<PAGE>
As filed with the Securities and Exchange Commission
on December 6, 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 VALUE SERIES, INC.
(formerly known as Kemper Value Fund, Inc.)
(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 Value Series, Inc.
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 Capital Stock ($.01 par value)
of Kemper Small Cap Value Fund, a series of the Registrant
________________________________________________________________________________
It is proposed that this filing will become effective on January 5, 2001
pursuant to Rule 488 under the Securities Act of 1933.
________________________________________________________________________________
No filing fee is required because the Registrant has previously registered an
indefinite number of its shares under the Securities Act of 1933, as amended,
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended.
<PAGE>
PART A
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
SCUDDER SMALL COMPANY VALUE FUND
Please take notice that a Special Meeting of Shareholders (the "Meeting")
of Scudder Small Company Value Fund (the "Fund"), a series of Scudder Securities
Trust (the "Trust"), will be held at the offices of Scudder Kemper Investments,
Inc., 13/th/ Floor, Two International Place, Boston, MA 02110-4103, on May 24,
2001, at [ ] [a][p].m., Eastern time, for the following purpose:
Proposal: To approve an Agreement and Plan of Reorganization for the
Fund (the "Plan"). Under the Plan, (i) all or substantially
all of the assets and all of the liabilities of the Fund
would be transferred to Kemper Small Cap Value Fund, (ii)
each shareholder of the Fund would receive Class S shares of
Kemper Small Cap Value Fund in an amount equal to the value
of their holdings in the Fund, and (iii) the Fund would then
be terminated.
The persons named as proxies will vote in their discretion on any other
business that may properly come before the Meeting or any adjournments or
postponements thereof.
Holders of record of shares of the Fund at the close of business on March
5, 2001 are entitled to vote at the Meeting and at any adjournments or
postponements thereof.
In the event that the necessary quorum to transact business or the vote
required to approve the Proposal is not obtained at the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the Fund's shares present in person or by proxy at the Meeting.
The persons named as proxies will vote FOR any such adjournment those proxies
which they are entitled to vote in favor of the Proposal and will vote AGAINST
any such adjournment those proxies to be voted against the Proposal.
By Order of the Board,
/s/ John Millette
John Millette
Secretary
March 6, 2001
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE (OR TO TAKE ADVANTAGE OF
THE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES DESCRIBED ON THE PROXY CARD(S)).
YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S) (OR YOUR VOTING BY OTHER
AVAILABLE MEANS) MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS.
IF YOU WISH TO ATTEND THE MEETING AND VOTE YOUR SHARES IN PERSON AT THAT TIME,
YOU WILL STILL BE ABLE TO DO SO.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION.............................................................................................. __
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION............................................... __
SYNOPSIS....................................................................................... __
PRINCIPAL RISK FACTORS......................................................................... __
THE PROPOSED TRANSACTION....................................................................... __
ADDITIONAL INFORMATION.................................................................................... __
</TABLE>
<PAGE>
PROXY STATEMENT/PROSPECTUS
March [ ], 2001
Relating to the acquisition of the assets of
SCUDDER SMALL COMPANY VALUE FUND,
a separate series of
SCUDDER SECURITIES TRUST (the "Acquired Trust")
Two International Place
Boston, Massachusetts 02110-4103
(800) [ ]
----------------------------
by and in exchange for shares of capital stock of
KEMPER SMALL CAP VALUE FUND,
a separate series of
KEMPER VALUE SERIES, INC. (the "Acquiring Corporation")
222 South Riverside Plaza
Chicago, Illinois 60606
(800) [ ]
----------------------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies by the Board of Trustees of the Acquired Trust in
connection with the Special Meeting of Shareholders of Scudder Small Company
Value Fund (the "Fund") to be held on May 24, 2001, at the offices of Scudder
Kemper Investments, Inc. ("Scudder Kemper" or the "Investment Manager"), 13/th/
Floor, Two International Place, Boston, MA 02110-4103 at [ ] [a][p].m.
(Eastern time), or at such later time made necessary by all adjournments or
postponements thereof (the "Meeting"). This Proxy Statement/Prospectus, the
Notice of Special Meeting and the proxy card(s) are first being mailed to
shareholders on or about March 6, 2001 or as soon as practicable thereafter.
At the meeting, shareholders of the Fund will be asked to approve an
Agreement and Plan of Reorganization (the "Plan") pursuant to which all or
substantially all of the assets of the Fund would be acquired by Kemper Small
Cap Value Fund in exchange for shares of capital stock of Kemper Small Cap Value
Fund and the assumption by Kemper Small Cap Value Fund of all of the liabilities
of the Fund, as described more fully below (the "Reorganization"). Shares of
Kemper Small Cap Value 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
Small Cap Value Fund and will receive shares of Kemper Small Cap Value Fund in
an amount equal to the value of their holdings in the Fund as of the close of
business on the business day preceding the closing of the Reorganization (the
"Valuation Date"). The closing of the Reorganization (the "Closing") is
contingent upon shareholder approval of the Plan. A copy of the Plan is
attached as Exhibit A. The Reorganization is expected to occur on or about June
25, 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.
In the descriptions of the Proposal below, the word "fund" is
sometimes used to mean an investment company or series thereof in general, and
not the Fund whose Proxy Statement/Prospectus this
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<PAGE>
is. In addition, for simplicity, actions are described in this Proxy
Statement/Prospectus as being taken by either the Fund or Kemper Small Cap Value
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 Corporation, on behalf of the applicable Fund.
This Proxy Statement/Prospectus sets forth concisely the information
about Kemper Small Cap Value 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 Small Cap Value Fund, see Kemper Small Cap Value Fund's prospectus dated
February 1, 2001, as supplemented from time to time, which is included in the
materials you received with this document and incorporated herein by reference
(meaning that it is legally part of this document). For a more detailed
discussion of the investment objective, policies, restrictions and risks of the
Fund, see the Fund's prospectus dated October 1, 2000, as supplemented from time
to time, which is also incorporated herein by reference and a copy of which may
be obtained upon request and without charge by calling or writing the Fund at
the telephone number or address listed above.
Also incorporated herein by reference is Kemper Small Cap Value Fund's
statement of additional information dated February 1, 2001, as supplemented from
time to time, which may be obtained upon request and without charge by calling
or writing Kemper Small Cap Value 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 Small Cap Value Fund at the telephone number or
address listed above. Shareholder inquiries regarding Kemper Small Cap Value
Fund may be made by calling (800) [ ] and shareholder inquiries regarding the
Fund may be made by calling (800) [ ]. The information contained in this
document concerning each Fund has been provided by, and is included herein in
reliance upon, that Fund.
Kemper Small Cap Value Fund is a diversified series of shares of
capital stock of the Acquiring Corporation and the Fund is a diversified series
of shares of beneficial interest of the Acquired Trust. The Acquiring
Corporation, which is a Maryland corporation, and the Acquired Trust, which is a
Massachusetts business trust, are each an open-end management investment
company.
The Board of Trustees of the Acquired Trust unanimously recommends
that shareholders vote FOR the Proposal.
PROPOSAL: APPROVAL OF AGREEMENT
AND PLAN OF REORGANIZATION
I. SYNOPSIS
Introduction
The Board of Trustees ("Board of Trustees" refers to the Board of
Trustees of the Acquired Trust), including all of the Independent Trustees,
approved the Plan at a meeting held on November 13, 2000. Subject to its
approval by the shareholders of the Fund, the Plan provides for (a) the transfer
of all or substantially all of the assets and all of the liabilities of the Fund
to Kemper Small Cap Value Fund in exchange for Class S shares of Kemper Small
Cap Value 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 Small
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<PAGE>
Cap Value Fund and will hold, immediately after the Reorganization, Class S
shares of Kemper Small Cap Value Fund having an aggregate net asset value equal
to the aggregate net asset value of such shareholder's shares of the Fund on the
Valuation Date.
Scudder Kemper is the investment manager of both Funds. If the
Reorganization is completed, the Fund's shareholders will continue to enjoy all
of the same shareholder privileges as they currently enjoy, such as access to
professional service representatives, exchange privileges and automatic dividend
reinvestment. Services provided to the Class S shareholders of Kemper Small Cap
Value Fund following the Reorganization will be identical to those currently
provided to shareholders of the Fund. See "Purchase, Redemption and Exchange
Information."
Background of the Reorganization
The Reorganization is part of a broader Scudder Kemper restructuring
program to respond to changing industry conditions and investor needs. The
mutual fund industry has grown dramatically over the last ten years. During
this period of rapid growth, investment managers expanded the range of fund
offerings that are available to investors in an effort to meet the growing and
changing needs and desires of an increasingly large and dynamic group of
investors. With this expansion has come increased complexity and competition
among mutual funds, as well as the potential for increased confusion among
investors. The group of funds advised by Scudder Kemper has followed this
pattern.
As a result, Scudder Kemper has sought ways to restructure and
streamline the management and operations of the funds it advises by
consolidating all of the retail mutual funds that it currently sponsors into a
single product line offered under the "Scudder" name. Scudder Kemper believes,
and has advised the boards, that further reducing the number of funds it advises
and adding the classes of shares currently offered on all Kemper Funds to the
Scudder Funds, will benefit fund shareholders. In addition, Scudder Kemper
anticipates changing its name to "Zurich Scudder Investments, Inc." Scudder
Kemper believes that the combination of its open-end, directly-distributed funds
and classes (the "Scudder Funds") with the funds in the Kemper Family of Funds
(the "Kemper Funds") will permit it to streamline its administrative
infrastructure and focus its distribution efforts. Scudder Kemper has,
therefore, proposed the combination of many Scudder Funds and Kemper Funds that
have similar or compatible investment objectives and policies. Scudder Kemper
believes that the larger funds, along with the fewer number of funds, that
result from these combinations may help to enhance investment performance and
increase efficiency of operations. The restructuring program will not result in
any changes in the shareholder services currently offered to shareholders of the
Scudder Funds.
The fund consolidations are expected to have a positive impact on
Scudder Kemper, as well. These consolidations are likely to result in reduced
costs (and the potential for increased profitability) for Scudder Kemper in
advising or servicing funds.
Reasons for the Proposed Reorganization; Board Approval
Since receiving Scudder Kemper's proposal on June 5, 2000, the
Trustees have conducted a thorough review of all aspects of the proposed
Reorganization. See "The Proposed Transaction -- Board Approval of the Proposed
Transaction" below.
The Trustees believe that the Reorganization will provide shareholders
of the Fund with the following benefits:
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<PAGE>
. LOWER FUND EXPENSES. If the Reorganization is approved, the
Fund's shareholders are expected to benefit from lower total Fund
operating expenses. Please refer to "Comparison of Expenses"
below.
. SIMILAR INVESTMENT OBJECTIVES AND POLICIES. Although some
differences do exist, Scudder Kemper has advised the Trustees
that the Funds have compatible investment objectives and
policies. Both Funds invest primarily in common stocks of small
U.S. companies which the Investment Manager believes are
undervalued, and benchmark their performance against the Russell
2000 Value Index. In addition, Scudder Kemper has advised the
Trustees that both Funds have the same portfolio management team
and follow a substantially similar process in analyzing
investment opportunities. Please refer to "Investment Objectives,
Policies and Restrictions of the Funds" below.
. TAX-FREE REORGANIZATION. It is a condition of the Reorganization
that the Fund receive an opinion of tax counsel that the
transaction would be a TAX-FREE transaction.
For these reasons, as more fully described below under "The Proposed
Transaction -- Board Approval of the Proposed Transaction," the Board of
Trustees, including the Independent Trustees, has concluded that:
. the Reorganization is in the best interests of the Fund and its
shareholders; and
. the interests of the existing shareholders of the Fund will not
be diluted as a result of the Reorganization.
Accordingly, the Trustees unanimously recommend approval of the Plan
effecting the Reorganization. If the Plan is not approved, the Fund will
continue in existence unless other action is taken by the Trustees.
Investment Objectives, Policies and Restrictions of the Funds
The investment objectives, policies and restrictions of the Fund and
Kemper Small Cap Value Fund are similar. Some differences do exist. The
investment objective of Kemper Small Cap Value Fund is to seek long-term capital
appreciation. The investment objective of the Fund is to seek long-term growth
of capital. Kemper Small Cap Value Fund seeks to achieve its investment
objective by normally investing at least 65% of its total assets in undervalued
common stocks of small U.S. companies, defined as those whose market values are
similar to those in the Russell 2000(TM) Index (typically less than $2 billion
in total market value), while the Fund seeks to achieve its investment objective
by investing at least 90% of its total assets in the securities of such
companies. There can be no assurance that either Fund will achieve its
investment objective.
Both Funds have the same portfolio management teams that follow a
substantially similar process in analyzing investment opportunities. With
respect to Kemper Small Cap Value Fund, the portfolio managers first screen for
small companies whose stock prices appear low relative to other companies in the
same sector (rather than on an absolute basis), while, in the case of the Fund,
the portfolio managers first search for small companies that appear to be
undervalued [on an absolute basis]. With respect to both Funds, the portfolio
managers then use a quantitative stock valuation model to compare each company's
stock price to the company's earnings, book value, sales and other measures of
performance potential, while looking for factors that may signal a rebound for a
company. Lastly, the portfolio managers use portfolio optimization software to
assemble each Fund's portfolio from among the qualifying stocks. Unlike the
Fund, which cannot invest in foreign securities, Kemper Small Cap Value
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<PAGE>
Fund may invest up to 20% of its total assets in foreign securities. In
addition, Kemper Small Cap Value Fund may invest up to 20% of its assets in debt
securities rated below investment grade, while the Fund may not invest in such
securities. The Fund may temporarily invest up to 20% of its net assets in U.S.
Treasury and agency debt securities. Although each Fund is permitted to use
various types of derivatives (contracts whose value is based on, for example,
indices, currencies or securities), the managers don't intend to use them as
principal investments, and might not use them at all.
The Funds' fundamental investment restrictions are identical.
Fundamental investment restrictions may not be changed without the approval of
shareholders. Certain differences exist, however, between the Funds' non-
fundamental investment policies (which may be changed by the Board without
shareholder approval). Although both Funds may borrow for other than temporary
or emergency purposes and to engage in reverse repurchase agreements, dollar
rolls, or other investments or transactions, Kemper Small Cap Value Fund's
borrowing limitation is restricted to 10% of its total assets and the Fund's
borrowing limitation is 5% of its total assets. Also, unlike the Fund, Kemper
Small Cap Value Fund has a non-fundamental policy not to invest more than 15% of
its net assets in illiquid securities (although the Fund is subject to such a
limitation under application regulations). Investors should refer to each Fund's
statement of additional information for a fuller description of the Fund's
investment policies and restrictions.
Portfolio Turnover
The portfolio turnover rate for Kemper Small Cap Value 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 November 30, 2000 was [ ]%. The portfolio turnover rate for the Fund
for the fiscal year ended July 31, 2000 was 29%.
