<PAGE>
As filed with the Securities and Exchange Commission
on December 15, 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 HIGH YIELD SERIES
(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 High Yield Series
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 High Yield Fund, a series of the Registrant
--------------------------------------------------------------------------------
It is proposed that this filing will become effective on January 14, 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 HIGH YIELD FUND II
Please take notice that a Special Meeting of Shareholders (the
"Meeting") of Kemper High Yield Fund II (the "Fund"), a series of Kemper Income
Trust (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 High Yield
Fund, (ii) each shareholder of the Fund would receive
shares of Kemper High Yield 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 HIGH YIELD FUND II,
a separate series of
KEMPER INCOME TRUST (the "Acquired Trust")
222 South Riverside Plaza
Chicago, Illinois 60606
(800) [ ]
--------------------------
by and in exchange for shares of beneficial interest of
KEMPER HIGH YIELD FUND,
a separate series of
KEMPER HIGH YIELD SERIES (the "Acquiring Trust")
222 South Riverside Plaza
Chicago, Illinois 60606
(800) [ ]
--------------------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of
Kemper High Yield Fund II (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 High Yield 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 High Yield
Fund and the assumption by Kemper High Yield Fund of all of the liabilities of
the Fund, as described more fully below (the "Reorganization"). Shares of Kemper
High Yield 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 High Yield Fund and
will receive shares of Kemper High Yield 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 High Yield Fund, described in
more detail below. The restructuring program is designed to respond to changing
industry conditions and investor needs. Scudder Kemper seeks to consolidate its
fund line-up and offer all of the open-end funds it advises under the "Scudder"
name. In addition,
1
<PAGE>
Scudder Kemper anticipates changing its name to "Zurich Scudder Investments,
Inc." Scudder Kemper believes that the combination of its open-end, directly-
distributed funds (the "Scudder Funds") with the funds in the Kemper Family of
Funds (the "Kemper Funds") will permit it to streamline its administrative
infrastructure and focus its distribution efforts. The restructuring program
will not result in any reduction in the services currently offered to Kemper
Funds shareholders.
In the descriptions of the Proposals below, the word "fund" is sometimes
used to mean an investment company or series thereof in general, and not the
Fund whose proxy statement this is. In addition, for simplicity, actions are
described in this Proxy Statement/Prospectus as being taken by either the Fund
or Kemper High Yield Fund (which are collectively referred to as the "Funds" and
each referred to as a "Fund"), although all actions are actually taken either by
the Acquired Trust or the Acquiring Trust (together with the Acquired Trust, the
"Trusts"), on behalf of the applicable Fund.
This Proxy Statement/Prospectus sets forth concisely the information
about Kemper High Yield 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 High Yield Fund, see Kemper High Yield 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 High Yield 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 High Yield 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 High Yield Fund at the telephone number or address
listed above. Shareholder inquiries regarding Kemper High Yield 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.
Kemper High Yield Fund and the Fund are diversified series of shares of
beneficial interest of the Acquiring Trust and the Acquired Trust, respectively,
which are open-end management investment companies organized as Massachusetts
business trusts.
The Board of Trustees that oversees the Fund is soliciting proxies from
shareholders of the Fund for the Special Meeting of Shareholders to be held on
May 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 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
2
<PAGE>
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 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 Funds, is a senior executive officer of
Scudder Kemper and is being nominated to the board of [all] [virtually all] of
the Kemper Funds. These eleven individuals 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:
-----------------------------------------------------------------------------
Year First
Name, (Date of Birth), Principal Occupation and Affiliations 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.
-----------------------------------------------------------------------------
3
<PAGE>
-----------------------------------------------------------------------------
Lewis A. Burnham (1/8/33),/(1)/ Retired; formerly, Partner, 1998
Business Resources Group; formerly, Executive Vice
President, Anchor Glass Container Corporation.
-----------------------------------------------------------------------------
Linda C. Coughlin (1/1/52),*/(2)/ Managing Director, Scudder 2000
Kemper Investments, Inc.
-----------------------------------------------------------------------------
Donald L. Dunaway (3/8/37),/(1)/ Retired; formerly, Executive 1998
Vice President, A.O. Smith Corporation (diversified
manufacturer).
-----------------------------------------------------------------------------
James R. Edgar (7/22/46),/(3)/ Distinguished Fellow, University Nominee
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 Investments, Inc.
-----------------------------------------------------------------------------
Robert B. Hoffman (12/11/36),/(1)/ Retired; formerly, 1998
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, President, 1998
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
Director of Board of Pensions Evangelical Lutheran Church in
America.
-----------------------------------------------------------------------------
William P. Sommers (7/22/33),/(1)/ Consultant and Director, 1998
SRI Consulting; prior thereto, President and Chief 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.
-----------------------------------------------------------------------------
4
<PAGE>
-----------------------------------------------------------------------------
John G. Weithers (8/8/33),/(3)/ Formerly, Chairman of the Board Nominee
and Chief Executive Officer, Chicago Stock Exchange; Director,
Federal Life Insurance Company; President of the Members of
the Corporation and Trustee, DePaul University.
-----------------------------------------------------------------------------
* Interested person of the Acquired Trust, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
/(1)/ Messrs. Ballantine, Burnham, Dunaway, Hoffman, Sommers and Ms. Peterson
serve as board members of 26 investment companies, with 45 portfolios
managed by Scudder Kemper.
/(2)/ Ms. Coughlin serves as a board member of 52 investment companies with 97
portfolios managed by Scudder Kemper.
/(3)/ Messrs. Edgar, Renwick and Weithers serve as board members of 16
investment companies with 58 portfolios managed by Scudder Kemper.
Trustees Not Standing for Re-Election:
--------------------------------------------------------------------------------
Present Office with the Acquired Trust;
Principal Occupation or Employment
Name (Date of Birth) and Directorships
-------------------- -----------------
--------------------------------------------------------------------------------
Donald R. Jones (1/17/30) Trustee; Retired; Director, Motorola, Inc.
(manufacturer of electronic equipment and
components); formerly, Executive Vice
President and Chief Financial Officer,
Motorola, Inc.
--------------------------------------------------------------------------------
Thomas W. Littauer (4/26/55)* Chairman and Trustee; Managing Director,
Scudder Kemper; formerly, Head of Broker
Dealer Division of Putnam Investment
Management; formerly, President of Client
Management Services for Fidelity
Investments.
--------------------------------------------------------------------------------
Kathryn L. Quirk (12/3/52)* Trustee and Vice President; Managing
Director, Scudder Kemper
--------------------------------------------------------------------------------
* Interested person of the Acquired Trust, as defined in the 1940 Act.
Appendix 1 lists the number of shares of each series of the Acquired
Trust owned directly or beneficially by the Trustees and by the nominees for
election.
Responsibilities of the Board of Trustees -- Board and Committee Meetings
The primary responsibility of the Board is to represent the interests of
the shareholders of the Fund and to provide oversight of the management of the
Fund. The board that is proposed for election at this Meeting is comprised of
two individuals who are considered "interested" Trustees, and nine individuals
who have no affiliation with Scudder Kemper and who are not considered
"interested" Trustees (the "Independent Trustees"). The SEC has recently
proposed a rule that would require a majority of the board members of a fund to
be "independent" if the fund were to take advantage of certain exemptive rules
under the 1940 Act. If the proposed Board of Trustees is approved by
shareholders, more than 75% will be Independent Trustees. The Independent
Trustees have been selected and nominated solely by the current Independent
Trustees of the Acquired Trust.
5
<PAGE>
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
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.
6
<PAGE>
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, Scudder 1998
Kemper; formerly, Institutional Sales
Manager of an unaffiliated mutual
fund distributor.
---------------------------------------------------------------------------------------------------------
Philip J. Collora (11/15/45) Vice President and Secretary; Attorney, 1998
Senior Vice President, Scudder Kemper
---------------------------------------------------------------------------------------------------------
Thomas W. Littauer (4/26/55) Vice President; Managing Director, 1998
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.
---------------------------------------------------------------------------------------------------------
Kathryn L. Quirk (12/3/52) Trustee; Vice President; Managing 1998
Director, Scudder Kemper.
---------------------------------------------------------------------------------------------------------
Harry E. Resis, Jr. [ ] Vice President; Managing Director, 1998
Scudder Kemper.
---------------------------------------------------------------------------------------------------------
Linda J. Wondrack (9/12/64) Vice President; Senior Vice President, 1998
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 President, 1998
Scudder Kemper; formerly, Assistant
Vice President of an unaffiliated
investment management firm; prior
thereto, Associate Staff Attorney of
an unaffiliated investment management
firm;
---------------------------------------------------------------------------------------------------------
</TABLE>
__________________
/1/ The President, Treasurer and Secretary each holds office until the first
meeting of Trustees in each calendar year and until his or her successor
has been duly elected and qualified, and all other officers hold office as
the Trustees permit in accordance with the By-laws of the Acquired Trust.
7
<PAGE>
<TABLE>
<S> <C> <C>
---------------------------------------------------------------------------------------------------------
Associate, Peabody & Arnold
(law firm).
---------------------------------------------------------------------------------------------------------
Caroline Pearson (4/1/62) Assistant Secretary; 1998
Senior Vice 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:
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 $ [ ] $ [ ]
-----------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C>
-----------------------------------------------------------------------------------------------
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 High Yield Fund in exchange for Class A, Class B and Class C shares of
Kemper High Yield 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 High Yield 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 High Yield 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 High Yield 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
9
<PAGE>
available to investors in an effort to meet the growing and changing needs and
desires of an increasingly large and dynamic group of investors. With this
expansion has come increased complexity and competition among mutual funds, as
well as the potential for increased confusion among investors. The group of
funds advised by Scudder Kemper has followed this pattern.
