1995.)
(h)(2) Supplement to Agency Agreement. (Incorporated by
reference to Post-Effective Amendment No. 25 to the
Registration Statement filed on December 30, 1997.)
(h)(3) Administrative Service Agreement. (Incorporated by
reference to Post-Effective Amendment No. 25 to the
Registration Statement filed on December 30, 1997.)
(h)(4) Fund Accounting Services Agreement between the
Registrant and Scudder Fund Accounting Corp., dated
December 31, 1997. (Incorporated by reference to Post-
Effective Amendment No. 27 to the Registration
Statement filed on December 30, 1998.)
(14) Consents of Independent Auditors is filed herewith.
(15) Inapplicable.
(16) Powers of Attorney are filed herewith.
(17) Form of Proxy is filed herewith.
Item 17. Undertakings.
-------- -------------
(1) The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act [17 CFR 230.145c], the reoffering prospectus will
contain the information called for by the applicable registration form
for reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other
<PAGE>
items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to
the registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act,
each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.
(3) The undersigned Registrant undertakes to file, by post-effective
amendment, an opinion of counsel supporting the tax consequences of
the proposed reorganization within a reasonable time after receipt of
such opinion.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Kemper U.S. Government Securities Fund 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 22nd day of December, 2000.
KEMPER U.S. GOVERNMENT SECURITIES FUND
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 December 22, 2000
---------------------------
Mark S. Casady
/s/ John W. Ballantine * Trustee December 22, 2000
-------------------------
John W. Ballantine
/s/ Lewis A. Burnham * Trustee December 22, 2000
-------------------------
Lewis A. Burnham
/s/ Linda C. Coughlin * Trustee December 22, 2000
-------------------------
Linda C. Coughlin
/s/ Donald L. Dunaway * Trustee December 22, 2000
-------------------------
Donald L. Dunaway
/s/ Robert B. Hoffman * Trustee December 22, 2000
-------------------------
Robert B. Hoffman
/s/ Donald R. Jones * Trustee December 22, 2000
-------------------------
Donald R. Jones
/s/ Thomas W. Littauer * Trustee December 22, 2000
-------------------------
Thomas W. Littauer
/s/ Shirley D. Peterson * Trustee December 22, 2000
-------------------------
Shirley D. Peterson
/s/ William P. Sommers * Trustee December 22, 2000
-------------------------
William P. Sommers
/s/ John R. Hebble Treasurer (Principal Financial December 22, 2000
------------------------- and Accounting Officer)
John R. Hebble
*By: /s/ Caroline Pearson December 22, 2000
---------------------------
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 U.S. GOVERNMENT SECURITIES FUND
<PAGE>
KEMPER U.S. GOVERNMENT SECURITIES FUND
EXHIBIT INDEX
Exhibit 11 Opinion and Consent of Dechert
Exhibit 14 Consents of Independent Auditors
Exhibit 16 Powers of Attorney
Exhibit 17 Form of Proxy