Performance
The following table shows how the returns of the Fund and Kemper Small
Cap Value 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 Small Cap Value Fund's
performance for the fiscal year ended November 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/Directors.
The same two individuals serve as the portfolio management team for each Fund.
Scudder Kemper is a Delaware corporation located at Two International Place,
Boston, Massachusetts 02110-4103.
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Pursuant to separate contracts, both Funds pay the Investment Manager
a graduated investment management fee, although the fee rates and breakpoints
differ. The fee is graduated so that increases in a Fund's net assets may result
in a lower annual fee rate and decreases in its net assets may result in a
higher annual fee rate. As of November 30, 2000, Kemper Small Cap Value Fund had
total net assets of $[ ]. For the fiscal year ended November 30, 2000, Kemper
Small Cap Value Fund paid the Investment Manager a fee of [ ]% of its average
daily net assets. As of July 31, 2000, the Fund had total net assets of
$160,738,000. For the fiscal year ended July 31, 2000, the Fund paid the
Investment Manager a fee of .25% (after waiver) of its average daily net assets.
Currently the fee schedules for the Fund and Kemper Small Cap Value
Fund are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Fund Kemper Small Cap Value Fund
-------------------------------------------------------------------------------------------------------------
Average Daily Net Assets Fee Rate Average Daily Net Assets Fee Rate
------------------------ -------- ------------------------ --------
<S> <C> <C> <C>
First $500 Million 0.750% First $250 million 0.750%
More than $500 million 0.70% Next $750 million 0.720%
Next $1.5 billion 0.700%
Next $2.5 billion 0.680%
Next $2.5 billion 0.650%
Next $2.5 billion 0.640%
Next $2.5 billion 0.630%
More than $12.5 billion 0.620%
-------------------------------------------------------------------------------------------------------------
</TABLE>
Based upon the Fund's net assets for the twelve-month period ended
September 30, 2000, the effective advisory fee rate for the Fund was .75%. Based
upon each Fund's net assets for the twelve-month period ended September 30,
2000, the effective advisory fee rate for Kemper Small Cap Value Fund after the
Reorganization would be .73% of average daily net assets. Although Fund
shareholders are expected to experience a decrease in the effective advisory fee
rate after the Reorganization, because of differences in the Funds' respective
fee schedules, at certain asset levels Kemper Small Cap Value Fund would bear a
higher effective advisory fee rate than the Fund.
Administrative Fee
On or prior to the Closing, Kemper Small Cap Value Fund will have
entered 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 Small Cap Value Fund (other than those provided by Scudder Kemper
under its investment management agreement with that Fund) in exchange for the
payment by Kemper Small Cap Value Fund of an annual administrative services fee
(the "Administrative Fee") equal to 0.45% of average daily net assets
attributable to the Class S shares. The Administration Agreement is
substantially identical to that recently adopted by the Fund, and upon closing,
Class S shareholders of Kemper Small Cap Value Fund will pay the same rate of
Administrative Fee as is currently borne by Class S shares of the Fund. One
effect of this arrangement is to make Kemper Small Cap Value Fund's future
expense ratio more predictable. On the other hand, the administrative fee rate
will not decrease with increases in asset size or decreased operating expenses.
The details of this arrangement (including expenses that are not covered) are
set out below.
Various service providers (the "Service Providers"), some of which are
affiliated with Scudder Kemper, provide certain services to Kemper Small Cap
Value Fund pursuant to separate agreements. Some of these Service Providers may
differ from current Service Providers of the Fund. Scudder Fund
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<PAGE>
Accounting Corporation, a subsidiary of Scudder Kemper, computes net asset value
for Kemper Small Cap Value Fund and maintains its accounting records. State
Street Bank and Trust Company ("SSB") is the transfer agent and dividend-paying
agent for the Kemper Small Cap Value Fund. Pursuant to a services agreement with
SSB, Kemper Service Company, an affiliate of Scudder Kemper, serves as
"Shareholder Service Agent" of such Fund, and as such, performs all of SSB's
duties as transfer agent and dividend paying agent. Scudder Investor Services,
Inc. ("SIS"), a wholly-owned subsidiary of Scudder Kemper, will act as the
principal underwriter and distributor for the Class S shares of Kemper Small Cap
Value Fund and acts as agent of such Fund in the continuous offering of its
Class S shares. As custodian, State Street Bank and Trust Company holds the
portfolio securities of Kemper Small Cap Value Fund, pursuant to a custodian
agreement. Other Service Providers include the independent public accountants
and legal counsel for Kemper Small Cap Value Fund.
Once the Administration Agreement becomes effective, each Service
Provider will continue to provide the services to Kemper Small Cap Value Fund
described above, except that Scudder Kemper will pay these entities for the
provision of their services to Kemper Small Cap Value Fund and will pay most
other fund expenses, including insurance, registration, printing and postage
fees. In return, Kemper Small Cap Value Fund will pay Scudder Kemper the
Administrative Fee.
The proposed Administration Agreement will remain in effect with
respect to the Class S shares for an initial term ending September 30, 2003,
subject to earlier termination by the directors who oversee Kemper Small Cap
Value Fund. The fee payable by Kemper Small Cap Value Fund to Scudder Kemper
pursuant to the Administration Agreement would be reduced by the amount of any
credit received from Kemper Small Cap Value Fund's custodian for cash balances.
Certain expenses of Kemper Small Cap Value 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 Small Cap Value Fund will continue to pay the fees required by
its investment management agreement with Scudder Kemper.
Comparison of Expenses
The tables and examples below are designed to assist you in
understanding the various costs and expenses that you will bear directly or
indirectly as an investor in the Class S shares of Kemper Small Cap Value Fund,
and compares these with the expenses of the Fund. As indicated below, it is
expected that the total expense ratio of Class S shares of Kemper Small Cap
Value Fund following the Reorganization will be lower than the current expense
ratio of the Class S shares of the Fund. Except for the "Other Expenses", 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 (prior to the
creation of Class S shares of Kemper Small Cap Value Fund) 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. The "Other Expenses" for the
Fund are based upon an estimate, as of September 30, 2000, of expected ongoing
operating expenses. The "Other Expenses" for Kemper Small Cap Value Fund and the
pro forma Reorganized Fund are based upon the proposed fee schedule under the
Administration Agreement.
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<PAGE>
Expense Comparison Table
Class S Shares
<TABLE>
<CAPTION>
Kemper
Small Cap Pro Forma
Fund Value 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 None None None
(Load) (as % of redemption proceeds)
Redemption/Exchange Fee, on shares owned 1.00% 1.00% 1.00%
less than a year (as % of redemption
proceeds)
Annual Fund Operating Expenses
------------------------------
(as a % of average net assets)
-----------------------------
Management Fees 0.75% 0.73% 0.73%
Rule 12b-1/ASF Fees None None None
Other Expenses 0.45%(3) 0.45% 0.45%
------ ------ ------
Total Fund Operating Expenses 1.20% 1.18% 1.18%
Expense Example of Total Operating
----------------------------------
Expenses Assuming Redemption at the
-----------------------------------
End of the Period(2)
-----------------
One Year $ 122 $ 120 $ 120
Three Years $ 381 $ 375 $ 375
Five Years $ 660 $ 649 $ 649
Ten Years $1,455 $1,432 $1,432
</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.
(2) 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.
(3) "Other Expenses" have been restated to reflect the adoption of a fixed rate
administrative fee of 0.45%.
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<PAGE>
Distribution of Shares
Scudder Investor Services, Inc. ("SIS"), Two International Place, Boston,
Massachusetts 02110, a subsidiary of the Investment Manager, is the principal
underwriter of the Fund and will serve as the principal underwriter for the
Class S shares of Kemper Small Cap Value Fund. SIS charges no direct fees in
connection with the distribution of shares of the Fund or the Class S shares of
Kemper Small Cap Value Fund. Following the Reorganization, shareholders of
Class S shares of Kemper Small Cap Value Fund will continue to be able to
purchase shares of the funds in the Scudder Family of Funds on a no-load basis.
Purchases, Exchanges, and Redemptions
Both Funds are part of the Scudder Kemper complex of mutual funds. At the
time of the Closing, the procedures for purchases, exchanges, and redemptions of
Class S shares of Kemper Small Cap Value Fund will be identical to those of the
Fund. Class S Shares of Kemper Small Cap Value Fund will be exchangeable for
Class S shares of most other open-end funds advised by Scudder Kemper offering
such shares.
Services available to shareholders of Kemper Small Cap Value Fund will be
identical to those available to shareholders of the Fund and include the
purchase and redemption of shares through an automated telephone system and over
the Internet, telephone redemptions, exchanges by telephone, and reinvestment
privileges. Please see the prospectus of Kemper Small Cap Value Fund for
additional information.
Dividends and Other Distributions
Each Fund intends to distribute dividends from its net investment income
and net realized capital gains after utilization of capital loss carryforwards,
if any, in 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.
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 October 16, 1985, as amended. Kemper
Small Cap Value Fund is organized as a Maryland corporation and is governed by
its Articles of Incorporation dated October 14, 1987. Although certain
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differences between the governing documents exist, it is anticipated that these
differences will not result in any substantial difference in the operation or
administration of the funds. There are differences in the potential liabilities
of shareholders of a Massachusetts business trust as compared to those of a
Maryland corporation, as described below under "The Proposed Transaction -
Description of the Securities to be Issued."
Board Members and Officers.
The Trustees of the Fund are different from the directors of Kemper Small
Cap Value Fund. The shareholders of Kemper Small Cap Value Fund are currently
voting on a new Board of Directors, which, if approved by the shareholders, will
consist of John W. Ballantine, Lewis A. Burnham, Linda C. Coughlin, Donald L.
Dunaway, James R. Edgar, William F. Glavin, Robert B. Hoffman, Shirley D.
Peterson, Fred B. Renwick, William P. Sommers and John G. Weithers. In addition,
the officers of the Fund and Kemper Small Cap Value Fund are different. (See the
Statement of Additional Information for further information.)
Fiscal Year.
The Fund's fiscal year-end is July 31. Kemper Small Cap Value Fund's
fiscal year-end is November 30.
Transfer Agent.
The Fund's transfer agent is Scudder Service Corporation. Kemper Small Cap
Value Fund's transfer agent is State Street Bank and Trust Company.
Auditors.
The Fund's auditors are PricewaterhouseCoopers LLP. Kemper Small Cap Value
Fund's auditors are Ernst & Young LLP.
Tax Consequences
As a condition to the Reorganization, each Fund will have received an
opinion of Willkie Farr & Gallagher in connection with the Reorganization, to
the effect that, based upon certain facts, assumptions and representations, the
Reorganization will constitute a tax-free reorganization within the meaning of
section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code").
If the Reorganization constitutes a tax-free reorganization, no gain or loss
will be recognized by the Fund or its shareholders as a direct result of the
Reorganization. See "The Proposed Transaction -- Federal Income Tax
Consequences."
* * *
The preceding is only a summary of certain information contained in this
Proxy Statement/Prospectus relating to the Reorganization. This summary is
qualified by reference to the more complete information contained elsewhere in
this Proxy Statement/Prospectus, the prospectuses and statements of additional
information of the Funds, and the Plan. Shareholders should read this entire
Proxy Statement/Prospectus carefully.
II. PRINCIPAL RISK FACTORS
Because of their similar investment objectives, policies and strategies,
the principal risks presented by Kemper Small Cap Value Fund are similar to
those presented by the Fund. The main risks
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applicable to each Fund include, among others, market risk and management risk
(i.e., securities selection by the Investment Manager). When small company stock
prices fall, the value of an investment in each Fund will fall as well. Small
company stocks tend to be more volatile than stocks of larger companies, partly
because small companies tend to be more vulnerable to competitive challenges and
bad economic news. Stock prices can also be hurt by poor management or other
business risks. To the extent that a Fund focuses on a given industry, factors
affecting that industry could affect the value of portfolio securities of that
Fund. In addition, because each Fund generally invests a large portion of its
assets in "value" stocks, the value of an investment in each Fund is subject to
a higher degree of the risk that value stocks may be out of favor relative to
other types of securities for certain periods. To the extent Kemper Small Cap
Value Fund invests outside the U.S., it is also subject to risks associated with
foreign securities. The Fund is not generally subject to these risks because it
does not typically invest in foreign securities. In addition, to the extent that
Kemper Small Cap Value Fund invests in securities rated below investment grade,
it is subject to the risk that 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. The
Funds are not insured or guaranteed by the FDIC or any other government agency.
Share prices will go up and down, so be aware that you could lose money.
For a further discussion of the investment techniques and risk factors
applicable to the Funds, see "Investment Objectives, Policies and Restrictions
of the Funds" above, and the prospectuses and statements of additional
information for the Funds.
III. THE PROPOSED TRANSACTION
Description of the Plan
As stated above, the Plan provides for the transfer of all or substantially
all of the assets of the Fund to Kemper Small Cap Value Fund in exchange for
that number of full and fractional Class S shares having an aggregate net asset
value equal to the aggregate net asset value of the Fund as of the close of
business on the Valuation Date. Kemper Small Cap Value Fund will assume all of
the liabilities of the Fund. The Fund will distribute the Class S shares
received in the exchange to the shareholders of the Fund in complete liquidation
of the Fund. The Fund will then be terminated.
Upon completion of the Reorganization, each shareholder of the Fund will
own that number of full and fractional Class S shares having an aggregate net
asset value equal to the aggregate net asset value of such shareholder's shares
held in the Fund as of the close of business on the Valuation Date. Such shares
will be held in an account with Kemper Small Cap Value Fund identical in all
material respects to the account currently maintained by the Fund for such
shareholder. In the interest of economy and convenience, Class S shares issued
to the Fund's shareholders in the Reorganization will be in uncertificated form.
If Class S shares of the Fund are represented by certificates prior to the
Closing, such certificates should be returned to the Fund's shareholder
servicing agent. Any Class S shares of Kemper Small Cap Value Fund distributed
in the Reorganization to shareholders in exchange for certificated shares of the
Fund may not be transferred, exchanged or redeemed without delivery of such
certificates.
Until the Closing, shareholders of the Fund will continue to be able to
redeem their shares at the net asset value next determined after receipt by the
Fund's transfer agent of a redemption request in proper form. Redemption and
purchase requests received by the transfer agent after the Closing will be
treated as requests received for the redemption or purchase of Class S shares of
Kemper Small Cap Value Fund received by the shareholder in connection with the
Reorganization.
The obligations of each of the Acquiring Corporation and the Acquired Trust
on behalf of Kemper Small Cap Value Fund and the Fund, respectively, under the
Plan are subject to various
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conditions, as stated therein. The Plan also requires that all filings be made
with, and all authority be received from, the SEC and state securities
commissions as may be necessary in the opinion of counsel to permit the parties
to carry out the transactions contemplated by the Plan. Each Fund is in the
process of making the necessary filings. To provide for unforseen events, the
Plan may be terminated: (i) by the mutual agreement of the parties; (ii) by
either party if the Closing has not occurred by _____ __, 2001, unless such date
is extended by mutual agreement of the parties; or (iii) by either party if the
other party has materially breached its obligations under the Plan or made a
material misrepresentation in the Plan or in connection with the Reorganization.