As a result, Scudder Kemper has sought ways to restructure and
streamline the management and operations of the funds it advises by
consolidating all of the retail mutual funds that it currently sponsors into a
single product line offered under the "Scudder" name. Scudder Kemper believes,
and has advised the boards, that further reducing the number of funds it advises
and adding the classes of shares currently offered on all Kemper Funds to the
Scudder Funds will benefit fund shareholders. Scudder Kemper has, therefore,
proposed the combination of many Scudder Funds and Kemper Funds that have
similar or compatible investment objectives and policies. Scudder Kemper
believes that the larger funds, along with the fewer number of funds, that
result from these combinations may help to enhance investment performance and
increase efficiency of operations. The restructuring program will not result in
any changes in the shareholder services currently offered to shareholders of the
Kemper Funds.
Most of the Scudder Funds have recently adopted a new fee structure for
certain administrative services. Under this fee structure, in exchange for
payment by a fund of a single administrative fee rate, Scudder Kemper provides
or pays for substantially all services that the fund normally requires for its
operations, other than those provided under the fund's investment management
agreement and certain other expenses. This administrative fee enables investors
to determine with greater certainty the expense level that a fund will
experience, and, for the term of the administration agreement, transfers
substantially all of the risk of increased costs to Scudder Kemper. Likewise,
Scudder Kemper receives all of the benefits of economies of scale from increases
in asset size or decreased operating expenses. 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.
10
<PAGE>
. 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, Class B and Class C shares,
management has estimated that such allocated costs will be
recoverable from lower overall expense rates within three months
of completion of the Reorganization. Scudder Kemper agreed to pay
all costs of the Reorganization that exceed the estimated costs.
For these reasons, as more fully described below under "The Proposed
Transaction -- Board Approval of the Proposed Transaction," the Board of
Trustees, including the Independent Trustees, has concluded that:
. the Reorganization is in the best interests of the Fund and its
shareholders; and
. the interests of the existing shareholders of the Fund will not
be diluted as a result of the Reorganization.
Accordingly, the Trustees unanimously recommend approval of the Plan
effecting the Reorganization. If the Plan is not approved, the Fund will
continue in existence unless other action is taken by the Trustees.
Investment Objectives, Policies and Restrictions of the Funds
This section will help you compare the investment objectives and
policies of the Fund and Kemper High Yield Fund. Please be aware that this is
only a summary. More complete information may be found in the Funds'
prospectuses.
The investment objectives and policies of the Funds (and, consequently,
the risks of investing in either Fund) are identical. One difference exists in
their non-fundamental restrictions. The investment objective of each Fund is to
seek the highest level of current income obtainable from a diversified portfolio
of fixed income securities which the Fund's Investment Manager considers
consistent with reasonable risk; as a secondary objective, each Fund will seek
capital gain where consistent with its primary objective. Both Funds are managed
by the same team of investment professionals and are managed in a substantially
similar manner. There can be no assurance that either Fund will achieve its
investment objectives.
Each Fund invests mainly in lower rated, higher yielding corporate
bonds, often called junk bonds. Generally, most are from U.S. issuers, but up to
25% of each Fund's total assets could be in bonds from foreign issuers. Each
Fund normally invests at least 65% of its total assets in junk bonds, which are
those below the fourth credit grade of Moody's Investors Service, Inc. or
Standard & Poor's Ratings Services (i.e., grade BB/Ba and below).
In deciding which securities to buy and sell for a Fund to achieve
income and capital appreciation, the Investment Manager analyzes securities to
determine which appear to offer reasonable risk compared to their potential
return. To do this, the Investment Manager relies on extensive independent
analysis, favoring the bonds of companies whose credit is gaining strength or
whom it believes are unlikely to default. For each Fund, based on its analysis
of economic and market trends, the
11
<PAGE>
Investment Manager may favor bonds from different segments of the economy at
different times, while still maintaining variety in terms of the types of bonds,
companies and industries represented. For example, the Investment Manager
typically favors subordinated debt (which has higher risks and may pay higher
returns), but may emphasize senior debt if it expects an economic slowdown.
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. Also, while the Investment Manager is permitted to use various
types of derivatives (contracts whose value is based on, for example, indices,
commodities or securities) for each Fund, the Investment Manager does not intend
to use them as principal investments.
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 (i.e., those changeable 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 High Yield Fund
cannot, with certain exceptions, borrow money in an amount greater than 5% of
its total assets, while the limit applicable to the Fund is 20% of total assets.
Investors should refer to each Fund's statement of additional information for a
more detailed description of the Fund's investment policies and restrictions.
Portfolio Turnover
The portfolio turnover rate for the Fund and Kemper High Yield 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 September 30, 2000 was 66% and 52%, respectively.
Comparative Considerations
The portfolio characteristics of the combined Fund after the
Reorganization will reflect the blended characteristics of the Fund and Kemper
High Yield 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 Quality(3)
Maturity Duration
(Years)(2) (Years)(2)
--------------------------------------
BBB
and Below
above BB B B Unrated
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fund
Kemper High Yield Fund
New (Pro forma)(4)
----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The yield provided for the Fund represents the yield for its Class A shares
and the yield provided for Kemper High Yield 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 High
Yield 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.
12
<PAGE>
(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) Represents the higher of ratings by Moody's and S&P. See [Annex A] to the
Statement of Additional Information for a general description of Moody's and
S&P's ratings.
(4) Reflects the blended characteristics of the Fund and Kemper High Yield Fund
as of ______________, 2000.
Performance
The following table shows how the returns of the Fund and Kemper High Yield
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 High Yield Fund's performance for the
fiscal year ended September 30, 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 September 30, 2000, Kemper High Yield Fund had total net assets of
$3,205,397,137. For the fiscal year ended September 30, 2000, Kemper High Yield
Fund paid the Investment Manager a fee of 0.53% of its average daily net assets.
As of September 30, 2000, the Fund had total net assets of $128,293,702. For the
fiscal year ended September 30, 2000, the Fund paid the Investment Manager a fee
of 0.64% 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 High Yield Fund after the Reorganization would be 0.53% 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 High Yield Fund. Currently the
fee schedules for the Fund and Kemper High Yield Fund are as follows:
13
<PAGE>
--------------------------------------------------------------------------------
Fund Kemper High Yield Fund
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Daily Net Assets Fee Rate Average Daily Net Assets Fee Rate
------------------------ -------- ------------------------ --------
<S> <C> <C> <C>
First $250 million 0.65% First $250 million 0.58%
$250 million - $1 billion 0.62% $250 million - $1 billion 0.55%
$1 billion - $2.5 billion 0.60% $1 billion - $2.5 billion 0.53%
$2.5 billion - $5 billion 0.58% $2.5 billion - $5 billion 0.51%
$5 billion - $7.5 billion 0.55% $5 billion - $7.5 billion 0.48%
$7.5 billion - $10 billion 0.53% $7.5 billion - $10 billion 0.46%
$10 billion - $12.5 billion 0.51% $10 billion - $12.5 billion 0.44%
Over $12.5 billion 0.49% Over $12.5 billion 0.42%
---------------------------------------------------------------------------------------------
</TABLE>
Administrative Fee
On the date of Closing, Kemper High Yield 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 High
Yield Fund (other than those provided by Scudder Kemper under its investment
management agreement with that Fund) in exchange for the payment by Kemper High
Yield Fund of an annual administrative services fee (the "Administrative Fee")
equal to 0.200%, 0.275% and 0.275% 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%, 0.100% and
0.075%, respectively). The fees for the services provided by Kemper
Distributors, Inc. ("KDI") under its current services agreement and underwriting
and distribution services agreement with Kemper High Yield Fund are not covered
by, and are in addition to, the Administrative Fee. One effect of this
arrangement is to make Kemper High Yield 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 High Yield
Fund pursuant to separate agreements. Scudder Fund Accounting Corporation, a
subsidiary of Scudder Kemper, computes net asset value for Kemper High Yield
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
High Yield 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 High Yield Fund, pursuant to a custodian
agreement. Other Service Providers include the independent public accountants
and legal counsel for Kemper High Yield Fund.
Once the Administration Agreement becomes effective, each Service Provider
will continue to provide the services to Kemper High Yield Fund described above,
except that Scudder Kemper will pay these entities for the provision of their
services to Kemper High Yield Fund and will pay most other fund expenses,
including insurance, registration, printing and postage fees. In return, Kemper
High Yield 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 High
Yield Fund. The fee payable by Kemper High Yield Fund to Scudder Kemper pursuant
to the Administration Agreement would be reduced by the amount of any credit
received from Kemper High Yield Fund's custodian for cash balances.
14
<PAGE>
Certain expenses of Kemper High Yield Fund would not be borne by Scudder
Kemper under the Administration Agreement, such as taxes, brokerage, interest
and extraordinary expenses, and the fees and expenses of the Independent
Trustees (including the fees and expenses of their independent counsel). Kemper
High Yield 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 High Yield Fund,
and compares these with the expenses of the Fund. As indicated below, it is
expected that the total expense ratio of each class of Kemper High Yield
Fund following the Reorganization will be lower than the current gross expense
ratio of the comparable class of the Fund (before giving effect to waivers).
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 High Pro Forma
Fund Yield Fund Combined(1)
---- ---------- --------
<S> <C> <C> <C>
Shareholder Fees
----------------
Maximum Sales Charge (Load) Imposed on 4.50% 4.50% 4.50%
Purchases (as % of offering price)
Maximum Contingent Deferred Sales Charge None None None
(Load) (as % of redemption proceeds)(2)
Maximum Deferred Sales Charge (Load) imposed None None None
on reinvested dividends
Redemption Fee (as a percentage of amount None None None
redeemed, if applicable)
Annual Fund Operating Expenses (unaudited)
------------------------------
(as a % of average net assets)
------------------------------
Management Fees 0.65% 0.53% 0.53%
Distribution and/or service (12b-1) fees None None 0.21%
Other Expenses 0.55% 0.39% 0.33%
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C> <C>
Total Annual Fund Operating Expenses 1.20% 0.92% 1.07%
Expense waiver None None 0.13%
Net Annual Fund Operating Expenses 1.20% 0.92% 0.94%(4)
Expense Example of Total Operating Expenses
-------------------------------------------
at the End of the Period(3)
------------------------
One Year $567 $539 $542
Three Years $814 $730 $763
Five Years $1,080 $936 $1,002
Ten Years $1,839 $1,530 $1,686
</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 shares sold during 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.
Expense Comparison Table
Class B Shares
<TABLE>
<CAPTION>
Kemper High Pro Forma
Fund Yield Fund Combined(1)
---- ---------- --------
<S> <C> <C> <C>
Shareholder Fees
----------------
Maximum Sales Charge (Load) Imposed on None None None
Purchases (as % of offering price)
Maximum Contingent Deferred Sales Charge 4.00% 4.00% 4.00%
(Load) (as % of redemption proceeds)(2)
Maximum Deferred Sales Charge (Load) imposed None None None
on reinvested dividends
Redemption Fee (as a percentage of amount None None None
redeemed, if applicable)
Annual Fund Operating Expenses (unaudited)
------------------------------
(as a % of average net assets)
------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C>
Management Fees 0.65% 0.53% 0.53%
Distribution and/or service (12b-1) fees .75% .75% 1.00%
Other Expenses 0.56% 0.49% 0.38%
Total Annual Fund Operating Expenses 1.96% 1.77% 1.91%
Expense waiver None None 0.10%
Net Annual Fund Operating Expenses 1.96% 1.77% 1.81%(4)
Expense Example of Total Operating Expenses
-------------------------------------------
Assuming Redemption at the End of the Period(3)
--------------------------------------------
One Year $599 $580 $583
Three Years $915 $857 $890
Five Years $1,257 $1,159 $1,222
Ten Years $1,908 $1,653 $1,804
Expense Example of Total Operating Expenses
-------------------------------------------
Assuming No Redemption at the End of the Period(3)
-----------------------------------------------
One Year $199 $180 $184
Three Years $615 $557 $590
Five Years $1,057 $959 $1,222
Ten Years $1,908 $1,653 $1,804
</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) 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 0.10% of the Administrative
Fee for Class B shares until September 30, 2003, the initial term of the
Administration Agreement.
17
<PAGE>
Expense Comparison Table
Class C Shares
<TABLE>
<CAPTION>
Kemper High Pro Forma
Fund Yield Fund Combined(1)
---- ---------- --------
<S> <C> <C> <C>
Shareholder Fees
----------------
Maximum Sales Charge (Load) Imposed on None None None
Purchases (as % of offering price)
Maximum Contingent Deferred Sales Charge 1.00% 1.00% 1.00%
(Load) (as % of redemption proceeds)(2)
Maximum Deferred Sales Charge (Load) imposed None None None
on reinvested dividends
Redemption Fee (as a percentage of amount None None None
redeemed, if applicable)
Annual Fund Operating Expenses (unaudited)
------------------------------
(as a % of average net assets)
------------------------------
Management Fees 0.65% 0.53% 0.53%
Distribution and/or service (12b-1) fees 0.75% 0.75% 1.00%
Other Expenses 0.54% 0.48% 0.36%
Total Annual Fund Operating Expenses 1.94% 1.76% 1.89%
Expense waiver None None 0.08%
Net Annual Fund Operating Expenses 1.94% 1.77% 1.81%(4)
Expense Example of Total Operating Expenses
-------------------------------------------
Assuming Redemption at the End of the Period(3)
--------------------------------------------
One Year $297 $279 $284
Three Years $609 $554 $586
Five Years $1,047 $954 $1,014
Ten Years $2,264 $2,073 $2,205
</TABLE>
18
a
<PAGE>
<TABLE>
<S>
Expense Example of Total Operating Expenses
-------------------------------------------
Assuming No Redemption at the End of the Period(3)
-----------------------------------------------
<S> <C> <C> <C>
One Year $197 $179 $184
Three Years $609 $554 $586
Five Years $1,047 $954 $1,014
Ten Years $2,264 $2,073 $2,205
</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) 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 0.075% 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 High Yield Fund, which is
intended to help you understand Kemper High Yield Fund's financial performance
for the past five years, is included in Kemper High Yield 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
High Yield 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 High Yield
Fund also has adopted distribution plans on behalf of each class 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 High Yield Fund will pay KDI
an asset-based fee at an annual rate of 0.75% of Class B and Class C shares.
Pending approval of the shareholders of Kemper High Yield Fund, at the time of
the Closing it is anticipated that the distribution plans for Kemper High Yield
Fund, however, unlike the distribution plans for the Fund, will 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 High
Yield Fund will authorize the payment of the services fee. The fact that the
services fee will be authorized by Kemper High Yield Fund's distribution plans
will not change the fee rate nor will it affect the nature or quality of the
services provided by KDI.
19
<PAGE>
Pursuant to the services agreement with Kemper High Yield Fund, which is
substantially identical to the current services agreement with the Fund, KDI
will receive a services fee of up to 0.25% per year with respect to the Class A,
Class B and Class C shares. KDI will use 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 High Yield 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. At the
time of the Closing, the procedures for purchases, exchanges, and redemptions of
Class A, Class B and Class C shares of Kemper High Yield Fund will be identical
to those of the Fund. Shares of Kemper High Yield Fund will be 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 High Yield Fund will have
identical sales charges to those of the Fund. Kemper High Yield Fund will have a
maximum initial sales charge of 4.50% on Class A shares. Shareholders who
purchase $1 million or more of Class A shares will 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 will be 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 will begin at 4% for shares sold in the first year, will decline 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 will be 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 High Yield 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 High Yield 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 High Yield Fund received in the Reorganization, using
the original purchase date for such shares to calculate the holding period,
rather than the date such shares are received in the Reorganization.
Services available to shareholders of Class A, Class B and Class C shares
of Kemper High Yield 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 the Kemper High Yield Fund's prospectus for additional information.
Dividends and Other Distributions
[Each Fund intends to declare dividends from its net investment income
daily and distribute them monthly. Each Fund intends to distribute net realized
capital gains after utilization of capital loss carryforwards, if any, in
November or December of each year. An additional distribution may be made if
necessary.] Dividends and distributions of each Fund will be invested in
additional shares of the same class of that Fund at net asset value and credited
to the shareholder's account on the payment date or, at the shareholder's
election, paid in cash.
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If the Plan is approved by the Fund's shareholders, the Fund will pay its
shareholders a distribution of all undistributed net investment income and
undistributed realized net capital gains immediately prior to the Closing.
Other Differences Between the Funds
Charter Documents.
The Fund is organized as a Massachusetts business trust and is governed
by a Declaration of Trust dated August 27, 1998. Kemper High Yield Fund is also
a Massachusetts business trust, and is governed by an Agreement and Declaration
of Trust dated October 24, 1985. Although the organizational documents of the
Fund and of Kemper High Yield Fund are substantially similar, some differences
do exist. The more significant differences are listed below.
. A special meeting of the Fund for all purposes may be called by shareholders
of the Fund holding 10% of outstanding shares entitled to vote; a special
meeting of Kemper High Yield Fund may be called by shareholders of 25% of
the outstanding shares of the fund entitled to vote (10% if the purpose of
the meeting is to consider the removal of a Trustee).
. Fund shareholders may remove a trustee by a 2/3 vote of the shares
outstanding entitled to vote; Kemper High Yield Fund shareholders may remove
a trustee by a vote of more than 50% of the outstanding shares of the fund.
Trustees
The Trustees of the Fund, currently and as proposed under Proposal 1, are
the same as those of Kemper High Yield Fund, except that Kathryn L. Quirk is a
trustee of the Fund and not of Kemper High Yield Fund. See Proposal 1 for
information regarding the trustees of the Fund and the nominees for election to
the Board of Trustees of the Fund and Kemper High Yield Fund.
Tax Consequences
As a condition to the Reorganization, each Fund will have received an
opinion of Willkie Farr & Gallagher in connection with the Reorganization, to
the effect that, based upon certain facts, assumptions and representations, the
Reorganization will constitute a tax-free reorganization within the meaning of
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code").
If the Reorganization constitutes a tax-free reorganization, no gain or loss
will be recognized by the Fund or its shareholders as a direct result of the
Reorganization. See "The Proposed Transaction -- Federal Income Tax
Consequences."
* * *
The preceding is only a summary of certain information contained in this
Proxy Statement/Prospectus relating to the Reorganization. This summary is
qualified by reference to the more complete information contained elsewhere in
this Proxy Statement/Prospectus, the prospectuses and statements of additional
information of the Funds, and the Plan. Shareholders should read this entire
Proxy Statement/Prospectus carefully.
II. PRINCIPAL RISK FACTORS
Because of their identical investment objectives and policies and similar
strategies, the principal risks presented by Kemper High Yield Fund are similar
to those presented by the Fund. The main risks applicable to each Fund include,
among others, management risk (i.e., securities selection by the Investment
Manager), risk associated with interest rates, and risk associated with credit
quality. In addition, investments in high yield securities, or "junk bonds,"
entail relatively greater risk of loss of income and principal than investments
in higher rated securities, and may fluctuate more in value. To the extent that
a Fund invests in foreign securities, it may be exposed to the risks associated
with such investments and foreign currency risk. 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.
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For a further discussion of the investment techniques and risk factors
applicable to the Funds, see "Investment Objectives, Policies and Restrictions
of the Funds" above, and each Fund's prospectus and statement of additional
information.