The Plan may also be amended by mutual agreement in writing. However, no
amendment may be made following the shareholder meeting if such amendment would
have the effect of changing the provisions for determining the number of shares
of Kemper Small Cap Value Fund to be issued to the Fund in the Plan to the
detriment of the Fund's shareholders without their approval. For a complete
description of the terms and conditions of the Reorganization, please refer to
the Plan at Exhibit A.
The Fund will pay its allocable share of expenses associated with the
Reorganization, except that Scudder Kemper will bear any such expenses in excess
of $14,321 (or $0.0014 per share, based on May 31, 2000 shares outstanding for
the Fund). Class A, Class B, Class C, and Class I shares of Kemper Small Cap
Value Fund will pay their allocable share of expenses associated with the
Reorganization (approximately $95,915, $120,540, $25,744, and $1,066, or
$0.0081, $0.0111, $0.0113, and $0.0049 per share, respectively, based on May 31,
2000 shares outstanding of Kemper Small Cap Value Fund).
Board Approval of the Proposed Transaction
Scudder Kemper first proposed the Reorganization to the Independent
Trustees of the Fund at a meeting held on June 5, 2000. The Reorganization was
presented to the Trustees and considered by them as part of a broader initiative
by Scudder Kemper to consolidate its mutual fund lineup and to offer all of the
open-end mutual funds it advises under the "Scudder" brand name (see "Synopsis -
Background of the Reorganization" above). This initiative includes five major
components:
(i) A change in branding to offer virtually all funds advised by
Scudder Kemper under the Scudder name, with a concentration on
distribution through financial intermediaries and the AARP Investment
Program;
(ii) The combination of funds with similar investment objectives and
policies, including in particular the combination of similar Scudder
Funds and Kemper Funds currently offered to the general public;
(iii) The liquidation of certain small funds which have not achieved
market acceptance and which are unlikely to reach an efficient
operating size;
(iv) The creation of new classes of shares of each continuing
Scudder Fund to facilitate future distribution of such funds through
the "intermediary" or broker-sold distribution channel, and the
creation of new classes of shares of each Kemper Fund into which a
Scudder Fund is merging in order to allow current Scudder Fund
shareholders to continue holding a class of shares with similar
rights, privileges and expense structures as they currently possess;
and
(v) The implementation by each Kemper Fund of an Administration
Agreement similar in scope and structure to the Administration
Agreements recently adopted by many of the Scudder Funds.
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The Independent Trustees of the Fund reviewed the potential implications of
these proposals for the Fund as well as the various other funds for which they
serve as trustees or directors. They were assisted in this review by their
independent legal counsel and by independent consultants with special expertise
in financial and mutual fund industry matters. Following the June 5 meeting, the
Independent Trustees met in person or by telephone on numerous occasions to
review and discuss these proposals, both among themselves and with
representatives of Scudder Kemper. In the course of their review, the
Independent Trustees requested and received substantial additional information
and suggested numerous changes to Scudder Kemper's proposals, many of which were
accepted.
Following the conclusion of this process, the Independent Trustees of the
Fund, the independent trustees/directors of other funds involved and Scudder
Kemper reached general agreement on the elements of a restructuring plan as it
affects shareholders of various funds and, where required, agreed to submit
elements of the plan for approval to shareholders of those funds.
On November 13, 2000, the Board of the Fund, including the Independent
Trustees of the Fund, approved the terms of the Reorganization and certain
related proposals. The Independent Trustees have also unanimously agreed to
recommend that the Reorganization be approved by the Fund's shareholders.
In determining to recommend that the shareholders of the Fund approve the
Reorganization, the Board considered, among other factors: (a) the fees and
expense ratios of the Funds, including comparisons between the expenses of the
Fund and the estimated operating expenses of Kemper Small Cap Value Fund, and
between the estimated operating expenses of Kemper Small Cap Value Fund and
other mutual funds with similar investment objectives; (b) the terms and
conditions of the Reorganization and whether the Reorganization would result in
the dilution of shareholder interests; (c) the compatibility of the Fund's and
Kemper Small Cap Value Fund's investment objectives, policies, restrictions and
portfolios; (d) the agreement by Scudder Kemper to provide services to Kemper
Small Cap Value Fund for a fixed fee rate under the Administration Agreement
with an initial three year term; (e) the service features available to
shareholders of the Fund and Kemper Small Cap Value Fund; (f) the costs to be
borne by the Fund, Kemper Small Cap Value Fund and Scudder Kemper as a result of
the Reorganization; (g) prospects for Kemper Small Cap Value Fund to attract
additional assets; (h) the tax consequences of the Reorganization on the Fund,
Kemper Small Cap Value Fund and their respective shareholders; (i) the
investment performance of the Fund and Kemper Small Cap Value Fund; and (j)
possible economies of scale that might be realized by Scudder Kemper in
connection with the Reorganization, as well as the other fund combinations
included in Scudder Kemper's restructuring proposal.
The Trustees also considered the impact of the Reorganization on the total
expenses to be borne by shareholders of the Fund. As noted above under
"Comparison of Expenses," the pro forma expense ratio (reflecting the
Administrative Fee) for the combined Fund following the Reorganization is lower
than the current expense ratio for the Fund. The Board also considered that the
Reorganization would permit the shareholders of the Fund to pursue similar
investment goals in a larger fund.
Based on all of the foregoing, the Board concluded that the Fund's
participation in the Reorganization would be in the best interests of the Fund
and would not dilute the interests of the Fund's shareholders. The Board of
Trustees, including the Independent Trustees, unanimously recommends that
shareholders of the Fund approve the Reorganization.
Description of the Securities to Be Issued
Kemper Small Cap Value Fund is a series of the Acquiring Corporation, a
corporation organized under the laws of the state of Maryland on October 15,
1987, as amended. The Acquiring Corporation's
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authorized capital consists of 3,040,000,000 shares of capital stock, par value
$0.01 per share, 840,000,000 of which are allocated to Kemper Small Cap Value
Fund. The Directors of the Acquiring Corporation are authorized to divide the
Acquiring Corporation's shares into separate series. Kemper Small Cap Value Fund
is one of three series of the Acquiring Corporation that the board has created
to date. The Directors of the Acquiring Corporation are also authorized to
further divide the shares of the series of the Acquiring Corporation into
classes. The shares of Kemper Small Cap Value Fund are currently divided into
five classes, Class S, 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 Small Cap Value Fund represents an
interest in Kemper Small Cap Value Fund that is equal to and proportionate with
each other share of that class of Kemper Small Cap Value Fund. Kemper Small Cap
Value Fund shareholders are entitled to one vote per share held on matters on
which they are entitled to vote. The Acquiring Corporation is organized in
Maryland, while the Acquired Trust is organized in Massachusetts. Under
Massachusetts law, shareholders of a trust such as the Acquired Trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. The Acquired Trust's Declaration of Trust contains a disclaimer of
liability and provides for indemnification out of the Trust property of any
shareholder held personally liable for the claims and liabilities to which a
shareholder may become subject by reason of being or having been a shareholder.
Thus, the risk of shareholder liability is limited to circumstances in which the
Acquired Trust itself would be unable to meet its obligations. The Acquiring
Corporation does not provide such a disclaimer of liability or indemnification
to its shareholders, because Maryland law generally does not impose such
liability on shareholders.
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 Small Cap Value Fund of all or
substantially all of the assets of the Fund in exchange solely for Class S
shares and the assumption by Kemper Small Cap Value 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 Small Cap Value 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 Small Cap Value
Fund in exchange solely for Class S shares and the assumption by Kemper Small
Cap Value Fund of all of the liabilities of the Fund or upon the distribution of
the Class S shares to shareholders of the Fund in exchange for their shares of
the Fund; (iii) the basis of the assets of the Fund in the hands of Kemper Small
Cap Value 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 Small Cap Value Fund will include the period during
which such assets were held by the Fund; (v) no gain or loss will be recognized
by Kemper Small Cap Value Fund upon the receipt of the assets of the Fund in
exchange for Class S shares and the assumption by Kemper Small Cap Value Fund of
all of the liabilities of the Fund; (vi) no gain or loss will be recognized by
the shareholders of the Fund upon the receipt of the Class S shares solely in
exchange for their shares of the Fund as part of the transaction; (vii) the
basis of the Class S shares received by each shareholder of the Fund will be the
same as the basis of the shares of the Fund exchanged therefor; and (viii) the
holding period of Class S shares received by each shareholder of the Fund will
include the holding period during which the shares of the Fund exchanged
therefor were held, provided that at the time of the exchange the shares of the
Fund were held as capital assets in the hands of such shareholder of the Fund.
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After the Closing, Kemper Small Cap Value Fund may dispose of certain
securities received by it from the Fund in connection with the Reorganization,
which may result in transaction costs and capital gains.
While the Fund is not aware of any adverse state or local tax consequences
of the proposed Reorganization, it has not requested any ruling or opinion with
respect to such consequences and shareholders may wish to consult their own tax
adviser with respect to such matters.
Legal Matters
Certain legal matters concerning the federal income tax consequences of the
Reorganization will be passed on by Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, New York 10019. Certain legal matters concerning the issuance
of shares of Kemper Small Cap Value Fund will be passed on by Dechert, Ten Post
Office Square - South, Boston, Massachusetts 02109.
Capitalization
The following table shows on an unaudited basis the capitalization of
Kemper Small Cap Value 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):
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Kemper Small Cap Pro Forma Pro Forma
Fund Value Fund Adjustments (Combined)(2)
---- ---------- ----------- --------
Net Assets
Class S shares $165,297,361 --(3) $165,297,361
Class A shares $179,550,919 --(4) $179,550,919
Class B shares $164,831,224 --(4) $164,831,224
Class C shares $ 33,389,311 --(4) $ 33,389,311
Class I shares $ 3,826,385 --(4) $ 3,826,385
------------
Total Net Assets $546,895,200
============
Shares Outstanding
Class S shares 9,436,556 (227,789) 9,208,767
Class A shares 10,003,242 10,003,242
Class B shares 9,567,429 9,567,429
Class C shares 1,928,201 1,928,201
Class I shares 207,018 207,018
Net Asset Value
per Share
Class S shares $ 17.52 $ 17.95
Class A shares $ 17.95 $ 17.95
Class B shares $ 17.23 $ 17.23
Class C shares $ 17.32 $ 17.32
Class I shares $ 18.48 $ 18.48
____________________
(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 Kemper Small Cap Value Fund will be received by the shareholders of
the Fund on the date the Reorganization takes place, and the foregoing should
not be relied upon to reflect the number of shares of Kemper Small Cap Value
Fund that actually will be received on or after such date.
(2) Pro forma combined net assets do not reflect expense reductions that would
result from the implementation of an administrative fee for Kemper Small Cap
Value Fund.
(3) Represents one-time proxy, legal, accounting and other costs of the
Reorganization to be borne by the Fund.
(4) Represents one-time proxy, legal, accounting and other costs of the
Reorganization to be borne by Kemper Small Cap Value Fund.
The Board of Trustees unanimously recommends that the shareholders of the
Fund vote in favor of this Proposal.
ADDITIONAL INFORMATION
Information about the Funds
Additional information about the Acquired Trust, the Acquiring Corporation,
the Funds and the Reorganization has been filed with the SEC and may be obtained
without charge by writing to Scudder Investor Services, Inc., Two International
Place, Boston, Massachusetts 02110-4103, or by calling 1-800-[ ].
The Acquired Trust and Acquiring Corporation 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 Corporation, 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
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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.
Any shareholder of the Fund giving a proxy has the power to revoke it by
mail (addressed to the Secretary at the principal executive office of the Fund,
c/o Scudder Kemper Investments, Inc., at the address for the Fund shown at the
beginning of this Proxy Statement/Prospectus) or in person at the Meeting, by
executing a superseding proxy or by submitting a notice of revocation to the
Fund. All properly executed proxies received in time for the Meeting will be
voted as specified in the proxy or, if no specification is made, in favor of the
Proposal.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of at least 30% of the shares of the Fund entitled to be cast shall be
necessary and sufficient to constitute a quorum for the transaction of business.
In the event that the necessary quorum to transact business or the vote required
to approve the Proposal is not obtained at the Meeting, the persons named as
proxies may propose one or more adjournments of the Meeting in accordance with
applicable law to permit further solicitation of proxies with respect to the
Proposal. Any such adjournment as to a matter will require the affirmative vote
of the holders of a majority of the Fund's shares present in person or by proxy
at the Meeting. The persons named as proxies will vote in favor of any such
adjournment those proxies which they are entitled to vote in favor of the
Proposal and will vote against any such adjournment those proxies to be voted
against the Proposal. For purposes of determining the presence of a quorum for
transacting business at the Meeting, abstentions and broker "non-votes" will be
treated as shares that are present but which have not been voted. Broker non-
votes are proxies received by the Fund from brokers or nominees when the broker
or nominee has neither received instructions from the beneficial owner or other
persons entitled to vote nor has discretionary power to vote on a particular
matter. Accordingly, shareholders are urged to forward their voting instructions
promptly.
Approval of the Proposal requires the affirmative vote of the holders of a
majority of the Fund's shares outstanding and entitled to vote thereon.
Abstentions and broker non-votes and will have the effect of a "no" vote on the
Proposal.
Holders of record of the shares of the Fund at the close of business on
March 5, 2001 will be entitled to one vote per share on all business of the
Meeting. As of February 5, 2001, there were [ ] Class S shares of the Fund
outstanding.
The Appendix hereto sets forth the beneficial owners of more than 5% of
each Fund's shares, as well as the beneficial owners of more than 5% of the
shares of each other series of the Acquired Trust.
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To the best of the applicable Trust's/Corporation's knowledge, as of December
31, 2000, no person owned beneficially more than 5% of either Fund's outstanding
shares or the shares of any other series of the Acquired Trust, except as stated
on the Appendix.
Shareholder Communications Corporation ("SCC") has been engaged to assist
in the solicitation of proxies, at an estimated cost of $[ ]. As the Meeting
date approaches, certain shareholders of the Fund may receive a telephone call
from a representative of SCC if their votes have not yet been received.
Authorization to permit SCC to execute proxies may be obtained by telephonic or
electronically transmitted instructions from shareholders of the Fund. Proxies
that are obtained telephonically will be recorded in accordance with the
procedures described below. The Trustees believe that these procedures are
reasonably designed to ensure that both the identity of the shareholder casting
the vote and the voting instructions of the shareholder are accurately
determined.