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 High Yield 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 High Yield 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 High Yield 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
High Yield Fund distributed in the Reorganization to shareholders in exchange
for certificated shares of the Fund may not be transferred, exchanged or
redeemed without delivery of such certificates.
Until the Closing, shareholders of the Fund will continue to be able to
redeem their shares at the net asset value next determined after receipt by the
Fund's transfer agent of a redemption request in proper form. Redemption and
purchase requests received on or after the Valuation Date by the transfer agent
will be treated as requests received for the redemption or purchase of Class A,
Class B or Class C shares of Kemper High Yield 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 the Kemper High Yield 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.
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<PAGE>
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
(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.
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<PAGE>
. 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, Class B and Class C shares,
management has estimated that such allocated costs will be
recoverable from lower overall expense rates within three months
of completion of the Reorganization. Scudder Kemper agreed to pay
all costs of the Reorganization that exceed the 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
High Yield Fund after the Reorganization, and between the estimated operating
expenses of Kemper High Yield Fund and other mutual funds with similar
investment objectives; (b) the terms and conditions of the Reorganization and
whether the Reorganization would result in the dilution of shareholder
interests; (c) the compatibility of the Funds' investment objectives, policies,
restrictions and portfolios; (d) the service features available to shareholders
of each Fund; (e) prospects for Kemper High Yield 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 $42,990, which includes board
meeting fees, legal, accounting and other consultant
fees, and proxy solicitation costs. The Fund will pay
100% of the estimated costs of the Reorganization
allocable to Class A, Class B and Class C shares of
$14,244, $21,580 and $7,166, respectively. Scudder
Kemper is bearing the remaining costs, including any
cost overruns (except that the Acquiring 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 $0.0024 for
Class A shares, $0.0027 for Class B shares and $0.0028
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 three 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
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<PAGE>
result of the Reorganization. Scudder Kemper estimated such
turnover, if any, to result 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
High Yield Fund in an amount equal to the relative net
asset value of their Fund shares. The Trustees
considered whether an adjustment in this formula should
be made for the above tax differentials. The Trustees
determined that no adjustment should be made because
the potential tax consequences were not material,
quantifiable or predictable because of (1)
uncertainties as to the amounts 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.
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<PAGE>
Description of the Securities to Be Issued
Kemper High Yield Fund is a series of the Acquiring Trust, a
Massachusetts business trust established under an Agreement and 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. Kemper High Yield Fund is one
of two series of the Acquiring Trust. The Trustees of the Acquiring Trust are
also authorized to further divide the shares of the series of the Acquiring
Trust into classes. The shares of Kemper High Yield 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 High Yield Fund represents an
interest in Kemper High Yield Fund that is equal to and proportionate with each
other share of that class of Kemper High Yield Fund. Kemper High Yield 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 High Yield
Fund.
Federal Income Tax Consequences
The Reorganization is conditioned upon the receipt by each Fund of an
opinion from Willkie Farr & Gallagher substantially to the effect that, based
upon certain facts, assumptions and representations of the parties, for federal
income tax purposes: (i) the transfer to Kemper High Yield 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 High Yield 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 High Yield 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 High Yield Fund in exchange
solely for Class A, Class B and Class C shares and the assumption by Kemper High
Yield 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 High Yield 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 High Yield Fund will include the period during
which such assets were held by the Fund; (v) no gain or loss will be recognized
by Kemper High Yield 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 High Yield
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 High Yield 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.
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<PAGE>
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 High Yield Fund will be passed on by Dechert, Ten Post
Office Square, South, Boston, Massachusetts 02109.
27
<PAGE>
Capitalization
The following table shows on an unaudited basis the capitalization of
Kemper High Yield 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>
Pro Forma
Net Assets Kemper High Yield Fund Fund Adjustments Pro Forma Combined
<S> <C> <C> <C> <C>
Class A Shares $ 2,276,521,754 $ 46,703,912 /(3)/ $ 2,323,225,666
Class B Shares $ 792,225,581 $ 63,210,910 /(4)/ $ 855,436,491
Class C Shares $ 124,359,159 $ 18,378,880 /(5)/ $ 142,738,039
Class I Shares $ 12,290,643 /(6)/ $ 12,290,643
--------------------- --------------------- -------------------
Total Net Assets $ 3,205,397,137 $ 128,293,702 $ 3,333,690,839/(2)/
===================== ===================== ===================
Shares Outstanding
Class A Shares 358,910,410 6,004,692 1,361,856 366,276,958
Class B Shares 125,068,742 8,125,884 1,860,042 135,054,668
Class C Shares 19,583,229 2,362,812 531,500 22,477,541
Class I Shares 1,940,608 1,940,608
Net Asset Value per Share
Class A Shares $ 6.34 $ 7.78 $ 6.34
Class B Shares $ 6.33 $ 7.78 $ 6.33
Class C Shares $ 6.35 $ 7.78 $ 6.35
Class I Shares $ 6.33 $ 6.33
</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 High Yield 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 High Yield 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
High Yield Fund.
(3) Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $[143,815] and $[14,244] to be borne by Class A Shares
of Kemper High Yield Fund and the Fund, respectively.
(4) Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $[0] and $[21,580] to be borne by Class B Shares of
Kemper High Yield Fund and the Fund, respectively.
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<PAGE>
(5) Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $[3,225] and $[7,166] to be borne by Class C Shares of
Kemper High Yield Fund and the Fund, respectively.
(6) Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $[0] to be borne by Class I Shares of Kemper High
Yield Fund.
29
<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
Trust, officers and employees of Scudder Kemper and certain financial services
firms and their representatives, who will receive no extra compensation for
their services, may solicit proxies by telephone, telegram or personally.
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<PAGE>
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 one-third 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 High Yield 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.
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
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<PAGE>
are reasonably designed to ensure that both the identity of the shareholder
casting the vote and the voting instructions of the shareholder are accurately
determined.
In all cases where a telephonic proxy is solicited, the SCC
representative is required to ask for each shareholder's full name and address,
or the last four digits of the shareholder's social security or employer
identification number, or both, and to confirm that the shareholder has received
the proxy materials in the mail. If the shareholder is a corporation or other
entity, the SCC representative is required to ask for the person's title and
confirmation that the person is authorized to direct the voting of the shares.
If the information solicited agrees with the information provided to SCC, then
the SCC representative has the responsibility to explain the process, read the
Proposals on the proxy card(s), and ask for the shareholder's instructions on
the Proposals. Although the SCC representative is permitted to answer questions
about the process, he or she is not permitted to recommend to the shareholder
how to vote, other than to read any recommendation set forth in the Proxy
Statement/Prospectus. SCC will record the shareholder's instructions on the
card. Within 72 hours, the shareholder will be sent a letter or mailgram to
confirm his or her vote and asking the shareholder to call SCC immediately if
his or her instructions are not correctly reflected in the confirmation.
Shareholders may also provide their voting instructions through
telephone touch-tone voting or Internet voting. These options require
shareholders to input a control number which is located on each voting
instruction card. After inputting this number, shareholders will be prompted to
provide their voting instructions on the Proposals. Shareholders will have an
opportunity to review their voting instructions and make any necessary changes
before submitting their voting instructions and terminating their telephone call
or Internet link. Shareholders who vote on the Internet, in addition to
confirming their voting instructions prior to submission, will also receive an
e-mail confirming their instructions.
If a shareholder wishes to participate in the Meeting, but does not wish
to give a proxy by telephone or electronically, the shareholder may still submit
the proxy card(s) originally sent with the Proxy Statement/Prospectus or attend
in person. Should shareholders require additional information regarding the
proxy or replacement proxy card(s), they may contact SCC toll-free at 1-800-[ ].
Any proxy given by a shareholder is revocable until voted at the Meeting.
Shareholder Proposals for Subsequent Meetings. Shareholders wishing to
submit proposals for inclusion in a proxy statement for a shareholder meeting
subsequent to the Meeting, if any, should send their written proposals to the
Secretary of the Acquired Trust, c/o Scudder Kemper Investments, Inc., 222 South
Riverside Plaza, Chicago, Illinois 60606, within a reasonable time before the
solicitation of proxies for such meeting. The timely submission of a proposal
does not guarantee its inclusion.
Other Matters to Come Before the Meeting. The Board is not aware of any
matters that will be presented for action at the Meeting other than the matters
described in this material. Should any other matters requiring a vote of
shareholders arise, the proxy in the accompanying form will confer upon the
person or persons entitled to vote the shares represented by such proxy the
discretionary authority to vote the shares as to any such other matters in
accordance with their best judgment in the interest of the Acquired Trust and/or
the Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) (OR TAKE ADVANTAGE
OF AVAILABLE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES) PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board,
32
<PAGE>
/s/ Philip J. Collora
Philip J. Collora
Secretary
33
<PAGE>
INDEX OF EXHIBITS AND APPENDICES
<TABLE>
<S> <C>
EXHIBIT A: FORM OF AGREEMENT AND PLAN OF REORGANIZATION......................................
EXHIBIT B: MANAGEMENT'S DISCUSSION OF KEMPER HIGH YIELD FUND'S PERFORMANCE...................
APPENDIX 1: TRUSTEE AND NOMINEE SHAREHOLDINGS.................................................
APPENDIX 2: BENEFICIAL OWNERS OF FUND SHARES..................................................
</TABLE>
34
<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 High Yield Series (the "Acquiring
Trust"), a Massachusetts business trust, on behalf of Kemper High Yield Fund
(the "Acquiring Fund"), a separate series of the Acquiring Trust, Kemper Income
Trust (the "Acquired Trust" and, together with the Acquiring Trust, each a
"Trust" and collectively the "Trusts"), a Massachusetts business trust, on
behalf of Kemper High Yield Fund II (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").
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
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
3.4. Kemper Service Company, as transfer agent for the Acquired Fund, on
behalf of the Acquired Fund, shall deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
the Acquired Fund Shareholders and the number and percentage ownership (to three
decimal places) of outstanding Class A, Class B and Class C Acquired Fund shares
owned by each such shareholder immediately prior to the Closing. The Acquiring
Fund shall issue and deliver a confirmation evidencing the Acquiring Fund Shares
to be credited on the Closing Date to the Acquired Fund or provide evidence
satisfactory to the Acquired Fund that such Acquiring Fund Shares have been
credited to the Acquired Fund's account on the books of the Acquiring Fund. At
the Closing, each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request to effect the transactions
contemplated by this Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the NYSE
or another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund shall be closed to trading or trading thereupon shall be
restricted, or (b) trading or the reporting of trading on such Exchange or
elsewhere shall be disrupted so that, in the judgment of the Board members of
either party to this Agreement, accurate appraisal of the value of the net
assets with respect to the Class A, Class B and Class C shares of the Acquiring
Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed
until the first business day after the day when trading shall have been fully
resumed and reporting shall have been restored.
3.6. The liabilities of the Acquired Fund shall include all of the Acquired
Fund's liabilities, debts, obligations, and duties of whatever kind or nature,
whether absolute, accrued, contingent, or otherwise, whether or not arising in
the ordinary course of business, whether or not determinable at the Closing
Date, and whether or not specifically referred to in this Agreement including
but not limited to any deferred compensation to the Acquired Fund's board
members.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Trust, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) The Acquired Trust is a voluntary association with transferable
shares commonly referred to as a Massachusetts business trust duly organized and
validly existing under the laws of The Commonwealth of Massachusetts with power
under the Acquired Trust's Declaration of Trust, as amended, to own all of its
properties and assets and to carry on its business as it is now being conducted
and, subject to approval of shareholders of the Acquired Fund, to carry out the
Agreement. The Acquired Fund is a separate series of the Acquired Trust duly
designated in accordance with the applicable provisions of the Acquired Trust's
Declaration of Trust. The Acquired Trust and Acquired Fund are qualified to do
business in all jurisdictions in which they are required to be so qualified,
except jurisdictions in which the failure to so qualify would not have material
adverse effect on the Acquired Trust or Acquired Fund. The Acquired Fund has all
material federal, state and local authorizations necessary to own all of the
properties and assets and to carry on its business as now being conducted,
except authorizations which the failure to so obtain would not have a material
adverse effect on the Acquired Fund;
(b) The Acquired Trust is registered with the Commission as an
open-end management investment company under the 1940 Act, and such registration
is in full force and effect and the Acquired Fund is in compliance in all
material respects with the 1940 Act and the rules and regulations thereunder;
<PAGE>
(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 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;
<PAGE>
(i) For each taxable year of its operation (including the taxable
year ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company and
has elected to be treated as such, has been eligible to and has computed its
federal income tax under Section 852 of the Code, and will have distributed all
of its investment company taxable income and net capital gain (as defined in the
Code) that has accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have
been offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the 1933
Act and state securities laws, (ii) are, and on the Closing Date will be, duly
and validly issued and outstanding, fully paid and non-assessable and not
subject to preemptive or dissenter's rights (recognizing that, under
Massachusetts law, Acquired Fund Shareholders, under certain circumstances,
could be held personally liable for obligations of the Acquired Fund), and (iii)
will be held at the time of the Closing by the persons and in the amounts set
forth in the records of Kemper Service Company, as provided in section 3.4. The
Acquired Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, nor is there
outstanding any security convertible into any of the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Fund's assets to be transferred to the
Acquiring Fund pursuant to section 1.2 and full right, power, and authority to
sell, assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the Acquiring
Fund has received notice at or prior to the Closing, and upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act and the 1940 Act,
except those restrictions as to which the Acquiring Fund has received notice and
necessary documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action on
the part of the Board members of the Acquired Trust (including the
determinations required by Rule 17a-8(a) under the 1940 Act), and, subject to
the approval of the Acquired Fund Shareholders, this Agreement constitutes a
valid and binding obligation of the Acquired Trust, on behalf of the Acquired
Fund, enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for use
in any other document filed or to be filed with any federal, state or local
regulatory authority (including the National Association of Securities Dealers,
Inc. (the "NASD")), which may be necessary in connection with the transactions
contemplated hereby, shall be accurate and complete in all material respects and
shall comply in all material respects with federal securities and other laws and
regulations applicable thereto;
(n) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund,
<PAGE>
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;
(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
<PAGE>
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 September 30, 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 September 30, 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;
(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);
<PAGE>
(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;
(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
<PAGE>
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.
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
<PAGE>
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, 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:
<PAGE>
(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, 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
<PAGE>
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, and constitutes a valid and legally binding obligation of the
Acquired Trust, on behalf of the Acquired Fund, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity principles; (d) the execution
and delivery of the Agreement did not, and the exchange of the Acquired Fund's
assets for Acquiring Fund Shares pursuant to the Agreement will not, violate the
Acquired Trust's Declaration of Trust, as amended, or By-laws; and (e) to the
knowledge of such counsel, and without any independent investigation, (i) the
Acquired Trust is not subject to any litigation or other proceedings that might
have a materially adverse effect on the operations of the Acquired Trust, (ii)
the Acquired Trust is duly registered as an investment company with the
Commission and is not subject to any stop order, and (iii) all regulatory
consents, authorizations, approvals or filings required to be obtained or made
by the Acquired Fund under the federal laws of the United States or the laws of
The Commonwealth of Massachusetts for the exchange of the Acquired Fund's assets
for Acquiring Fund Shares, pursuant to the Agreement have been obtained or made.
The delivery of such opinion is conditioned upon receipt by
Dechert of customary representations it shall reasonably request of each of the
Acquiring Trust and the Acquired Trust.
7.5. The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND
THE ACQUIRED FUND
If any of the conditions set forth below have not been met on or before
the Closing Date with respect to the Acquired Fund or the Acquiring Fund, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of the Acquired
Trust's Declaration of Trust, as amended, and By-Laws, applicable Massachusetts
law and the 1940 Act, and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Acquired
Fund may waive the conditions set forth in this section 8.1.
8.2. On the Closing Date, no action, suit or other proceeding shall
be pending or to its knowledge threatened before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain material damages
or other relief in connection with, this Agreement or the transactions
contemplated herein.
<PAGE>
8.3. All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4. The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5. The parties shall have received an opinion of Willkie Farr &
Gallagher addressed to each of the Acquiring Fund and the Acquired Fund, in a
form reasonably satisfactory to each such party to this Agreement, substantially
to the effect that, based upon certain facts, assumptions and representations of
the parties, for federal income tax purposes: (i) the transfer to the Acquiring
Fund of all or substantially all of the assets of the Acquired Fund in exchange
solely for Acquiring Fund Shares and the assumption by the Acquiring Fund of all
of the liabilities of the Acquired Fund, followed by the distribution of such
shares to the Acquired Fund Shareholders in exchange for their shares of the
Acquired Fund in complete liquidation of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Code, and the
Acquiring Fund and the Acquired Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by the Acquired Fund upon the transfer of all or substantially all of
its assets to the Acquiring Fund in exchange solely for Acquiring Fund Shares
and the assumption by the Acquiring Fund of all of the liabilities of the
Acquired Fund; (iii) the basis of the assets of the Acquired Fund in the hands
of the Acquiring Fund will be the same as the basis of such assets of the
Acquired Fund immediately prior to the transfer; (iv) the holding period of the
assets of the Acquired Fund in the hands of the Acquiring Fund will include the
period during which such assets were held by the Acquired Fund; (v) no gain or
loss will be recognized by the Acquiring Fund upon the receipt of the assets of
the Acquired Fund in exchange for Acquiring Fund Shares and the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund; (vi) no gain
or loss will be recognized by Acquired Fund Shareholders upon the receipt of the
Acquiring Fund Shares solely in exchange for their shares of the Acquired Fund
as part of the transaction; (vii) the basis of the Acquiring Fund Shares
received by Acquired Fund Shareholders will be the same as the basis of the
shares of the Acquired Fund exchanged therefor; and (viii) the holding period of
Acquiring Fund Shares received by Acquired Fund Shareholders will include the
holding period during which the shares of the Acquired Fund exchanged therefor
were held, provided that at the time of the exchange the shares of the Acquired
Fund were held as capital assets in the hands of Acquired Fund Shareholders. The
delivery of such opinion is conditioned upon receipt by Willkie Farr & Gallagher
of representations it shall request of each of the Acquiring Trust and Acquired
Trust. Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Acquired Fund may waive the condition set forth in this section
8.5.
9. INDEMNIFICATION
9.1. The Acquiring Fund agrees to indemnify and hold harmless the
Acquired Fund and each of the Acquired Fund's Board members and officers from
and against any and all losses, claims, damages, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally, the Acquired
Fund or any of its Board members or officers may become subject, insofar as any
such loss, claim, damage, liability or expense (or actions with respect thereto)
arises out of or is based on any breach by the Acquiring Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
<PAGE>
9.2. The Acquired Fund agrees to indemnify and hold harmless the
Acquiring Fund and each of the Acquiring Fund's Board members and officers from
and against any and all losses, claims, damages, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally, the Acquiring
Fund or any of its Board members or officers may become subject, insofar as any
such loss, claim, damage, liability or expense (or actions with respect thereto)
arises out of or is based on any breach by the Acquired Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
10. FEES AND EXPENSES
10.1. Each of the Acquiring Trust, on behalf of the Acquiring Fund,
and the Acquired Trust, on behalf of the Acquired Fund, represents and warrants
to the other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
10.2. 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.