In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask for each shareholder's full name and address, or the last
four digits of the shareholder's social security or employer identification
number, or both, and to confirm that the shareholder has received the proxy
materials in the mail. If the shareholder is a corporation or other entity, the
SCC representative is required to ask for the person's title and confirmation
that the person is authorized to direct the voting of the shares. If the
information solicited agrees with the information provided to SCC, then the SCC
representative has the responsibility to explain the process, read the Proposal
on the proxy card(s), and ask for the shareholder's instructions on the
Proposal. Although the SCC representative is permitted to answer questions about
the process, he or she is not permitted to recommend to the shareholder how to
vote, other than to read any recommendation set forth in the Proxy
Statement/Prospectus. SCC will record the shareholder's instructions on the
card. Within 72 hours, the shareholder will be sent a letter or mailgram to
confirm his or her vote and asking the shareholder to call SCC immediately if
his or her instructions are not correctly reflected in the confirmation.
Shareholders may also provide their voting instructions through telephone
touch-tone voting or Internet voting. These options require shareholders to
input a control number which is located on each voting instruction card. After
inputting this number, shareholders will be prompted to provide their voting
instructions on the Proposal. Shareholders will have an opportunity to review
their voting instructions and make any necessary changes before submitting their
voting instructions and terminating their telephone call or Internet link.
Shareholders who vote 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., Two
International Place, Boston, Massachusetts 02110-4103, within a reasonable time
before the solicitation of proxies for such meeting. The timely submission of a
proposal does not guarantee its inclusion.
Other Matters to Come Before the Meeting. The Board is not aware of any
matters that will be presented for action at the Meeting other than the matters
described in this material. Should any other matters requiring a vote of
shareholders arise, the proxy in the accompanying form will confer upon the
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person or persons entitled to vote the shares represented by such proxy the
discretionary authority to vote the shares as to any such other matters in
accordance with their best judgment in the interest of the Acquired Trust and/or
the Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) (OR TAKE ADVANTAGE
OF AVAILABLE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES) PROMPTLY. NO POSTAGE
IS REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board,
/s/ John Millette
John Millette
Secretary
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INDEX OF EXHIBITS AND APPENDIX
EXHIBIT A: FORM OF AGREEMENT AND PLAN OF REORGANIZATION......................
EXHIBIT B: MANAGEMENT'S DISCUSSION OF KEMPER SMALL CAP VALUE FUND'S
PERFORMANCE.......................................................
APPENDIX: BENEFICIAL OWNERS OF FUND SHARES..................................
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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 Value Series, Inc. (the
"Acquiring Corporation"), a Maryland corporation, on behalf of Kemper Small Cap
Value Fund (the "Acquiring Fund"), a separate series of the Acquiring
Corporation, Scudder Securities Trust (the "Acquired Trust"), a Massachusetts
business trust, on behalf of Scudder Small Company Value Fund (the "Acquired
Fund" and, together with the Acquiring Fund, each a "Fund" and collectively the
"Funds"), a separate series of the Acquired Trust, and Scudder Kemper
Investments, Inc. ("Scudder Kemper"), investment adviser to the Funds (for
purposes of Paragraph 10.2 of the Agreement only). The principal place of
business of the Acquiring Corporation is 222 South Riverside Plaza, Chicago,
Illinois 60606 and the principal place of business of the Acquired Trust is Two
International Place, Boston, Massachusetts 02110-4103.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization")
will consist of the transfer of all or substantially all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for Class S voting shares
of capital stock ($.01 par value per share) of the Acquiring Fund (the
"Acquiring Fund Shares"), the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund and the distribution of the Acquiring Fund
Shares to the Class S shareholders of the Acquired Fund in complete liquidation
of the Acquired Fund as provided herein, all upon the terms and conditions
hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES
AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer to the Acquiring Fund all or substantially all of the Acquired
Fund's assets as set forth in section 1.2, and the Acquiring Fund agrees in
exchange therefor (i) to deliver to the Acquired Fund that number of full and
fractional Class S Acquiring Fund Shares determined by dividing the value of the
Acquired Fund's assets net of any liabilities of the Acquired Fund with respect
to the Class S shares of the Acquired Fund, computed in the manner and as of the
time and date set forth in section 2.1, by the net asset value of one Acquiring
Fund Share, computed in the manner and as of the time and date set forth in
section 2.2; and (ii) to assume all of the liabilities of the Acquired Fund,
including, but not limited to, any deferred compensation to 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
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,
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and at least 70% of the fair market value of the gross assets, held by the
Acquired Fund immediately before the Closing (excluding for these purposes
assets used to pay the dividends and other distributions paid pursuant to
section 1.4).
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in section 3.6.
1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of Assets provided for in section 1.1,
the Acquired Fund will distribute to the Acquired Fund's shareholders of record
(the "Acquired Fund Shareholders"), determined as of the Valuation Time (as
defined in section 2.1), on a pro rata basis, the Acquiring Fund Shares received
by the Acquired Fund pursuant to section 1.1 and will completely liquidate. Such
distribution and liquidation will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on the
books of the Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund Shareholders. The Acquiring
Fund shall have no obligation to inquire as to the validity, propriety or
correctness of such records, but shall assume that such transaction is valid,
proper and correct. The aggregate net asset value of Class S Acquiring Fund
Shares to be so credited to the Class S Acquired Fund Shareholders shall be
equal to the aggregate net asset value of the Acquired Fund shares owned by such
shareholders as of the Valuation Time. All issued and outstanding shares of the
Acquired Fund will simultaneously be cancelled on the books of the Acquired
Fund, although share certificates representing interests in Class S shares of
the Acquired Fund will represent a number of Acquiring Fund Shares after the
Closing Date as determined in accordance with section 2.3. The Acquiring Fund
will not issue certificates representing Acquiring Fund Shares in connection
with such exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, shall be
available to the Acquiring Fund from and after the Closing Date and shall be
turned over to the Acquiring Fund as soon as practicable following the Closing
Date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. (the "NYSE") on the business day
immediately preceding the Closing Date, as defined in Section 3.1 (the
"Valuation Time") after the declaration and payment of any dividends and/or
other distributions on that date, using the valuation procedures set forth in
the Acquiring Fund's Charter,
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as amended, and then-current prospectus or statement of additional information,
copies of which have been delivered to the Acquired Fund.
2.2. The net asset value of a Class S Acquiring Fund Share shall be the
net asset value per share computed as of the Valuation Time using the valuation
procedures referred to in section 2.1. Notwithstanding anything to the contrary
contained in this Agreement, in the event that, as of the Valuation Time, there
are no Class S Acquiring Fund Shares issued and outstanding, then, for purposes
of this Agreement, the per share net asset value of a Class S share shall be
equal to the net asset value of one Class S A Acquiring Fund Share.
2.3. The number of the Class S Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Assets shall be
determined with respect to each such class by dividing the value of the Assets
with respect to Class S 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 [ ], 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.
3.4. Scudder Service Corporation, as transfer agent for the Acquired Fund,
on behalf of the Acquired Fund, shall deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
the Acquired Fund Shareholders and the number and percentage ownership (to three
decimal places) of outstanding Class S Acquired Fund shares owned by each such
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shareholder immediately prior to the Closing. The Acquiring Fund shall issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited on
the Closing Date to the Acquired Fund or provide evidence satisfactory to the
Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired
Fund's account on the books of the Acquiring Fund. At the Closing, each party
shall deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request to effect the transactions contemplated by this
Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the
NYSE or another primary trading market for portfolio securities of the Acquiring
Fund or the Acquired Fund shall be closed to trading or trading thereupon shall
be restricted, or (b) trading or the reporting of trading on such Exchange or
elsewhere shall be disrupted so that, in the judgment of the Board members of
either party to this Agreement, accurate appraisal of the value of the net
assets with respect to the Class S shares of the Acquiring Fund or the Acquired
Fund is impracticable, the Closing Date shall be postponed until the first
business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.6. The liabilities of the Acquired Fund shall include all of the
Acquired Fund's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Closing Date, and whether or not specifically referred to in this Agreement
including but not limited to any deferred compensation to the Acquired Fund's
board members.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Trust, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) The Acquired Trust is a voluntary association with transferable
shares commonly referred to as a Massachusetts business trust duly organized and
validly existing under the laws of The Commonwealth of Massachusetts with power
under the Acquired Trust's Declaration of Trust, as amended, to own all of its
properties and assets and to carry on its business as it is now being conducted
and, subject to approval of shareholders of the Acquired Fund, to carry out the
Agreement. The Acquired Fund is a separate series of the Acquired Trust duly
designated in accordance with the applicable provisions of the Acquired Trust's
Declaration of Trust. The Acquired Fund is a separate series of the Acquired
Trust duly designated in accordance with the applicable provisions of the
Acquired Trust's Declaration of Trust. The Acquired Trust and Acquired Fund are
qualified to do business in all jurisdictions in which they are required to be
so qualified, except jurisdictions in which the failure to so qualify would not
have material adverse effect on the Acquired Trust or Acquired Fund. The
Acquired Fund has all material federal, state and local authorizations necessary
to own all of the properties and assets and to carry on its business as now
being conducted, except authorizations which the failure to so obtain would not
have a material adverse effect on the Acquired Fund;
(b) The Acquired Trust is registered with the Commission as an open-
end management investment company under the 1940 Act, and such registration is
in full force and effect and the Acquired Fund is in compliance in all material
respects with the 1940 Act and the rules and regulations thereunder;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund of
the transactions contemplated herein, except such as have been obtained under
the Securities Act of 1933, as amended (the "1933 Act"), the
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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 [ ], 200[ ], have been
audited by PricewaterhouseCoopers LLP, independent accountants, and are in
accordance with GAAP consistently applied, and such statements (a copy of each
of which has been furnished to the Acquiring Fund) present fairly, in all
material respects, the financial position of the Acquired Fund as of such date
in accordance with GAAP, and there are no known contingent liabilities of the
Acquired Fund required to be reflected on a balance sheet (including the notes
thereto) in accordance with GAAP as of such date not disclosed therein;
(g) Since [ ], 200[ ], there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred except as otherwise disclosed to and
accepted in writing by the Acquiring Fund. For purposes of this subsection (g),
a decline in net asset value per share of the Acquired Fund due to declines in
market values of securities in the Acquired Fund's portfolio, the discharge of
Acquired Fund liabilities, or the redemption of Acquired Fund shares by Acquired
Fund Shareholders shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law to have been filed
by such dates (including any extensions) shall have been filed and are or will
be correct in all material respects, and all federal and other taxes shown as
due or required to be shown as due on said returns and reports shall have been
paid or provision shall have been made for the payment thereof, and, to the best
of the Acquired Fund's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(i) For each taxable year of its operation (including the taxable
year ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company and
has elected to be treated as such, has been eligible to and has
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computed its federal income tax under Section 852 of the Code, and will have
distributed all of its investment company taxable income and net capital gain
(as defined in the Code) that has accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have
been offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the 1933
Act and state securities laws, (ii) are, and on the Closing Date will be, duly
and validly issued and outstanding, fully paid and non-assessable and not
subject to preemptive or dissenter's rights (recognizing that, under
Massachusetts law, Acquired Fund Shareholders, under certain circumstances,
could be held personally liable for obligations of the Acquired Fund), and (iii)
will be held at the time of the Closing by the persons and in the amounts set
forth in the records of Scudder Service Corporation, as provided in section 3.4.
The Acquired Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of the Acquired Fund shares, nor is
there outstanding any security convertible into any of the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Fund's assets to be transferred to the
Acquiring Fund pursuant to section 1.2 and full right, power, and authority to
sell, assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the Acquiring
Fund has received notice at or prior to the Closing, and upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act and the 1940 Act,
except those restrictions as to which the Acquiring Fund has received notice and
necessary documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action on
the part of the Board members of the Acquired Trust (including the
determinations required by Rule 17a-8(a) under the 1940 Act), and, subject to
the approval of the Acquired Fund Shareholders, this Agreement constitutes a
valid and binding obligation of the Acquired Trust, on behalf of the Acquired
Fund, enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for use
in any other document filed or to be filed with any federal, state or local
regulatory authority (including the National Association of Securities Dealers,
Inc. (the "NASD")), which may be necessary in connection with the transactions
contemplated hereby, shall be accurate and complete in all material respects and
shall comply in all material respects with federal securities and other laws and
regulations applicable thereto;
(n) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of the
Registration Statement and on the Closing Date, (i) comply in all material
respects with the provisions and Regulations of the 1933 Act, 1934 Act and 1940
Act, as applicable, and (ii) not contain any untrue statement of a material fact
or omit to state a material fact required to be stated
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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 Corporation, on behalf of the Acquiring Fund,
represents and warrants to the Acquired Fund as follows:
(a) The Acquiring Corporation is a corporation organized and
validly existing under the laws of the state of Maryland with power under the
Acquiring Corporation's Charter, 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 Corporation duly
designated in accordance with the applicable provisions of the Acquiring
Corporation's Charter. The Acquiring Corporation 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 Corporation 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 Corporation 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 Corporation is not, and the execution, delivery
and performance of this Agreement by the Acquiring Corporation will not result
(i) in violation of Massachusetts law or of the Acquiring Corporation's Charter,
as amended, or By-Laws, or (ii) in a violation or breach of, or constitute a
default under, any material agreement, indenture, instrument, contract, lease or
other undertaking known to counsel to which the Acquiring Fund is a party or by
which it is bound, and the execution, delivery and performance of this Agreement
by the Acquiring Fund will not result in the acceleration of any obligation, or
the imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Acquiring Fund is a party or by
which it is bound, or (iii) in the creation or imposition of any lien, charge or
encumbrance on any property or assets of the Acquiring Fund;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Acquiring Fund or any properties or
assets held by it. The Acquiring Fund knows of no facts which might form the
basis for the institution of such proceedings which would materially and
adversely affect its business and is not a party to or subject to the provisions
of any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate the
transactions herein contemplated;
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(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 [ ], 200[ ], 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 [ ], 200[ ], 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 Maryland
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 Maryland law, Acquiring Fund Shareholders, under
certain circumstances, could be held personally liable for the obligations of
the Acquiring Fund);
(l) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired Fund
has received notice at or prior to the Closing;
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(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 Corporation (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 Corporation, 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 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.
9
<PAGE>
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 [ ], 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 such further
action, as the Acquired Fund may reasonably deem necessary or desirable in order
to (i) vest
10
<PAGE>
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
Trust, 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 Trust, 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 Corporation, 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 Acquiring 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:
11
<PAGE>
(a) The Acquiring Corporation has been duly formed and is a Maryland
corporation; (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 Corporation, on behalf
of the Acquiring Fund, and constitutes a valid and legally binding obligation of
the Acquiring Corporation, 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 Corporation's Charter, as amended, or By-laws; and
(e) to the knowledge of such counsel, and without any independent investigation,
(i) the Acquiring Corporation is not subject to any litigation or other
proceedings that might have a materially adverse effect on the operations of the
Acquiring Corporation, (ii) the Acquiring Corporation 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 state of Maryland 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
Corporation and the Acquired Trust.