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
<PAGE>
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 HIGH YIELD SERIES
on behalf of Kemper High Yield Fund
-------------------------
Secretary
--------------------------------
By:_____________________________
Its:____________________________
Attest: KEMPER INCOME TRUST
on behalf of Kemper High Yield Fund II
-------------------------
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 High Yield Fund's Performance
<PAGE>
PERFORMANCE UPDATE
[RESIS PHOTO]
HARRY RESIS JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1988 AND IS A MANAGING
DIRECTOR. HE IS ALSO LEAD PORTFOLIO MANAGER OF KEMPER HIGH YIELD FUND, KEMPER
HIGH YIELD FUND II AND KEMPER HIGH YIELD OPPORTUNITY FUND. RESIS HOLDS A
BACHELOR'S DEGREE IN FINANCE FROM MICHIGAN STATE UNIVERSITY.
[DOYLE PHOTO]
DAN DOYLE IS A PORTFOLIO MANAGER OF KEMPER HIGH YIELD FUND. A CERTIFIED
FINANCIAL ANALYST, HE HAS BEEN INVOLVED WITH KEMPER HIGH YIELD FUND IN BOTH
RESEARCH AND TRADING SINCE 1986 AND IS A PORTFOLIO MANAGER OF KEMPER HIGH YIELD
FUND II AND KEMPER HIGH YIELD OPPORTUNITY FUND. DOYLE RECEIVED HIS M.B.A. FROM
THE UNIVERSITY OF CHICAGO.
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 A RECOMMENDATION OF ANY SPECIFIC
SECURITY.
WHILE LONG-TERM GOVERNMENT BONDS PERFORMED WELL DURING THE PAST 12 MONTHS,
HIGH-YIELD BONDS DID NOT. THROUGHOUT THE YEAR, PRESERVING CAPITAL WAS THE
OVERRIDING MARKET CHALLENGE AS THE DYNAMICS OF TELECOM-RELATED FINANCING
WEAKENED AND U.S. ECONOMIC GROWTH MODERATED. BELOW, LEAD PORTFOLIO MANAGER HARRY
RESIS DISCUSSES HOW THE FUND PERFORMED IN THIS ENVIRONMENT.
Q HOW DID THE HIGH-YIELD MARKET BEHAVE AND KEMPER HIGH YIELD FUND PERFORM
DURING THE 12 MONTHS ENDED SEPTEMBER 30, 2000?
A It was not a pleasant year for high-yield bonds and was a disappointing
time for the fund. Concern over the effect of Federal Reserve Board interest
rate hikes, weak investor demand and a jittery stock market contributed to a
setback for high-yield bonds during fiscal year 2000. Preserving capital was the
overriding market challenge as the dynamics of telecom-related financing
weakened and U.S. economic growth moderated.
Kemper High Yield Fund's decline of 1.88 percent for the 12-month period ended
September 30, 2000 (Class A shares, unadjusted for a sales charge) was worse
than the average 0.02 percent drop of its peers as measured by Lipper, Inc. The
unmanaged Chase US/Canada High Yield Bond Index rose 0.50 percent for the same
period. The fund focused exclusively on bonds issued by U.S.-based companies,
which did not do as well as certain high-yield emerging market bonds. Some of
the fund's peers had overseas bonds in their portfolios in an effort to boost
return. We preferred a less risky approach to help preserve capital over the
long term and maintain high income potential.
HIGH-YIELD BOND YIELDS (YIELD-TO-WORST) VS. 10-YEAR TREASURIES
SEPTEMBER 30, 1995 TO SEPTEMBER 30, 2000
[BAR GRAPH]
<TABLE>
<CAPTION>
MERRILL LYNCH HIGH YIELD MASTER
INDEX* TEN YEAR TREASURIES
------------------------------- -------------------
<S> <C> <C>
9/95 9.000/95 6.182
9.933 6.020
9.835 5.741
9.762 5.572
9.539 5.580
9.611 6.098
9.796 6.327
9.849 6.670
9.861 6.852
9.989 6.711
10.009 6.794
9.912 6.943
9/96 9.595 6.703
9.629 6.339
9.418 6.044
9.385 6.418
9.407 6.494
9.100 6.552
9.665 6.903
9.561 6.718
9.240 6.659
9.055 6.500
8.572 6.010
8.797 6.339
9/97 8.580 6.102
8.716 5.831
8.691 5.874
8.600 5.741
8.352 5.505
8.378 5.622
8.391 5.654
8.549 5.671
8.679 5.552
8.812 5.446
8.819 5.494
10.180 4.976
9/98 10.276 4.420
10.970 4.605
10.088 4.714
10.304 4.648
10.192 4.651
10.416 5.287
10.365 5.242
9.912 5.348
10.328 5.622
10.518 5.780
10.470 5.903
10.813 5.970
9/99 10.952 5.877
11.116 6.024
10.943 6.191
11.021 6.442
11.459 6.665
11.548 6.409
11.922 6.004
12.252 6.212
12.563 6.272
12.283 6.031
12.344 6.031
12.312 5.725
9/00 12.603 5.801
</TABLE>
*THE MERRILL LYNCH HIGH YIELD MASTER INDEX IS AN UNMANAGED GROUP OF LOWER
QUALITY BONDS THAT VARY IN MATURITY AND QUALITY.
SOURCES: BLOOMBERG BUSINESS NEWS, MERRILL LYNCH
INTEREST PAYMENTS AND RETURN OF PRINCIPAL FOR HIGH-YIELD BONDS, UNLIKE
TREASURIES, ARE NOT GUARANTEED BY THE U.S. GOVERNMENT. YIELDS ARE AN AVERAGE OF
BONDS WITH B RATINGS AND A SIMILAR DURATION TO 10-YEAR TREASURIES. HIGH-YIELD
BONDS INVOLVE MORE CREDIT RISK THAN INVESTMENT-GRADE SECURITIES. TREASURY BONDS
HAVE NO CREDIT RISK.
YIELD-TO-WORST IS AN EXPRESSION OF THE CURRENT INCOME POTENTIAL OF A BOND,
ASSUMING THE ISSUER WILL CALL OR REFINANCE THE BOND AT THE FIRST AVAILABLE
OPPORTUNITY, WHICH IS USUALLY SPECIFIED WHEN A BOND IS ISSUED.
7
<PAGE>
8
PERFORMANCE UPDATE
Q WILL YOU DESCRIBE HOW KEMPER HIGH YIELD FUND WAS POSITIONED DURING THE
PERIOD?
A During the past 12 months, higher-quality, lower-yielding bonds within the
high-yield market outperformed bonds with lower ratings and higher risk. Since
the start of calendar year 2000, we aggressively sought to upgrade the quality
of the fund's portfolio. We succeeded in cutting the percentage of unrated bonds
nearly in half compared with September 30, 1999 (see Quality), and we
substantially increased the percentage of the portfolio with BB ratings and
higher. Overall, we focused on a smaller number of larger, more liquid bond
issues, and on companies with relatively solid cash flow and proven management.
Our repositioning efforts weren't enough to overcome the negative market
forces at work. One source of anxiety was the size of the distressed high-yield
bond market. As of September 30, 2000, debt trading at or below 50 percent of
par (face value) grew to $43.6 billion from $17.7 billion a year ago, according
to Chase Securities. Many bonds issued by telecom companies took a pounding
during the past year after quarterly sales and profits did not live up to
expectations. Overall, rising oil prices, a weak euro (which made the goods of
domestic companies that export more expensive for Europeans to buy) and higher
operating costs put pressure on high-yield bond issuers' cash flow.
Another reason for the high-yield market's weakness was anemic investor
demand. The lure of potentially higher returns from equity investments,
particularly technology stocks, prompted some investors to liquidate high-yield
holdings and redeploy assets. From January to September 2000, investors
liquidated $4.4 billion from high-yield mutual funds, compared with a $4.9
billion net inflow of new investments for the first nine months of 1999,
according to Chase Securities.
Q STOCKS HAVE BEEN VOLATILE DURING THE PAST 12 MONTHS. HISTORICALLY,
HIGH-YIELD BONDS HAVE HELPED TEMPER EQUITY PORTFOLIO VOLATILITY. DID THIS HAPPEN
IN FISCAL YEAR 2000?
A The high-yield market held up better than stocks in January 2000 and
September 2000, two especially weak periods for stocks. In both months, the
unmanaged S&P 500 index fell more than 5 percent whereas the unmanaged Merrill
Lynch High Yield Master index dipped less than 1 percent. While we can't say
this pattern will continue, we believe that high-yield bonds deserve a place in
a well-balanced portfolio now more than ever. We think it would be a mistake for
investors to overlook the opportunity to maintain the diversification that this
asset class offers, especially given the magnitude of volatility we've seen in
stocks since April.
Q HOW DID HIGH-YIELD BONDS PERFORM RELATIVE TO OTHER TYPES OF BONDS?
A Yields in the high-yield market have increased dramatically since
September 1999 as the difference in yield, or spread, between 10-year Treasuries
and high-yield bonds widened to nearly 740 basis points (7.4 percent). Given
that 10-year Treasury bonds yielded 5.80 percent as of September 30, 2000,
high-yield bonds offered double the yield of government bonds for investors
willing to assume additional risk.
During the fiscal year, 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 September 30, 1999, and September 30, 2000,
long-term Treasury bond prices rose, inverting the yield curve for the first
time since the mid-1990s. This past winter, the government announced a buyback
plan for 30-year Treasuries, and this helped support Treasury bond prices for
the balance of the fiscal year.
In calendar year 2000, mortgage interest rates for consumers reached their
highest levels in five years, while housing and related consumer spending
activity remained strong. Oil prices soared past $35 a barrel. Consumer prices
were relatively tame, but as the fiscal year drew to a close, many economists
remained concerned about the inflationary impact of high oil prices and natural
gas shortages. This fear spilled over into the investment-grade corporate bond
market, and high-quality corporate bonds provided relatively weak returns in
this uncertain environment.