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
6.5. The Acquiring Fund shall have (i) adopted a new investment management
agreement, (ii) entered into an administrative services agreement with Scudder
Kemper Investments, Inc. ("Scudder Kemper") and (iii) adopted security valuation
procedures identical to the Acquired Fund's, each in a form reasonably
satisfactory to the Acquired Fund.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of the Acquired Trust, on behalf of
the Acquired Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than the Acquiring Fund, its adviser or any of their affiliates) against the
Acquired Fund or its investment adviser(s), Board members or officers arising
out of this Agreement and (ii) no facts known to the Acquired Fund which the
Acquired Fund reasonably believes might result in such litigation.
7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing Date,
certified by the Treasurer of the Acquired Fund.
12
<PAGE>
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 Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquired Trust with respect to the Acquired Fund made in this Agreement are
true and correct on and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as the Acquiring Fund shall reasonably request.
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Dechert, in a form reasonably satisfactory to the Acquiring Fund, and dated
as of the Closing Date, to the effect that:
(a) The Acquired Trust has been duly formed and is an existing
business trust; (b) the Acquired Fund has the power to carry on its business as
presently conducted in accordance with the description thereof in the Acquired
Trust's registration statement under the 1940 Act; (c) the Agreement has been
duly authorized, executed and delivered by the Acquired Trust, on behalf of the
Acquired Fund, 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
Corporation 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.
13
<PAGE>
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions contemplated
herein.
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
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 Fund 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,
14
<PAGE>
liabilities or expenses (including, without limitation, the payment of
reasonable legal fees and reasonable costs of investigation) to which jointly
and severally, the Acquired Fund or any of its Board members or officers may
become subject, insofar as any such loss, claim, damage, liability or expense
(or actions with respect thereto) arises out of or is based on any breach by the
Acquiring Fund of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
9.2. The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's Board members and officers from and
against any and all losses, claims, damages, liabilities or expenses (including,
without limitation, the payment of reasonable legal fees and 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 Fund 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.
15
<PAGE>
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by any authorized officer of the Acquired
Fund and any authorized officer of the Acquiring Fund; provided, however, that
following the meeting of the Acquired Fund Shareholders called by the Acquired
Fund pursuant to section 5.3 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund Shareholders under this Agreement
to the detriment of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, Two International Place, Boston, MA 02110-4103, with a copy to
Dechert, Ten Post Office Square South, Boston, MA 02109-4603, Attention: Joseph
R. Fleming, Esq., or to the Acquiring Fund, 222 South Riverside Plaza, Chicago,
Illinois 60606, with a copy to Dechert, Ten Post Office Square South, Boston, MA
02109-4603, Attention: Joseph R. Fleming, Esq., or to any other address that the
Acquired Fund or the Acquiring Fund shall have last designated by notice to the
other party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and the shareholders of the
Acquiring Fund and the Acquired Fund and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
15.4. References in this Agreement to the Acquired Trust mean and refer to
the Board members of the Acquired 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
the Acquired Trust conducts its business. It is expressly agreed that the
obligations of the Acquired Trust hereunder shall not be binding upon any of the
Board members, shareholders, nominees, officers, agents, or employees of the
Acquired Trust or the Acquired Fund personally, but bind only the property of
the Acquired Fund, as provided in the Acquired Trust's Declaration of Trust.
Moreover, no series of the Acquired Trust other than the Acquired Fund shall be
responsible for the obligations of the Acquired Trust hereunder, and all persons
shall look only to the assets of the Acquired Fund to satisfy the obligations of
the Acquired Trust hereunder. The execution and the delivery of this Agreement
have been authorized by the Acquired Trust's Board members, on behalf of the
Acquired Fund, and this Agreement has been signed by authorized officers of the
Acquired Fund acting as such, and neither such authorization by such Board
members, nor such execution and delivery
16
<PAGE>
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
property of the Acquired Fund, as provided in the Acquired Trust's Declaration
of Trust.
Notwithstanding anything to the contrary contained in this Agreement, the
obligations, agreements, representations and warranties with respect to the
Acquired Fund shall constitute the obligations, agreements, representations and
warranties of the Acquired Fund only (the "Obligated Fund"), and in no event
shall any other series of the Acquired Trust 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 State of Massachusetts, without regard to its
principles of conflicts of laws.
17
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by an authorized officer and its seal to be affixed thereto and
attested by its Secretary or Assistant Secretary.
Attest: SCUDDER SECURITIES TRUST
on behalf of Scudder Small Company Value Fund
________________________
Secretary
_______________________________
By:____________________________
Its:___________________________
Attest: KEMPER VALUE SERIES, INC.
on behalf of Kemper Small Cap Value Fund
________________________
Secretary
________________________________
By:_____________________________
Its:____________________________
AGREED TO AND ACKNOWLEDGED
ONLY WITH RESPECT TO
PARAGRAPH 10.2 HERETO
SCUDDER KEMPER INVESTMENTS, INC.
_______________________________
By:____________________________
Its:___________________________
18
<PAGE>
EXHIBIT B
MANAGEMENT'S DISCUSSION OF KEMPER SMALL CAP VALUE FUND'S PERFORMANCE
[To be provided]
<PAGE>
APPENDIX
Beneficial Owners of Fund Shares
<PAGE>
This proxy statement/prospectus is accompanied by Kemper Small Cap
Value Fund's prospectus offering Class S shares dated February 1, 2001, which
was previously filed with the Commission via EDGAR on November 30, 2000 (File
No. 811-05385) and is incorporated by reference herein.
Kemper Small Cap Value Fund's statement of additional information
offering Class S shares dated February 1, 2001, which was previously filed with
the Commission via EDGAR on November 30, 2000 (File No. 811-05385), is
incorporated by reference herein.
Scudder Small Company Value Fund's statement of additional information
dated October 1, 2000, which was previously filed with the Commission via EDGAR
on September 29, 2000 (File No. 2-36238), is incorporated by reference herein.
<PAGE>
PART B
KEMPER VALUE SERIES, INC.
---------------------------------------------------
Statement of Additional Information
March [ ], 2001
---------------------------------------------------
Acquisition of the Assets of By and in Exchange for Shares of
Scudder Small Company Value Fund, Kemper Small Cap Value Fund, a series of
a series of Kemper Value Series, Inc. (the
Scudder Securities Trust "Acquiring Corporation")
Two International Place 222 South Riverside Plaza
Boston, MA 02110-4103 Chicago, IL 60606
This Statement of Additional Information is available to the
shareholders of Scudder Small Company Value Fund in connection with a proposed
transaction whereby Kemper Small Cap Value Fund will acquire all or
substantially all of the assets and all of the liabilities of Scudder Small
Company Value Fund in exchange for shares of Kemper Small Cap Value Fund (the
"Reorganization").
This Statement of Additional Information of the Acquiring Corporation
contains material which may be of interest to investors but which is not
included in the Proxy Statement/Prospectus of the Acquiring Corporation relating
to the Reorganization. This Statement of Additional Information consists of this
cover page and the following documents:
1. Kemper Small Cap Value Fund's statement of additional information offering
Class S shares dated February 1, 2001, which was previously filed with the
Securities and Exchange Commission (the "Commission") via EDGAR on November 30,
2000 (File No. 811-05385) and is incorporated by reference herein.
2. Kemper Small Cap Value Fund's annual report to shareholders for the fiscal
year ended November 30, 1999, which was previously filed with the Commission via
EDGAR on February 1, 2000 (File No. 811-05385) and is incorporated by reference
herein.
3. Kemper Small Cap Value Fund's semi-annual report to shareholders for the
period ended May 31, 2000, which was previously filed with the Commission via
EDGAR on July 28, 2000 (File No. 811-05385) and is incorporated by reference
herein.
4. Scudder Small Company Value Fund's prospectus dated October 1, 2000, which
was previously filed with the Commission via EDGAR on September 29, 2000 (File
No. 811-02021) and is incorporated by reference herein.
5. Scudder Small Company Value Fund's statement of additional information
October 1, 2000, which was previously filed with the Commission via EDGAR on
September 29, 2000 (File No. 811-02021) and is incorporated by reference herein.
6. Scudder Small Company Value Fund's annual report to shareholders for the
fiscal year ended July 31, 2000, which was previously filed with the Commission
via EDGAR on September 22, 2000 (File No. 811-02021) and is incorporated by
reference herein.
7. The financial statements and schedules of Kemper Small Cap Value Fund and
Scudder Small Company Value Fund required by Regulation S-X for the periods
specified in Article 3 thereof, which are filed herein.
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated March [ ], 2000 relating to the Reorganization may be
obtained by writing Scudder Small Company Value Fund at Two International Place,
Boston, Massachusetts 02110-4103 or by calling [ ] at 1-800-[ ].
This Statement of Additional Information should be read in conjunction with the
Proxy Statement/Prospectus.
1
<PAGE>
Pro Forma
Portfolio of Investments
as of September 30, 2000
<TABLE>
<CAPTION>
Kemper Small Scudder Small Pro Forma Kemper Small Scudder Small Pro Forma
Cap Value Company Value Combined Cap Value Company Value Combined
Par/Share Par/Share Par/Share Market Market Market
REPURCHASE AGREEMENTS 1.5% Amount Amount Amount Value ($) Value ($) Value ($)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Repurchase Agreement
with State Street Bank,
6.48%, 10/02/2000 5,446,000 2,739,000 8,185,000 5,446,000 2,739,000 8,185,000
--------------------------------------
Total Repurchase Agreements (Cost of $5,446,000,
$2,739,000, $8,185,000 respectively) 5,446,000 2,739,000 8,185,000
======================================
COMMON STOCKS 98.5%
COMMUNICATIONS 1.7%
AVT Corp. 188,900 188,900 1,050,756 1,050,756
CT Communications, Inc. 43,700 43,700 887,656 887,656
Commonwealth Telephone
Enterprises, Inc. 18,300 18,300 674,812 674,812
General Communication,
Inc. 117,900 117,900 843,721 843,721
IDT Corp. 5,100 5,100 198,262 198,262
North Pittsburgh Systems,
Inc. 94,300 94,300 1,284,837 1,284,837
Plantronics, Inc. 3,600 3,600 136,800 136,800
Tut Systems, Inc. 13,700 13,700 1,182,481 1,182,481
Westell Technologies, Inc. 76,100 76,100 979,787 979,787
Xircom, Inc. 70,800 70,800 1,787,700 1,787,700
US LEC Corp. 33,900 33,900 290,268 290,268
--------------------------------------
9,317,080 9,317,080
--------------------------------------
CONSTRUCTION 8.1%
Ameron International Corp. 50,900 50,900 1,870,575 1,870,575
Building Materials Holding
Corp. 1,500 1,500 13,312 13,312
Elcor Corp. 41,825 41,825 606,462 606,462
Engle Homes, Inc. 1,100 1,100 17,118 17,118
Florida Rock Industries,
Inc. 32,400 32,900 65,300 1,277,775 1,297,493 2,575,268
Genlyte Group, Inc. 30,200 500 30,700 771,987 12,781 784,768
Hovnanian Enterprises Inc. 1,400 1,400 10,412 10,412
Lennar Corp. 36,096 36,096 1,071,600 1,071,600
MDC Holdings, Inc. 22,200 53,300 75,500 577,200 1,385,800 1,963,000
Mestek, Inc. 700 700 11,462 11,462
NCI Building Systems, Inc. 76,000 76,000 1,111,500 1,111,500
Nortek, Inc. 21,100 54,700 75,800 369,250 957,250 1,326,500
Pitt-Des Moines, Inc. 26,800 26,800 814,050 814,050
Pope & Talbot, Inc 26,000 26,100 52,100 372,125 373,556 745,681
Ryland Group, Inc. 44,600 44,600 1,382,600 1,382,600
Schuler Homes, Inc. 2,200 2,200 21,312 21,312
Skyline Corp. 41,100 41,100 875,943 875,943
Southdown, Inc. 88,200 88,200 6,284,250 6,284,250
Texas Industries, Inc. 33,800 33,800 1,077,375 1,077,375
Toll Brothers Inc. 19,900 19,900 684,062 684,062
Universal Forest Products,
Inc. 36,300 73,700 110,000 414,614 841,792 1,256,406
Del Webb Corp. 255,500 48,100 303,600 7,090,125 1,334,775 8,424,900
Crossmann Communities,
Inc. 39,000 39,000 770,250 770,250
D.R. Horton, Inc. 34,008 34,008 584,512 584,512
Dal-Tile International,
Inc. 5,500 5,500 68,750 68,750
Emcor Group, Inc. 59,500 26,700 86,200 1,547,000 694,200 2,241,200
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Modtech Holdings, Inc. 210 210 2,073 2,073
NVR Inc. 23,200 33,800 57,000 1,879,200 2,737,800 4,617,000
Standard Pacific Corp. 39,300 124,900 164,200 707,400 2,248,200 2,955,600
---------------------------------------
21,897,388 22,270,553 44,167,941
---------------------------------------
CONSUMER
DISCRETIONARY 8.7%
American Woodmark Corp. 54,100 54,100 1,068,475 1,068,475
Ames Department Stores, Inc. 500 500 2,890 2,890
Anchor Gaming 39,100 39,100 3,110,893 3,110,893
Avis Rent A Car, Inc. 23,200 23,200 687,300 687,300
Aztar Corp. 66,400 66,400 1,020,900 1,020,900
Brookstone, Inc. 500 500 7,000 7,000
Brown Shoe Company, Inc. 27,800 27,800 255,412 255,412
The Buckle, Inc. 14,500 14,500 168,562 168,562
Burlington Coat Factory
Warehouse Corp. 28,500 28,500 407,906 407,906
CEC Entertainment, Inc. 92,700 600 93,300 2,966,400 19,200 2,985,600
Cato Corp. 91,000 47,200 138,200 1,137,500 590,000 1,727,500
Cellstar Corp. 77,500 77,500 244,609 244,609
Central Garden & Pet Co. 40,200 40,200 278,887 278,887
Charming Shoppes, Inc. 118,800 80,000 198,800 619,987 417,500 1,037,487
Coachmen Industries, Inc. 10,000 10,000 104,375 104,375
Deb Shops, Inc. 102,400 51,900 154,300 1,216,000 616,312 1,832,312
Dress Barn Inc. 51,500 72,200 123,700 1,081,500 1,516,200 2,597,700
Fairfield Communities, Inc. 46,300 46,300 468,787 468,787
Finlay Enterprises, Inc. 600 600 8,400 8,400
The Finish Line, Inc. 600 600 4,387 4,387
Fred's, Inc. 8,000 8,000 179,500 179,500
Friedman's, Inc. 104,300 104,300 521,500 521,500
Garan, Inc. 500 500 11,125 11,125
Genesco Inc. 146,500 1,700 148,200 2,481,343 28,793 2,510,136
Goody's Family Clothing, Inc. 92,800 97,500 190,300 365,400 383,906 749,306
Handleman Company 5,000 5,000 61,875 61,875
Hartmarx Corp. 11,600 11,600 34,800 34,800
Haverty Furniture Co., Inc. 7,200 115,000 122,200 78,750 1,257,812 1,336,562
Hot Topic Inc 5,000 5,000 150,000 150,000
K-Swiss Inc. 33,900 33,900 762,750 762,750
Kellwood Co. 6,000 6,000 109,500 109,500
Lithia Motors, Inc. 4,900 4,900 59,412 59,412
Steven Madden, Ltd. 200 200 1,725 1,725
NPC International, Inc. 188,200 78,200 266,400 1,840,831 764,893 2,605,724
O'Charley's Inc. 93,100 35,700 128,800 1,146,293 439,556 1,585,849
Oxford Industries, Inc. 51,700 51,700 924,137 924,137
Pacific Sunwear of California,
Inc. 15,250 15,250 285,937 285,937
PETCO Animal Supplies, Inc. 31,700 31,700 691,456 691,456
Phillips-Van Heusen Corp. 50,900 50,900 524,906 524,906
Pier 1 Imports, Inc. 6,000 6,000 81,375 81,375
Pinnacle Entertainment, Inc. 59,100 79,100 138,200 1,285,425 1,720,425 3,005,850
Prime Hospitality Corp. 93,500 93,500 946,687 946,687
Ruby Tuesday, Inc. 174,600 10,300 184,900 1,964,250 115,875 2,080,125
Ryan's Family Steak Houses,
Inc. 28,300 138,200 166,500 217,556 1,062,412 1,279,968
Scotts Company 10,100 10,100 338,350 338,350
Shopko Stores, Inc. 38,300 61,600 99,900 397,362 639,100 1,036,462
Spiegel Inc. 54,200 54,200 379,400 379,400
Stride Rite Corp. 111,300 111,300 563,456 563,456
Systemax Inc. 53,500 53,500 147,125 147,125
Tarrant Apparel Group 35,000 35,000 262,500 262,500
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Thor Industries, Inc. 13,100 13,100 302,937 302,937
United Auto Group, Inc. 57,400 57,400 473,550 473,550
United Retail Group, Inc. 55,200 55,200 303,600 303,600
Value City Department Stores, Inc. 39,800 39,800 328,350 328,350
VICORP Restaurants, Inc. 1,100 1,100 21,450 21,450
Wolverine World Wide, Inc. 152,600 152,600 1,421,087 1,421,087
CBRL Group, Inc. 40,000 40,000 575,000 575,000
Jo-Ann Stores, Inc. 11,300 11,300 81,925 81,925
Mikasa, Inc. 7,500 7,500 122,812 122,812
Musicland Stores Corp. 900 900 6,356 6,356
Trans World Entertainment Corp. 107,400 115,600 223,000 1,074,000 1,156,000 2,230,000
Tropical Sportswear Int'l Corp. 300 300 5,100 5,100
--------------------------------------
26,257,472 20,861,575 47,119,047
--------------------------------------
CONSUMER STAPLES 6.2%
Chattem, Inc. 59,600 59,600 569,925 569,925
Collins & Aikman Corp. 13,500 13,500 63,281 63,281
Corn Products international 29,400 29,400 668,850 668,850
Earthgrains Co. 51,900 30,000 81,900 956,906 553,125 1,510,031
International Multifoods Corp. 10,400 10,400 180,700 180,700
J & J Snack Foods Corp. 82,400 24,300 106,700 1,066,050 314,381 1,380,431
Jack in the Box Inc. 52,300 52,300 1,121,181 1,121,181
Lance, Inc. 34,600 52,900 87,500 336,268 514,121 850,389
Michael Foods, Inc. 34,200 61,200 95,400 799,425 1,430,550 2,229,975
National Beverage Corp. 800 800 5,850 5,850
Nautica Enterprises, Inc. 131,700 131,700 1,703,868 1,703,868
Performance Food Group Co. 164,000 5,600 169,600 6,170,500 210,700 6,381,200
Pilgrim's Pride Corp. 121,300 121,300 833,937 833,937
Pilgrim's Pride Corp. "A" 54,150 54,150 284,287 284,287
Polymer Group, Inc. 57,400 110,600 168,000 423,325 815,675 1,239,000
Ralcorp Holdings, Inc. 600 600 8,475 8,475
Riviana Foods, Inc. 88,900 88,900 1,483,518 1,483,518
Russ Berrie & Co., Inc. 10,300 5,400 15,700 203,425 106,650 310,075
Salton, Inc. 66,800 100 66,900 2,158,475 3,231 2,161,706
Schweitzer-Mauduit International,
Inc. 66,600 62,600 129,200 890,775 837,275 1,728,050
Springs Industries, Inc. 161,100 12,800 173,900 4,541,006 360,800 4,901,806
Applica, Inc. 73,900 78,600 152,500 457,256 486,337 943,593
WILD OATS MARKETS INC 39,500 39,500 464,125 464,125
Fresh Del Monte Produce Inc. 441,700 441,700 2,898,656 2,898,656
--------------------------------------
24,965,891 8,957,018 33,922,909
--------------------------------------
DURABLES 6.4%
Aaron Rents, Inc. 23,800 38,200 62,000 306,425 491,825 798,250
Aeroflex, Inc. 45,975 45,975 2,235,534 2,235,534
Alliant Techsystems, Inc. * 18,900 18,900 1,552,162 1,552,162
AMERCO 20,500 20,500 401,031 401,031
Borg-Warner Automotive Inc. 142,700 142,700 4,726,937 4,726,937
Brooktrout Technology Inc. 49,100 49,100 1,617,231 1,617,231
Corsair Communications, Inc. 33,300 33,300 260,156 260,156
Curtiss-Wright Corp. 70,500 70,500 3,326,718 3,326,718
Dollar Thrifty Automotive Group,
Inc. 304,800 54,700 359,500 6,019,800 1,080,325 7,100,125
Dura Automotive Systems, Inc. 7,227 7,227 66,736 66,736
Electro Rent Corp. 38,700 38,700 493,425 493,425
ESCO Technologies, Inc. 20,000 20,000 350,000 350,000
GenCorp, Inc. 71,000 71,000 576,875 576,875
Glenayre Technologies, Inc. 40,000 40,000 435,000 435,000
Kaman Corp. 108,600 108,600 1,371,075 1,371,075
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Kellstrom Industries, Inc. 11,200 11,200 58,100 58,100
McGrath Rentcorp 73,000 73,000 1,387,000 1,387,000
NACCO Industries, Inc. 4,800 4,800 201,600 201,600
Oshkosh Truck Corp. 15,200 21,550 36,750 589,000 835,062 1,424,062
Primex Technologies, Inc. 39,600 76,400 116,000 1,150,875 2,220,375 3,371,250
Sequa Corp. 34,700 34,700 1,474,750 1,474,750
A.O. Smith Corp. 12,700 12,700 159,543 159,543
Spectralink Corp. 31,500 31,500 297,281 297,281
Superior Telecom Inc. 40,376 40,376 242,256 242,256
Terex Corp. 24,000 30,500 54,500 313,500 398,406 711,906
Tower Automotive, Inc. 39,500 39,500 370,312 370,312
--------------------------------------
19,503,901 15,505,414 35,009,315
--------------------------------------
ENERGY 1.8%
Atwood Oceanics, Inc. 28,600 28,600 1,192,262 1,192,262
Basin Exploration, Inc. 30,000 30,000 585,000 585,000
Cross Timbers Oil Company 113,550 113,550 2,178,740 2,178,740
Giant Industries, Inc. 214,600 214,600 1,126,650 1,126,650
Kaneb Services, Inc. 3,400 3,400 15,725 15,725
Key Production Co., Inc. 31,000 34,900 65,900 683,937 769,981 1,453,918
Oceaneering International, Inc. 81,000 81,000 1,346,625 1,346,625
Patina Oil & Gas Corporation 32,500 32,000 64,500 650,000 640,000 1,290,000
Seitel, Inc. 33,900 33,900 487,312 487,312
Clayton Williams Energy, Inc. 4,600 4,600 186,300 186,300
Energy East Corp 12 12 271 271
--------------------------------------
8,436,826 1,425,977 9,862,803
--------------------------------------
FINANCIAL 15.1%
Alfa Corporation 44,200 44,200 770,737 770,737
Delphi Financial Group, Inc. 25,704 32,904 58,608 1,041,012 1,332,612 2,373,624
Dime Community Bancshares 47,600 53,100 100,700 1,178,100 1,314,225 2,492,325
Downey Financial Corp. 20,000 26,200 46,200 790,000 1,034,900 1,824,900
Farm Family Holdings, Inc. 70,200 13,500 83,700 2,220,075 426,937 2,647,012
Fidelity National Financial, Inc. 55,658 55,658 1,377,535 1,377,535
First American Financial Co. 70,000 70,000 1,461,250 1,461,250
First Republic Bank 40,800 21,000 61,800 1,229,100 632,625 1,861,725
First Federal Financial Corp. 88,800 122,800 211,600 2,042,400 2,824,400 4,866,800
GBC Bancorp 64,500 56,000 120,500 2,197,031 1,907,500 4,104,531
Grubb & Ellis Co. 1,400 1,400 8,575 8,575
Harleysville Group, Inc. 74,900 74,900 1,424,270 1,424,270
ITLA Capital Corp. 700 700 10,368 10,368
Imperial Bancorp 269,164 269,164 5,147,761 5,147,761
Kansas City Life Insurance Co. 10,400 10,400 343,200 343,200
LandAmerica Financial Group, Inc. 115,000 54,900 169,900 3,284,687 1,568,081 4,852,768
The Midland Co. 3,500 28,900 32,400 92,750 765,850 858,600
National Western Life Insurance Co. 12,900 12,900 941,700 941,700
PMA Capital Corp. 77,900 57,400 135,300 1,402,200 1,033,200 2,435,400
Parkvale Financial Corp. 775 775 13,950 13,950
Penn Treaty American Corp. 51,300 51,300 933,018 933,018
Philadelphia Consolidated Holding
Corp. 79,800 27,700 107,500 1,665,825 578,237 2,244,062
Phoenix Investment Partners, Ltd. 194,700 194,700 3,017,850 3,017,850
Prentiss Properties Trust 280,200 280,200 7,320,225 7,320,225
RLI Corp. 48,100 37,600 85,700 1,854,856 1,449,950 3,304,806
Resource America, Inc. 24,000 24,000 204,000 204,000
St. Francis Capital Corp. 62,200 62,200 956,325 956,325
Selective Insurance Group, Inc. 55,700 37,500 93,200 995,637 670,312 1,665,949
Stewart Information Services Corp. 57,200 61,600 118,800 879,450 947,100 1,826,550
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Triad Guaranty Inc. 38,300 38,300 1,139,425 1,139,425
AmerUS Group, Inc. 32,100 32,100 826,575 826,575
Bok Financial Corp. 22,727 22,727 420,449 420,449
Bay View Capital Corp. 32,900 32,900 353,675 353,675
CB Richard Ellis Services, Inc. 28,000 28,000 343,000 343,000
CNA Surety Corp. 100,100 100,100 1,151,150 1,151,150
Doral Financial Corp. 25,100 25,100 406,306 406,306
First Citizens BancShares, Inc. 1,200 1,200 85,875 85,875
First Sentinel Bancorp Inc. 40,800 40,800 388,875 388,875
First Washington Bancorp, Inc. 78,500 31,300 109,800 1,231,468 491,018 1,722,486
Fortress Investment Corp. 388,759 388,759 5,005,272 5,005,272
MAF Bancorp, Inc. 31,500 50,600 82,100 783,562 1,258,675 2,042,237
New Century Financial Corp. 65,100 65,100 756,787 756,787
PFF Bancorp, Inc. 103,000 19,200 122,200 2,240,250 417,600 2,657,850
SCPIE Holdings Inc. 16,200 16,200 326,025 326,025
Trammell Crow Co. 300 300 4,500 4,500
Walter Industries, Inc. 101,400 142,100 243,500 899,925 1,261,137 2,161,062
White Mountains Insurance Group, Inc. 5,100 5,100 1,391,662 1,391,662
---------------------------------------
54,159,947 28,313,080 82,473,027
---------------------------------------
HEALTH 11.8%
Acuson Corporation 118,900 118,900 2,704,975 2,704,975
Advance Paradigm, Inc. * 86,300 86,300 3,640,781 3,640,781
Alpharma Inc. 25,300 25,300 1,546,462 1,546,462
Bacou USA, Inc. 132,800 132,800 3,444,500 3,444,500
Bio-Rad Laboratories, Inc. 47,500 47,500 1,069,225 1,069,225
Catalytica, Inc. 41,400 41,400 512,325 512,325
Conmed Corp. 264,400 264,400 3,618,975 3,618,975
Cooper Companies, Inc. 75,600 12,400 88,000 2,674,350 438,650 3,113,000
Covance, Inc. 32,000 32,000 262,000 262,000
Coventry Health Care, Inc. 183,300 44,100 227,400 2,772,412 667,012 3,439,424
DVI, Inc. 44,400 44,400 863,025 863,025
Hooper Holmes, Inc. 84,200 84,200 800,742 800,742
NBTY Inc. 1,400 1,400 9,143 9,143
PAREXEL International Corp. 152,700 200 152,900 1,297,950 1,700 1,299,650
Pharmaceutical Product Development 17,200 17,200 456,875 456,875
Polymedica Industries, Inc. 10,900 10,900 467,337 467,337
Province Healthcare Co. 86,850 86,850 3,468,571 3,468,571
Quorom Health Group, Inc. 526,200 18,200 544,400 6,840,600 236,600 7,077,200
RehabCare Group, Inc. 19,700 900 20,600 837,250 38,250 875,500
Res-Care, Inc. 33,400 33,400 152,387 152,387
ResMed, Inc. 29,700 29,700 928,125 928,125
Ribozyme Pharmaceuticals, Inc. 18,000 18,000 522,000 522,000
Sicor Inc 158,300 158,300 1,622,575 1,622,575
Stericycle, Inc. 9,400 9,400 230,300 230,300
Theragenics Corp. 115,300 115,300 749,450 749,450
Twinlab Corp. 140,000 140,000 612,500 612,500
Vital Signs Inc. 84,200 84,200 2,231,300 2,231,300
Wesley Jessen VisionCare, Inc. 16,600 16,600 638,062 638,062
Zoll Medical Corporation 9,100 9,100 443,625 443,625
AmeriPath, Inc. 239,500 77,700 317,200 3,472,750 1,126,650 4,599,400
Hanger Orthopedic Group, Inc. 149,000 149,000 558,750 558,750
Impath Inc. 41,200 41,200 2,600,750 2,600,750
Laboratory Corp. of America Holdings 17,000 2,620 19,620 2,035,750 313,745 2,349,495
Pharmacopeia, Inc. 15,600 15,600 397,800 397,800
Prime Medical Services, Inc. 400 400 3,100 3,100
Rightchoice Managed care, Inc. 27,000 20,200 47,200 654,750 489,850 1,144,600
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Syncor International Corp. 95,300 700 96,000 3,508,231 25,768 3,533,999
Triad Hospitals, Inc. 15,500 15,500 455,312 455,312
US Oncology, Inc. 147,500 100,100 247,600 668,359 453,578 1,121,937
Ventana Medical Systems, Inc. 27,100 27,100 687,662 687,662
---------------------------------
59,355,468 4,897,371 64,252,839
---------------------------------
MANUFACTURING 10.8%
Alltrista Corp. 20,500 20,500 425,375 425,375
American Axle & Manufacturing
Holdings, Inc. 490,700 490,700 5,275,025 5,275,025
Astec Industries, Inc. 25,600 25,600 280,000 280,000
Barnes Group, Inc. 21,700 21,700 398,737 398,737
Barnett, Inc. 800 800 10,450 10,450
Briggs & Stratton Corp. 47,000 47,000 1,777,187 1,777,187
Buckeye Technologies, Inc. 113,500 113,500 2,355,125 2,355,125
C&D Technologies, Inc. 2,500 2,500 141,875 141,875
Cascade Corporation 70,000 70,000 1,225,000 1,225,000
Chesapeake Corp. 22,100 22,100 425,425 425,425
Concord Camera Corp 40,400 40,400 1,035,250 1,035,250
CoorsTek, Inc. 7,725 7,725 295,481 295,481
Ethyl Corp. 11,000 11,000 15,812 15,812
FSI International, Inc. 55,000 55,000 783,750 783,750
Federal-Mogul Corp. 27,100 27,100 147,356 147,356
Fleetwood Enterprises, Inc. 126,700 26,100 152,800 1,718,368 353,981 2,072,349
Gardner Denver Inc. 28,300 55,900 84,200 459,875 908,375 1,368,250
General Cable Corp. 178,300 37,400 215,700 1,348,393 282,837 1,631,230
P.H. Glatfelter Co. 37,200 37,200 451,050 451,050