U.S. High-Yield Bond Performance By Rating Category
(As of September 2000)
<TABLE>
<CAPTION>
YTD THIRD QUARTER
<S> <C> <C> <C> <C>
BB 4.63% 2.65%
.........................................................
B -1.80 -0.17
.........................................................
CCC -7.23 -1.49
---------------------------------------------------------
</TABLE>
Source: Chase Securities
8
<PAGE>
9
PERFORMANCE UPDATE
Q HOW HAVE HIGH YIELD BONDS PERFORMED HISTORICALLY AFTER A PERIOD OF
INTEREST-RATE INCREASES BY THE FEDERAL RESERVE?
A The last time the Federal Reserve tightened in a big way was six years
ago, when the Fed raised rates six times. The year after
that -- 1995 -- high-yield bonds returned 20.5 percent as measured by the
Merrill Lynch High Yield Master index. Does that mean anything for the future?
While it is possible, we do not believe we will see a repeat of 1995 next year.
However, with many high-yield bonds that we like to buy yielding around 11
percent, that makes for attractive total return potential, especially given the
volatility we've seen in the equity markets.
Q HOW ARE YOU POSITIONING THE PORTFOLIO FOR THE ROAD AHEAD?
A It's possible that a year from now, high-yield bond prices will have
stabilized, and even rebounded, if we have an economic "soft landing" and the
Federal Reserve begins cutting rates. In the meantime, we think the smartest
place to go is bonds rated BB. Since the start of the year, BB-rated issues have
outperformed single Bs by a significant margin. Investors have been punished for
taking credit risk, and all indications are that this environment is likely to
continue. The latest figures from Lehman Brothers show that single Bs have been
defaulting at a 7.64 percent rate this year, compared with just 0.99 percent for
bonds rated BB.
We don't think there is enough of a potential reward to offset the risks of
stepping down in quality. We are prepared to sacrifice a modest amount of yield
to avoid getting caught in a default squeeze that would impair principal. We
think our prudence will be rewarded in the year ahead.
9
<PAGE>
10
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED SEPTEMBER 30, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
KEMPER HIGH YIELD FUND CLASS A -6.29% 4.41% 10.74% 10.24% (since 1/26/78)
...........................................................................................................
KEMPER HIGH YIELD FUND CLASS B -5.32 4.36 n/a 5.56 (since 5/31/94)
...........................................................................................................
KEMPER HIGH YIELD FUND CLASS C -2.66 4.53 n/a 5.64 (since 5/31/94)
...........................................................................................................
</TABLE>
KEMPER HIGH YIELD FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 12/31/79 to 9/30/00
[LINE GRAPH]
<TABLE>
<CAPTION>
SALOMON SMITH
BARNEY LONG-TERM
KEMPER HIGH YIELD HIGH YIELD BOND U.S. CONSUMER PRICE DLJ HIGH YIELD
FUND CLASS A1 INDEX* INDEX+ INDEX++
----------------- ---------------- ------------------- --------------
<S> <C> <C> <C> <C>
12/31/79 9551.00 10000.00 10000.00 10000.00
9457.00 9468.00 11252.00 10435.00
10288.00 9848.00 12256.00 11523.00
14343.00 13221.00 12725.00 15705.00
16880.00 16209.00 13207.00 18892.00
18597.00 17745.00 13729.00 20670.00
22902.00 21765.00 14250.00 26600.00
12/31/86 27061.00 25270.00 14407.00 30759.00
29521.00 26426.00 15046.00 32766.00
33783.00 30686.00 15711.00 36512.00
33366.00 30352.00 16441.00 36654.00
29055.00 27748.00 17445.00 34315.00
42674.00 39729.00 17979.00 49328.00
12/31/92 49978.00 47348.00 18501.00 57546.00
60112.00 56641.00 19009.00 67897.00
59048.00 54498.00 19518.00 66516.00
69356.00 70490.00 20013.00 79612.00
78712.00 76032.00 20678.00 89975.00
87772.00 89519.00 21030.00 100971.00
88899.00 21369.00 101536.00
91026.00 98078.00 21943.00 105187.00
9/30/00 87463.00 99953.00 22534.00 104517.00
</TABLE>
KEMPER HIGH YIELD FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 5/31/94 to 9/30/00
[LINE GRAPH]
<TABLE>
<CAPTION>
SALOMON SMITH
BARNEY LONG-TERM
KEMPER HIGH YIELD HIGH YIELD BOND U.S. CONSUMER PRICE DLJ HIGH YIELD
FUND CLASS B1 INDEX* INDEX+ INDEX++
----------------- ---------------- ------------------- --------------
<S> <C> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00 10000.00
9958.00 9878.00 10034.00 10044.00
10000.00 10094.00 10129.00 10087.00
10005.00 10160.00 10149.00 10048.00
10477.00 10980.00 10264.00 10639.00
10958.00 11947.00 10339.00 11273.00
11310.00 12422.00 10386.00 11635.00
11640.00 13141.00 10407.00 12027.00
11910.00 13058.00 10556.00 12287.00
6/30/96 12092.00 13053.00 10624.00 12515.00
12670.00 13469.00 10698.00 13084.00
13095.00 14174.00 10753.00 13592.00
13061.00 14196.00 10847.00 13709.00
13715.00 15140.00 10868.00 14343.00
14281.00 16005.00 10929.00 14996.00
14470.00 16688.00 10936.00 15253.00
14975.00 17355.00 10997.00 15788.00
6/30/98 15050.00 17761.00 11051.00 15888.00
14021.00 17338.00 11092.00 14889.00
14528.00 18233.00 11112.00 15339.00
14895.00 18493.00 11186.00 15675.00
14825.00 18300.00 11268.00 15822.00
14478.00 17982.00 11383.00 15559.00
14755.00 18284.00 11410.00 15890.00
14473.00 17740.00 11607.00 15661.00
14384.00 17925.00 11688.00 15703.00
9/30/00 14089.00 18633.00 11718.00 15789.00
</TABLE>
KEMPER HIGH YIELD FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 5/31/94 to 9/30/00
[LINE GRAPH]
<TABLE>
<CAPTION>
SALOMON SMITH
BARNEY LONG-TERM
KEMPER HIGH YIELD HIGH YIELD BOND U.S. CONSUMER PRICE DLJ HIGH YIELD
FUND CLASS C1 INDEX* INDEX+ INDEX++
----------------- ---------------- ------------------- --------------
<S> <C> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00 10000.00
9971.00 9878.00 10034.00 10044.00
10027.00 10094.00 10129.00 10087.00
10032.00 10160.00 10149.00 10048.00
10506.00 10980.00 10264.00 10639.00
10989.00 11947.00 10339.00 11273.00
11343.00 12422.00 10386.00 11635.00
11677.00 13141.00 10407.00 12027.00
11948.00 13058.00 10556.00 12287.00
6/30/96 12131.00 13053.00 10624.00 12515.00
12712.00 13469.00 10698.00 13084.00
13139.00 14174.00 10753.00 13592.00
13108.00 14196.00 10847.00 13709.00
13764.00 15140.00 10868.00 14343.00
14349.00 16005.00 10929.00 14996.00
14523.00 16688.00 10936.00 15253.00
15048.00 17355.00 10997.00 15788.00
6/30/98 15124.00 17761.00 11051.00 15888.00
14078.00 17338.00 11092.00 14889.00
14588.00 18233.00 11112.00 15339.00
14957.00 18493.00 11186.00 15675.00
14889.00 18300.00 11268.00 15822.00
14542.00 17982.00 11383.00 15559.00
14820.00 18284.00 11410.00 15890.00
14540.00 17740.00 11607.00 15661.00
14429.00 17925.00 11688.00 15703.00
9/30/00 14156.00 18633.00 11718.00 15789.00
</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
ADJUSTMENT FOR THE APPLICABLE
CONTINGENT DEFERRED SALES CHARGE
(CDSC) IS AS FOLLOWS: 1-YEAR, 3%; 5-
YEAR, 1%; SINCE INCEPTION, 0%; AND FOR
CLASS C SHARES THERE IS NO ADJUSTMENT
FOR SALES CHARGE. THE MAXIMUM CDSC FOR
CLASS B SHARES IS 4%. FOR CLASS C
SHARES, THERE IS A 1% CDSC ON CERTAIN
REDEMPTIONS WITHIN THE FIRST YEAR OF
PURCHASE.
(1)PERFORMANCE INCLUDES REINVESTMENT OF
DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A
SHARES AND THE CONTINGENT DEFERRED
SALES CHARGE IN EFFECT AT THE END OF
THE PERIOD FOR CLASS B SHARES. WHEN
REVIEWING THE PERFORMANCE CHART,
PLEASE NOTE THAT THE INCEPTION DATE
FOR THE SALOMON SMITH BARNEY LONG-
TERM HIGH YIELD BOND INDEX IS
JANUARY 1, 1980. AS A RESULT, WE ARE
NOT ABLE TO ILLUSTRATE THE LIFE OF
CLASS PERFORMANCE (SINCE JANUARY 26,
1978) FOR KEMPER HIGH YIELD FUND
CLASS A SHARES. IN COMPARING THE
PERFORMANCE OF THE FUND WITH THAT OF
THE SALOMON SMITH BARNEY LONG-TERM
HIGH YIELD BOND INDEX AND THE U.S.
CONSUMER PRICE INDEX, YOU SHOULD
ALSO NOTE THAT THE FUND'S
PERFORMANCE REFLECTS THE MAXIMUM
SALES CHARGE, WHILE NO SUCH CHARGES
ARE REFLECTED IN THE PERFORMANCE OF
THE INDICES.
THE FUND MAY INVEST IN LOWER-RATED
AND NONRATED SECURITIES, WHICH
PRESENT GREATER RISK OF LOSS TO
PRINCIPAL AND INTEREST THAN
HIGHER-RATED SECURITIES.
*THE SALOMON SMITH BARNEY LONG-TERM
HIGH YIELD BOND INDEX IS ON A TOTAL
RETURN BASIS, WITH ALL DIVIDENDS
REINVESTED, AND COMPRISES HIGH-YIELD
BONDS WITH A PAR VALUE OF $50 MILLION
OR HIGHER AND A REMAINING MATURITY OF
10 YEARS OR LONGER RATED BB+ OR LOWER
BY STANDARD & POOR'S CORPORATION OR
BAL OR LOWER BY MOODY'S INVESTORS
SERVICE, INC. THIS INDEX IS UNMANAGED.
SOURCE: SALOMON SMITH BARNEY.
+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).
++THE DLJ HIGH YIELD INDEX DESIGNED TO
MIRROR THE INVESTIBLE UNIVERSE OF U.S.
DOLLAR DENOMINATED HIGH YIELD DEBT
MARKET. SOURCE: DONALDSON, LUFKIN &
JENRETTE.
10
<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 High Yield Fund's
prospectus dated January 1, 2001, which was previously filed with the SEC via
EDGAR on October 13, 2000 (File No. 811-02786) and is incorporated by reference
herein.
Kemper High Yield Fund II's prospectus dated January 1, 2001, which was
previously filed with the Commission via EDGAR on October 13, 2000 (File No.
811-08983), is incorporated by reference herein.
Kemper High Yield 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. 811-02786), is
incorporated by reference herein.
<PAGE>
PART B
KEMPER HIGH YIELD SERIES
---------------------------------------------------------
Statement of Additional Information
March [ ], 2001
---------------------------------------------------------
<TABLE>
<S> <C>
Acquisition of the Assets of By and in Exchange for Shares of
Kemper High Yield Fund II, a series of Kemper High Yield Fund, a series of
Kemper Income Trust Kemper High Yield Series (the "Acquiring Trust")
222 South Riverside Plaza 222 South Riverside Plaza
Chicago, IL 60606 Chicago, IL 60606
</TABLE>
This Statement of Additional Information is available to the
shareholders of Kemper High Yield Fund II in connection with a proposed
transaction whereby Kemper High Yield Fund will acquire all or substantially all
of the assets and all of the liabilities of Kemper High Yield Fund II in
exchange for shares of the Kemper High Yield 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 High Yield 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. 811-02786) and is
incorporated by reference herein.
2. Kemper High Yield Fund's annual report to shareholders for the fiscal year
ended September 30, 2000, which was previously filed with the Commission via
EDGAR on November 27, 2000 (File No. 811-02786) and is incorporated by reference
herein.
3. Kemper High Yield Fund II's prospectus dated January 1, 2001, which was
previously filed with the Commission via EDGAR on October 13, 2000 (File No.
811-08983) and is incorporated by reference herein.
4. Kemper High Yield Fund II's statement of additional information dated
January 1, 2001, which was previously filed with the Commission via EDGAR on
October 13, 2000 (File No. 811-08983) and is incorporated by reference herein.
5. Kemper High Yield Fund II's annual report to shareholders for the fiscal
year ended September 30, 2000, which was previously filed with the Commission
via EDGAR on November 21, 2000 (File No. 811-08983) and is incorporated by
reference herein.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated March [ ], 2000 relating to the Reorganization
may be obtained by writing Kemper High Yield Fund II 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>
PART C. OTHER INFORMATION
Item 15 Indemnification.
-------- ----------------
Article VIII of the Registrant's Agreement and Declaration of Trust
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 will become the
majority stockholder in Scudder with an approximately 70% interest, and ZKI will
become a wholly-owned subsidiary of, or be 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 expense 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 each
Fund 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.
<TABLE>
<CAPTION>
Item 16. Exhibits.
-------- ---------
<S> <C> <C> <C>
(1) (a)(1) Amended and Restated Agreement and Declaration of Trust.
(Incorporated by reference to Post-Effective Amendment No.
29 to Registrant's Registration Statement Filed on Form
N-1A, as amended, (the "Registration Statement") on
November 30, 1995.)
(a)(2) Text of Share Certificate.
(Incorporated by reference to Post-Effective Amendment No.
29 to the Registration Statement filed on November 30,
1995.)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(a)(3) Amended and Restated Written Instrument Establishing and
Designating Separate Classes of Shares.
(Incorporated by reference to Post-Effective Amendment No.
30 to the Registration Statement filed on December 20,
1996.)
(a)(4) Written Instrument Establishing and Designating New Series.
(Incorporated by reference to Post-Effective Amendment No.
32 to the Registration Statement filed on September 23,
1997.)
(a)(5) Written Instrument Establishing and Designating New Series
Name.
(Incorporated by reference to Post-Effective Amendment No.
32 to the Registration Statement filed on September 23,
1997.)
(2) (b)(1) By-laws.
(Incorporated by reference to Post-Effective Amendment No.
29 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, on behalf of Kemper High Yield Fund, and
Scudder Kemper Investments, Inc., dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No.
37 to the Registration Statement filed on October 18,
1999.)
(d)(2) Revised Investment Management Agreement between the
Registrant, on behalf of Kemper High Yield Opportunity
Fund, and Scudder Kemper Investments, Inc., dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No.
37 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.
36 to the Registration Statement filed on December 31,
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.
37 to the Registration Statement filed on October 18,
1999.)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(10) (m)(1) Amended and Restated 12b-1 Plan between Kemper High Yield
Fund (Class B shares) and Kemper Distributors, Inc., dated
August 1, 1998.
(Incorporated by reference to Post-Effective Amendment No.
36 to the Registration Statement filed on December 31,
1998.)
(m)(2) Amended and Restated 12b-1 Plan between Kemper High Yield
Fund (Class C shares) and Kemper Distributors, Inc., dated
August 1, 1998.
(Incorporated by reference to Post-Effective Amendment No.
36 to the Registration Statement filed on December 31,
1998.)
(m)(3) Amended and Restated 12b-1 Plan between Kemper High Yield
Opportunity Fund (Class B shares) and Kemper Distributors,
Inc., dated August 1, 1998.
(Incorporated by reference to Post-Effective Amendment No.
36 to the Registration Statement filed on December 31,
1998.)
(m)(4) Amended and Restated 12b-1 Plan between Kemper High Yield
Opportunity Fund (Class C shares) and Kemper Distributors,
Inc., dated August 1, 1998.
(Incorporated by reference to Post-Effective Amendment No.
36 to the Registration Statement filed on December 31,
1998.)
(m)(5) Multi-Distribution System Plan.
(Incorporated by reference to Post-Effective Amendment No.
30 to the Registration Statement filed on December 20,
1996.)
(11) Opinion and Consent of Dechert is filed herewith.
(12) Opinion and Consent of Willkie, Farr & Gallagher to be
filed by post-effective amendment.
(13) (h)(1) Agency Agreement.
(Incorporated by reference to Post-Effective Amendment No.
29 to the Registration Statement filed on November 30,
1995.)
(h)(2) Supplement to Agency Agreement.
(Incorporated by reference to Post-Effective Amendment No.
32 to the Registration Statement filed on September 23,
1997.)
(h)(3) Administrative Agreement.
(Incorporated by reference to Post-Effective Amendment No.
32 to the Registration Statement filed on September 23,
1997.)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(h)(4) Fund Accounting Services Agreement between the Registrant,
on behalf of Kemper High Yield Fund, and Scudder Fund
Accounting Corp., dated December 31, 1997.
(Incorporated by reference to Post-Effective Amendment No.
35 to the Registration Statement filed on April 30, 1998.)
(h)(5) Fund Accounting Services Agreement between the Registrant,
on behalf of Kemper High Yield Opportunity Fund, and
Scudder Fund Accounting Corp., dated December 31, 1997.
(Incorporated by reference to Post-Effective Amendment No.
35 to the Registration Statement filed on April 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.
</TABLE>
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 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 High Yield Series has duly caused this
Registration Statement on Form N-14 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 14th day of December, 2000.
KEMPER HIGH YIELD SERIES
By: /s/ Mark S. Casady
-----------------------
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Mark S. Casady President December 14, 2000
----------------------
Mark S. Casady
/s/ John W. Ballantine * Trustee December 14, 2000
-----------------------------
John W. Ballantine
/s/ Lewis A. Burnham * Trustee December 14, 2000
----------------------
Lewis A. Burnham
/s/ Linda C. Coughlin * Trustee December 14, 2000
----------------------
Linda C. Coughlin
/s/ Donald L. Dunaway * Trustee December 14, 2000
----------------------
Donald L. Dunaway
/s/ Robert B. Hoffman * Trustee December 14, 2000
----------------------
Robert B. Hoffman
/s/ Donald R. Jones * Trustee December 14, 2000
----------------------
Donald R. Jones
/s/ Thomas W. Littauer * Trustee December 14, 2000
-----------------------------
Thomas W. Littauer
/s/ Shirley D. Peterson * Trustee December 14, 2000
-----------------------------
Shirley D. Peterson
/s/ William P. Sommers * Trustee December 14, 2000
-----------------------------
William P. Sommers
/s/ John R. Hebble Treasurer (Principal Financial December 14, 2000
----------------------
John R. Hebble and Accounting Officer)
*By: /s/ Caroline Pearson December 14, 2000
---------------------
Caroline Pearson, Attorney-in-fact
</TABLE>
*Executed pursuant to powers of attorney filed herein as an exhibit to the
Registrant's Registration Statement on Form N-14.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
KEMPER HIGH YIELD SERIES
<PAGE>
KEMPER HIGH YIELD SERIES
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