Griffon Corp. 171,200 171,200 1,294,700 1,294,700
Hughes Supply, Inc. 50,950 50,950 999,639 999,639
Katy Industries, Inc. 300 300 2,100 2,100
Lennox International Inc. 268 268 2,512 2,512
MascoTech, Inc. 90,800 90,800 1,503,875 1,503,875
Meade Intruments Group 31,100 31,100 627,831 627,831
Methode Electronics 11,800 11,800 522,887 522,887
Mueller Industries, Inc. 29,800 29,800 668,637 668,637
Myers Industries, Inc. 329,427 59,675 389,102 4,179,603 757,126 4,936,729
NCH Corp. 40,800 40,800 1,440,750 1,440,750
Owens & Minor, Inc. 18,400 18,400 289,800 289,800
Park-Ohio Holdings Corp. 400 400 3,150 3,150
Penn Engineering & Manufacturing Corp. 22,000 22,000 691,625 691,625
Quaker Chemical Corp. 700 700 11,900 11,900
RadiSys Corp. 20,050 20,050 1,013,778 1,013,778
Reliance Steel & Aluminum Co. 82,350 82,350 1,734,496 1,734,496
SPS Technologies, Inc. 3,600 36,100 39,700 174,600 1,750,850 1,925,450
Shaw Group, Inc. 13,300 3,800 17,100 937,650 267,900 1,205,550
Sipex Corp. 59,800 59,800 2,515,337 2,515,337
L.S. Starrett Corp. 43,200 43,200 831,600 831,600
Stepan Co. 50,000 50,000 1,003,125 1,003,125
II-VI Inc 16,000 16,000 298,750 298,750
United Stationers Inc. 15,000 34,500 49,500 403,125 927,187 1,330,312
Varco International Inc 31,563 31,563 656,904 656,904
Wabash National Corp. 34,400 34,400 313,900 313,900
Watsco, Inc. 3,900 3,900 40,131 40,131
Watts Industries, Inc. 333,800 333,800 3,338,000 3,338,000
Woodward Governor Co. 1,700 57,900 59,600 75,756 2,580,168 2,655,924
Applied Industrial Technologies, Inc. 45,425 45,425 786,420 786,420
Arch Chemicals, Inc. 6,300 6,300 114,975 114,975
CIRCOR International, Inc. 146,900 146,900 1,514,906 1,514,906
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Intermet Corp. 217,400 61,400 278,800 1,576,150 445,150 2,021,300
MKS Istruments Inc 26,400 26,400 722,700 722,700
SLI, Inc. 47,500 47,500 347,343 347,343
Stoneridge, Inc. 49,000 49,000 471,625 471,625
UNOVA, Inc. 89,000 24,200 113,200 350,437 95,287 445,724
WESCO International, Inc. 62,000 62,000 496,000 496,000
--------------------------------------
36,525,062 22,370,050 58,895,112
--------------------------------------
METALS & MINERALS 0.7%
Commercial Metals Co. 36,500 36,500 930,750 930,750
Quanex Corp. 79,900 79,900 1,523,093 1,523,093
Shiloh Industries, Inc. 85,000 85,000 616,250 616,250
Gibraltar Steel Corporation 49,500 49,500 816,750 816,750
--------------------------------------
1,523,093 2,363,750 3,886,843
--------------------------------------
SERVICE INDUSTRIES 5.6%
Advest Group, Inc. 83,100 83,100 2,633,231 2,633,231
Analysts International Corp. 36,900 36,900 266,371 266,371
AnswerThink Consulting Group,
Inc. 26,000 26,000 422,500 422,500
Avocent Corporation 35,352 35,352 1,948,779 1,948,779
CDI Corp. 57,500 22,300 79,800 920,000 356,800 1,276,800
Century Business Services,
Inc. 163,400 163,400 214,462 214,462
Computer Task Group Inc. 84,700 84,700 264,687 264,687
eLoyalty Corp. 41,500 41,500 529,125 529,125
Interlogix Inc 21,412 21,412 284,043 284,043
IT Group, Inc. 94,200 25,700 119,900 447,450 122,075 569,525
Keane, Inc. 96,500 96,500 1,679,100 1,679,100
Kelly Services, Inc. 60,300 60,300 1,424,587 1,424,587
Mail-Well, Inc. 51,800 51,800 229,862 229,862
National Equipment Services,
Inc. 55,100 55,100 268,612 268,612
New Horizons Worldwide, Inc. 200 200 2,400 2,400
Personnel Group of America, Inc. 44,800 69,200 114,000 140,000 216,250 356,250
Pomeroy Computer Resources, Inc. 69,300 69,300 1,312,368 1,312,368
RCM Technologies, Inc. 200 200 800 800
Raymond James Financial, Inc. 34,900 34,900 1,149,518 1,149,518
REX Stores Corp. 100 100 1,962 1,962
Southwest Securities Group, Inc. 41,910 14,817 56,727 1,225,867 433,397 1,659,264
Standard Register Company 24,000 24,000 384,000 384,000
Systems & Computer Technology
Corp. 71,500 71,500 1,255,718 1,255,718
URS Corp. 116,700 43,200 159,900 1,546,275 572,400 2,118,675
Volt Information Sciences, Inc. 51,600 51,600 1,109,400 1,109,400
Wackenhut Corp. 28,800 28,800 428,400 428,400
Washington Group International,
Inc. 46,400 110,300 156,700 530,700 1,261,556 1,792,256
Westaff Inc. 300 300 1,200 1,200
Wilsons Leather Experts 44,800 44,800 809,200 809,200
Encompass Services Corp. 212,194 54,611 266,805 1,684,289 433,474 2,117,763
First Consulting Group, Inc. 9,200 9,200 51,175 51,175
Infocus Corporation 60,000 60,000 3,180,000 3,180,000
Syntel, Inc. 90,400 90,400 707,662 707,662
Workflow Management, Inc. 200 200 1,225 1,225
--------------------------------------
22,020,770 8,430,150 30,450,920
--------------------------------------
TECHNOLOGY 12.2%
Actel Corp. 7,000 7,000 251,562 251,562
Advanced Digital Information
Corp. 95,400 95,400 1,448,887 1,448,887
Advent Software, Inc. 31,400 31,400 2,194,075 2,194,075
Alpha Industries, Inc. 74,400 74,400 2,534,250 2,534,250
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Analogic Corp. 32,500 32,500 1,249,218 1,249,218
Arrow Electronics, Inc. 10,500 10,500 381,937 381,937
Audiovox Corp. 38,100 38,100 573,881 573,881
Brightpoint, Inc. 130,900 130,900 658,590 658,590
Cable Design Technologies Corp. 85,800 85,800 2,086,012 2,086,012
CACI International, Inc. 151,500 151,500 3,247,781 3,247,781
Claruas Corp. 12,600 12,600 287,437 287,437
Epresence Inc 50,200 50,200 338,850 338,850
Esterline Technologies Corp. 7,700 7,700 151,593 151,593
Exar Corp. 29,350 600 29,950 3,551,350 72,600 3,623,950
Factset Research Systems Inc. 74,500 74,500 2,801,200 2,801,200
FileNet Corp. 74,800 74,800 1,360,425 1,360,425
General Semiconductor, Inc. 46,900 46,900 571,593 571,593
Gerber Scientific, Inc. 80,500 80,500 694,312 694,312
Intranet Solutions, Inc. 11,300 11,300 565,000 565,000
Kent Electronics Corp. 29,900 29,900 713,862 713,862
Littlefuse, Inc. 15,000 15,000 445,312 445,312
MTS Systems Corp. 140,000 140,000 980,000 980,000
MTI Technology Corp. 161,200 161,200 614,575 614,575
MAPICS, Inc. 75,000 75,000 506,250 506,250
MapInfo Corporation 19,650 19,650 615,290 615,290
Maxwell Technologies, Inc. 44,000 44,000 797,500 797,500
Mercury Computer Systems, Inc. 22,800 22,800 634,125 634,125
MICROS Systems, Inc. 45,300 45,300 682,331 682,331
Microsemi Corp. 14,200 14,200 541,375 541,375
Moog Inc. 12,400 39,300 51,700 373,550 1,183,912 1,557,462
NeoMagic Corp. 111,600 111,600 425,475 425,475
Paxar Corp. 16,700 16,700 149,256 149,256
Pericom Semiconductor Corp. 16,600 16,600 614,200 614,200
Phoenix Technologies ltd 32,600 32,600 519,562 519,562
Photon Dynamics, Inc. 8,900 8,900 335,975 335,975
Pioneer-Standard Electronics, Inc. 94,500 131,400 225,900 1,281,656 1,782,112 3,063,768
Progress Software Corp. 49,800 49,800 678,525 678,525
Remedy Corp. 70,700 70,700 1,334,462 1,334,462
Rogers Corp. 2,000 22,800 24,800 63,250 721,050 784,300
SAGA Systems, Inc. 19,400 19,400 203,700 203,700
SEREMA Software, Inc. 30,000 30,000 1,381,875 1,381,875
Silicon Valley Group Inc. 14,600 14,600 384,162 384,162
Simione Central Holdings, Inc. 153 153 487 487
Structural Dynamics Research Corp. 153,500 153,500 2,513,562 2,513,562
Sunquest Information Systems, Inc. 142,200 142,200 1,937,475 1,937,475
THQ, Inc. 94,800 94,800 2,204,100 2,204,100
Titan Corp. 61,300 61,300 1,011,450 1,011,450
Unigraphics Solutions Inc. 21,800 21,800 427,825 427,825
Vertel Corportation 64,300 64,300 594,775 594,775
White Electronic Designs 44,700 44,700 536,400 536,400
Alliance Semiconductor Corp. 105,000 105,000 2,086,875 2,086,875
Axent Technologies, Inc. 13,000 13,000 280,312 280,312
DSP Group, Inc. 26,600 26,600 994,175 994,175
Epicor Software Corp. 265,000 265,000 927,500 927,500
Hyperion Solutions Corp. 36,000 36,000 931,500 931,500
iGATE Capital Corp. 4,200 4,200 22,575 22,575
IMRglobal Corp. 101,000 101,000 1,174,125 1,174,125
Indus International, Inc. 1,500 1,500 7,312 7,312
InteliData Technologies Corporation 60,300 60,300 315,632 315,632
JDA Software Group, Inc. 78,800 78,800 1,004,700 1,004,700
Media 100, Inc. 27,400 27,400 301,400 301,400
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Metro Information Services Inc. 111,400 111,400 765,875 765,875
Molecular Devices Corp. 27,300 27,300 2,682,225 2,682,225
Radiant Systems Inc. 56,300 56,300 1,203,412 1,203,412
3Dfx Interactive, Inc. 102,900 102,900 501,637 501,637
Verity, Inc. 37,600 37,600 1,341,850 1,341,850
-------------------------------------
62,108,871 4,642,203 66,751,074
-------------------------------------
TRANSPORTATION 3.6%
Airborne Freight Corp. 57,700 57,700 587,818 587,818
Alaska Air Group Inc. 42,300 42,300 1,015,200 1,015,200
America West Holdings Corp. 425,600 47,500 473,100 5,187,000 578,906 5,765,906
Arnold Industries, Inc. 30,300 30,300 511,312 511,312
ArvinMeritor, Inc. 13,200 13,200 193,875 193,875
Atlantic Coast Airlines Holdings 3,300 3,300 106,218 106,218
Consolidated Freightways Corp. 43,400 43,400 217,000 217,000
Frontier Airlines, Inc. 4,400 4,400 85,525 85,525
J.B. Hunt Transport Services, Inc. 18,800 18,800 239,700 239,700
Landstar System, Inc. 3,200 3,200 142,800 142,800
M.S. Carriers Inc. 40,600 23,700 64,300 634,375 370,312 1,004,687
Offshore Logistics, Inc. 18,200 18,200 325,325 325,325
Roadway Express, Inc. 64,600 104,800 169,400 1,158,762 1,879,850 3,038,612
Trinity Industries, Inc. 124,300 124,300 2,905,512 2,905,512
USFreightways Corp. 26,000 26,000 589,875 589,875
Yellow Corp. 24,500 83,700 108,200 370,562 1,265,962 1,636,524
American Freightways Corp. 42,900 42,900 681,037 681,037
Amtran, Inc. 400 400 4,375 4,375
Covenant Transport, Inc. 550 550 5,121 5,121
U.S. Xpress Enterprises, Inc. 86,900 86,900 548,556 548,556
-------------------------------------
10,844,029 8,760,949 19,604,978
-------------------------------------
UTILITIES 5.8%
Anixter International Inc. 61,500 61,500 1,791,187 1,791,187
El Paso Electric Co. 531,200 249,400 780,600 7,314,624 3,434,238 10,748,862
NUI Corp. 82,400 69,300 151,700 2,487,450 2,091,993 4,579,443
Northwestern Corp. 111,900 111,900 2,182,050 2,182,050
ONEOK, Inc. 10,000 10,000 397,500 397,500
Public Service Co. of New Mexico 102,100 102,100 2,641,837 2,641,837
South Jersey Industries, Inc. 20,900 20,900 610,018 610,018
UniSource Energy Corp. 800 800 13,100 13,100
Cleco Corp. 81,400 81,400 3,805,450 3,805,450
Energen Corp. 88,200 71,500 159,700 2,623,950 2,127,177 4,751,127
WPS Resources Corp 7,100 7,100 232,583 232,583
-------------------------------------
18,099,149 13,654,008 31,753,157
-------------------------------------
Total Common Stocks (Cost of $373,549,405, $162,526,748, and -------------------------------------
$536,076,153 respectively) 375,014,947 162,452,098 537,467,045
=====================================
TOTAL INVESTMENT PORTFOLIO - 100% (Cost of $378,995,405, $165,265,748, and -------------------------------------
$544,261,153 respectively) 380,460,947 165,191,098 545,652,045
=====================================
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Kemper Small Scudder Small Pro Forma Pro Forma
Cap Value Company Value Adjustments Combined
------------------ ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Investments, at value $ 380,460,947 $ 165,191,098 $ 545,652,045
Cash (1,291) 2,650 $ 1,359
Other assets less liabilities 1,138,183 103,613 $ - (2) $ 1,241,796
----------------- ------------------ --------------- ---------------
Total Net assets $ 381,597,839 $ 165,297,361 $ - $ 546,895,200
================= ================== =============== ===============
Net Assets
Class S Shares $ 165,297,361 $ 165,297,361
Class A Shares $ 179,550,919 $ - $ 179,550,919
Class B Shares $ 164,831,224 $ 164,831,224
Class C Shares $ 33,389,311 $ 33,389,311
Class I Shares $ 3,826,385 $ 3,826,385
Shares Outstanding
Class S Shares 9,436,556 (227,789) 9,208,767
Class A Shares 10,003,242 10,003,242
Class B Shares 9,567,429 9,567,429
Class C Shares 1,928,201 1,928,201
Class I Shares 207,018 - 207,018
Net Asset Value per Share
Class S Shares 17.52 $ 17.95
Class A Shares 17.95 $ 17.95
Class B Shares 17.23 $ 17.23
Class C Shares 17.32 $ 17.32
Class I Shares 18.48 $ 18.48
</TABLE>
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Kemper Small Scudder Small Pro Forma Pro Forma
Cap Value Fund Company Value Fund Adjustments Combined
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest and dividend income $ 5,607,332 2,811,959 $ - $ 8,419,291
--------------------------------------------------------------------------------
Total Investment Income 5,607,332 2,811,959 8,419,291
Expenses
Management fees 3,682,130 1,443,381 (58,764) (3) 5,066,747
12B-1 3,165,364 - 3,165,364
Trustees Fees 48,199 102,654 - (4) 150,853
All other expenses 3,142,025 1,611,876 (1,409,147) (5) 3,344,754
--------------------------------------------------------------------------------
Total expenses before reductions 10,037,718 3,157,911 (1,467,911) 11,727,718
Expense reductions - (614,710) 614,710 (6) -
--------------------------------------------------------------------------------
Expenses, net 10,037,718 2,543,201 (853,201) 11,727,718
--------------------------------------------------------------------------------
Net investment income (loss) (4,430,386) 268,758 853,201 (3,308,427)
--------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain (loss) from investments (1,163,149) (13,671,224) - (14,834,373)
Net unrealized appreciation
(depreciation) of investments 1,465,542 (74,650) - 1,390,892
--------------------------------------------------------------------------------
Net decrease in net assets from operations $ (4,127,993) $ (13,477,116) $ 853,201 $ (16,751,908)
================================================================================
</TABLE>
Notes to Pro Forma Combining Financial Statements
(Unaudited)
September 30, 2000
1. These financial statements set forth the unaudited pro forma condensed
Statement of Assets and Liabilities as of September 30, 2000, and the
unaudited pro forma condensed Statement of Operations for the twelve month
period ended September 30, 2000 for the Kemper Small Cap Value Fund and
Scudder Small Company Value Fund as adjusted giving effect to the
Reorganization as if it had occurred as of the beginning of the period. These
statements have been derived from the books and records utilized in
calculating daily net asset value for each fund.
2. Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $xxxxxx and $xxxxxx to be borne by Kemper Small Cap Value
Fund and Scudder Small Company Value Fund, respectively.
3. Represents reduction in management fees resulting from the utilization of
Kemper Small Cap Value Fund's lower management fee rate for the entire year.
4. Reduction in trustee fees resulting from the Reorganization.
5. Represents reduction in other expenses resulting from the implementation of
an administrative fee contract for Kemper Small Cap Value Fund.
6. Represents the elimination of expense reimbursement.
<PAGE>
PART C. OTHER INFORMATION
Item 15. Indemnification.
-------- ----------------
The Registrant has obtained from a major insurance carrier a directors
and officers liability policy covering certain types of errors and
omissions. The Registrant's Bylaws provide for the indemnification of
Registrant's officers and directors.
However, in accordance with Section 17(h) and 17(i) of the Investment
Company Act of 1940 and its own terms under the Bylaws, in no event
will Registrant indemnify any of its directors, officers, employees or
agents against any liability to which such person would otherwise be
subject by reason of his willful misfeasance, bad faith, gross
negligence in the performance of his duties or by reason of his
reckless disregard of the duties involved in the conduct of his or her
office.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, 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 director, officer, or
controlling person of the Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question as to whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding
Corp. ("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"), Scudder,
Stevens & Clark, Inc. (Scudder) and the representatives of the
beneficial owners of the capital stock of Scudder ("Scudder
Representatives") entered into a transaction agreement ("Transaction
Agreement") pursuant to which Zurich became the majority stockholder
in Scudder with an approximately 70% interest, and ZKI was combined
with Scudder ("Transaction"). In connection with the directors'
evaluation of the Transaction, Zurich agreed to indemnify the
Registrant and the directors who were not interested persons of ZKI or
Scudder (the "Independent Directors") for and against any liability
and expenses based upon any action or omission by the Independent
Directors in connection with their consideration of and action with
respect to the Transaction. In addition, Scudder has agreed to
indemnify the Registrant and the Independent Directors for and against
any liability and expenses based upon any misstatements or omissions
by Scudder to the Independent Directors in connection with their
consideration of the Transaction.
Item 16. Exhibits.
-------- --------
(1) (a)(1) Articles of Incorporation of Registrant is incorporated
by reference to Post-Effective Amendment No. 15 to the
Registration Statement.
C-1
<PAGE>
(a)(2) Articles Supplementary to Articles of Incorporation of
Registrant is incorporated by reference to Post-
Effective Amendment No. 15 to the Registration
Statement.
(a)(3) Articles Supplementary to Articles of Incorporation of
Registrant is incorporated by reference to Post-
Effective Amendment No. 15 to the Registration
Statement.
(a)(4) Articles Supplementary to Articles of Incorporation of
Registrant is incorporated by reference to Post-
Effective Amendment No. 15 to the Registration
Statement.
(a)(5) Articles Supplementary to Articles of Incorporation of
Registrant is incorporated by reference to Post-
Effective Amendment No. 15 to the Registration
Statement.
(a)(6) Articles Supplementary to Articles of Incorporation of
Registrant is incorporated by reference to Post-
Effective Amendment No. 15 to the Registration
Statement.
(a)(7) Articles Supplementary to Articles of Incorporation of
Registrant is incorporated by reference to Post-
Effective Amendment No. 15 to the Registration
Statement.
(a)(8) Articles Supplementary to Articles of Incorporation of
Registrant is incorporated by reference to Post-
Effective Amendment No. 15 to the Registration
Statement.
(a)(9) Articles Supplementary to Articles of Incorporation of
Registrant is incorporated by reference to Post-
Effective Amendment No. 21 to the Registration
Statement.
(a)(10) Articles Supplementary to Articles of Incorporation of
Registrant is incorporated by reference to Post-
Effective Amendment No. 21 to the Registration
Statement.
(2) (b)(1) By-laws is incorporated by reference to Post-Effective
Amendment No. 21 to the Registration Statement.
(3) Inapplicable.
(4) Form of Agreement and Plan of Reorganization is filed
herein as Exhibit A to Part A.
(5) Inapplicable.
(6) (d)(1) Investment Management Agreement between the Registrant,
on behalf of Kemper Contrarian Fund and Scudder Kemper
Investments, Inc. dated September 7, 1998 is
incorporated by reference to Post-Effective Amendment
No. 23 to the Registration Statement
C-2
<PAGE>
(d)(2) Investment Management Agreement between the Registrant,
on behalf of Kemper-Dreman High Return Equity Fund and
Scudder Kemper Investments, Inc. dated September 7,
1998 is incorporated by reference by Post-Effective
Amendment No. 23 to the Registration Statement.
(d)(3) Investment Management Agreement between the Registrant,
on behalf of Kemper Small Cap Value Fund and Scudder
Kemper Investments, Inc. dated September 7, 1998 is
incorporated by reference by Post-Effective Amendment
No. 23 to the Registration Statement.
(d)(4) Sub-Advisory Agreement between Scudder Kemper
Investments, Inc. and Dreman Value Management, L.L.C.
dated September 7, 1998 (Kemper-Dreman High Return
Equity Fund) is incorporated by reference by Post-
Effective Amendment No. 23 to the Registration
Statement.
(7) (e)(1) Underwriting and Distribution Services Agreement
between the Registrant and Kemper Distributors, Inc.
dated October 1, 1999 is incorporated by reference to
Post Effective Amendment No. 25 to the Registration
Statement.
(e)(2) Selling Group Agreement is incorporated by reference to
Post-Effective Amendment No. 23 to the Registration
Statement.
(8) Inapplicable.
(9) (g)(1) Custodian Agreement between the Registrant, on behalf
of Kemper Value Fund, Inc., and Investors Fiduciary
Trust Company is incorporated by reference to Post-
Effective Amendment No. 14 to the Registration
Statement.
(g)(2) Amendment to Custody Contract between the Registrant
and State Street Bank dated March 31, 1999 is
incorporated by reference to Post Effective Amendment
No. 25 to the Registration Statement.
(10) (m)(1) Rule 12b-1 Plan between Kemper Contrarian Fund (Class B
Shares) and Kemper Distributors, Inc., dated September
7, 1998 is incorporated by reference to Post-Effective
Amendment No. 23 to the Registration Statement.
(m)(2) Rule 12b-1 Plan between Kemper Contrarian Fund (Class C
Shares) and Kemper Distributors, Inc., dated September
7, 1998 is incorporated by reference to Post-Effective
Amendment No. 23 to the Registration Statement.
(m)(3) Rule 12b-1 Plan between Kemper-Dreman High Return
Equity Fund (Class B Shares) and Kemper Distributors,
Inc., dated September 7, 1998 is incorporated by
reference to Post-Effective Amendment No. 23 to the
Registration Statement.
C-3
<PAGE>
(m)(4) Rule 12b-1 Plan between Kemper-Dreman High Return
Equity Fund (Class C Shares) and Kemper Distributors,
Inc., dated September 7, 1998 is incorporated by
reference to Post-Effective Amendment No. 23 to the
Registration Statement.
(m)(5) Rule 12b-1 Plan between Kemper Small Cap Value Fund
(Class B Shares) and Kemper Distributors, Inc., dated
September 7, 1998 is incorporated by reference to Post-
Effective Amendment No. 23 to the Registration
Statement.
(m)(6) Rule 12b-1 Plan between Kemper Small Cap Value Fund
(Class C Shares) and Kemper Distributors, Inc., dated
September 7, 1998 is incorporated by reference to Post-
Effective Amendment No. 23 to the Registration
Statement.
(m)(7) Rule 18f-3 Plan is incorporated by reference to Post-
Effective Amendment No. 21 to the Registration
Statement.
(m)(8) Amended and Restated Rule 18F-3 Plan is filed herein.
(11) Opinion and Consent of Dechert is filed herein.
(12) Opinion and Consent of Willkie Farr & Gallagher to be
filed by post-effective amendment.
(13) (h)(1) Agency Agreement is incorporated by reference to Post-
Effective Amendment No. 14 to the Registration
Statement.
(h)(2) Supplement to Agency Agreement between Registrant and
Investors Fiduciary Trust Company dated June 1, 1997 is
incorporated by reference to Post-Effective Amendment
No. 21 to the Registration Statement.
(h)(3) Administrative Service Agreement between the Registrant
and Kemper Distributors, Inc. dated April 1, 1997 is
incorporated by reference to Post-Effective Amendment
No. 21 to the Registration Statement.
(h)(4) Amended Fee Schedule for Administrative Services
Agreement between the Registrant and Kemper
Distributors, Inc. dated January 1, 2000 is
incorporated by reference to Post-Effective Amendment
No. 25 to the Registration Statement.
(h)(5) Fund Accounting Agreement between Kemper Contrarian
Fund and Scudder Fund Accounting Corporation dated
December 31, 1997 is incorporated by reference to Post-
Effective Amendment No. 21 to the Registration
Statement.
(h)(6) Fund Accounting Agreement between Kemper-Dreman High
Return Equity Fund and Scudder Fund Accounting
Corporation dated December 31, 1997 is incorporated by
reference to Post-Effective Amendment No. 21 to the
Registration Statement.
C-4
<PAGE>
(h)(7) Fund Accounting Agreement between Kemper Small Cap
Value Fund and Scudder Fund Accounting Corporation
dated December 31, 1997 is incorporated by reference to
Post-Effective Amendment No. 21 to the Registration
Statement.
(14) Consent of Independent Auditors is filed herein.
(15) Inapplicable.
(16) Powers of Attorney are filed herein.
(17) Form of Proxy is filed herein.
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 C-8 350 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.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Kemper Value Series, Inc. 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 6th day of December, 2000.
KEMPER VALUE SERIES, INC.
/s/ Mark S. Casady
By:------------------------
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 6, 2000
-------------------
Mark S. Casady
/s/ James E. Akins* Director December 6, 2000
-------------------
James E. Akins
/s/ James R. Edgar* Director December 6, 2000
-------------------
James R. Edgar
/s/ Arthur R. Gottschalk* Director December 6, 2000
-------------------------
Arthur R. Gottschalk
/s/ Frederick T. Kelsey* Director December 6, 2000
------------------------
Frederick T. Kelsey
/s/ Thomas W. Littauer* Chairman and Director December 6, 2000
-----------------------
Thomas W. Littauer
/s/ Fred B. Renwick* Director December 6, 2000
--------------------
Fred B. Renwick
/s/ John G. Weithers* Director December 6, 2000
---------------------
John G. Weithers
/s/ John R. Hebble Treasurer (Principal Financial and December 6, 2000
------------------- Accounting Officer)
John R. Hebble
</TABLE>
*By: /s/ Caroline Pearson *
---------------------------- December 6, 2000
Caroline Pearson, Attorney-in-fact
*Executed pursuant to powers of attorney filed herein as
an exhibit to the Registration Statement.
