<PAGE>
As filed with the Securities and Exchange Commission
on December 28, 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. /__/
SCUDDER PORTFOLIO TRUST
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
(Address of Principal Executive Offices) (Zip Code)
John Millette
Scudder Kemper Investments, Inc.
Two International Place
Boston, MA 02110-4103
(Name and Address of Agent for Service)
(617) 295-1000
(Registrant's Area Code and Telephone Number)
with copies to:
Caroline Pearson, Esq. Joseph R. Fleming, Esq.
Scudder Kemper Investments, Inc. Dechert
Two International Place Ten Post Office Square - South
Boston, MA 02110-4103 Boston, MA 02109-4603
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement is declared effective.
Title of Securities Being Registered:
Shares of Beneficial Interest ($.01 par value)
of Scudder Income Fund, a series of the Registrant
________________________________________________________________________________
It is proposed that this filing will become effective on January 27, 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>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION............................................................ __
PROPOSAL 1: ELECTION OF TRUSTEES....................................... __
PROPOSAL 2: APPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION............................................. __
SYNOPSIS................................................... __
PRINCIPAL RISK FACTORS..................................... __
THE PROPOSED TRANSACTION................................... __
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT
AUDITORS................................................... __
ADDITIONAL INFORMATION.................................................. __
</TABLE>
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
KEMPER INCOME AND CAPITAL PRESERVATION FUND
Please take notice that a Special Meeting of Shareholders (the "Meeting")
of Kemper Income and Capital Preservation Fund (the "Fund"), will be held at the
offices of Scudder Kemper Investments, Inc., 13th Floor, Two International
Place, Boston, MA 02110-4103, on May 24, 2001, at 4:00 p.m., Eastern time, for
the following purposes:
Proposal 1: To elect Trustees of the Fund.
Proposal 2: To approve an Agreement and Plan of Reorganization for the
Fund (the "Plan"). Under the Plan, (i) all or substantially
all of the assets and all of the liabilities of the Fund would
be transferred to Scudder Income Fund, (ii) each shareholder
of the Fund would receive shares of Scudder Income Fund of a
corresponding class to those held by the shareholder in the
Fund in an amount equal to the value of their holdings in the
Fund, and (iii) the Fund would then be terminated.
Proposal 3: To ratify the selection of Ernst & Young LLP as the
independent auditors for the Fund for the Fund's current
fiscal year.
The persons named as proxies will vote in their discretion on any other
business that may properly come before the Meeting or any adjournments or
postponements thereof.
Holders of record of shares of the Fund at the close of business on March
5, 2001 are entitled to vote at the Meeting and at any adjournments or
postponements thereof.
In the event that the necessary quorum to transact business or the vote
required to approve any Proposal is not obtained at the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the 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 that Proposal and will vote AGAINST
any such adjournment those proxies to be voted against that Proposal.
By Order of the Board,
/s/ Philip J. Collora
Philip J. Collora
Secretary
March 6, 2001
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE (OR TO TAKE ADVANTAGE OF
THE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES DESCRIBED ON THE PROXY CARD(S)).
YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S) (OR YOUR VOTING BY OTHER
AVAILABLE MEANS) MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS.
IF YOU WISH TO ATTEND THE MEETING AND VOTE YOUR SHARES IN PERSON AT THAT TIME,
YOU WILL STILL BE ABLE TO DO SO.
<PAGE>
PROXY STATEMENT/PROSPECTUS
MARCH [ ], 2001
Relating to the acquisition of the assets of
KEMPER INCOME AND CAPITAL PRESERVATION FUND
222 South Riverside Plaza
Chicago, Illinois 60606
(800) [ ]
---------------
by and in exchange for shares of beneficial interest of
SCUDDER INCOME FUND,
a separate series of
SCUDDER PORTFOLIO TRUST (the "Acquiring Trust")
Two International Place
Boston, Massachusetts 02110-4103
(800) [ ]
---------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of
Kemper Income and Capital Preservation Fund (the "Fund") in connection with
three proposals. Proposal 1 describes the election of Trustees and Proposal 3
proposes the ratification of the selection of the Fund's auditors.
In Proposal 2, shareholders are asked to vote on an Agreement and Plan of
Reorganization (the "Plan") pursuant to which all or substantially all of the
assets of the Fund would be acquired by Scudder Income Fund, a fund with similar
investment characteristics and managed by the same investment manager as the
Fund, in exchange for shares of beneficial interest of Scudder Income Fund and
the assumption by Scudder Income Fund of all of the liabilities of the Fund, as
described more fully below (the "Reorganization"). Shares of Scudder Income Fund
received would then be distributed to the shareholders of the Fund in complete
liquidation of the Fund. As a result of the Reorganization, shareholders of the
Fund will become shareholders of Scudder Income Fund and will receive shares of
Scudder Income Fund in an amount equal to the value of their holdings in the
Fund as of the close of business on the business day preceding the closing of
the Reorganization (the "Valuation Date"). The closing of the Reorganization
(the "Closing") is contingent upon shareholder approval of the Plan. A copy of
the Plan is attached as Exhibit A. The Reorganization is expected to occur on or
about June 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.
Proposals 1 and 2 arise out of a restructuring program proposed by
Scudder Kemper Investments, Inc. ("Scudder Kemper" or the "Investment Manager"),
the investment manager of both the Fund and Scudder Income Fund, described in
more detail below. The restructuring program is designed to respond to changing
industry conditions and investor needs. Scudder Kemper seeks to consolidate its
fund line-up and offer all of the open-end funds it advises under the "Scudder"
name. In addition, Scudder Kemper anticipates changing its name to "Zurich
Scudder Investments, Inc." Scudder Kemper believes that the combination of its
open-end, directly-distributed funds (the "Scudder Funds") with the funds in the
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<PAGE>
Kemper Family of Funds (the "Kemper Funds") will permit it to streamline its
administrative infrastructure and focus its distribution efforts. The
restructuring program will not result in any reduction in the services currently
offered to Kemper Funds shareholders.
Scudder Income Fund is a diversified series of shares of beneficial
interest of the Acquiring Trust. The Acquiring Trust is an open-end management
investment company organized as a Massachusetts business trust. The Fund, which
is also diversified, is the only active series of shares of beneficial interest
of Kemper Income and Capital Preservation Fund (the "Acquired Trust"), an open-
end management investment company organized as a Massachusetts business trust.
In the descriptions of the Proposals below, the word "fund" is sometimes
used to mean an investment company or series thereof in general, and not the
Fund whose proxy statement this is. In addition, for simplicity, actions are
described in this Proxy Statement/Prospectus as being taken by either the Fund
or Scudder Income Fund (which are collectively referred to as the "Funds" and
each referred to as a "Fund"), although all actions are actually taken by either
the Acquired Trust or by the Acquiring Trust (together with the Acquired Trust,
the "Trusts"), on behalf of the applicable Fund.
This Proxy Statement/Prospectus sets forth concisely the information about
Scudder Income Fund that a prospective investor should know before investing and
should be retained for future reference. For a more detailed discussion of the
investment objective, policies, restrictions and risks of Scudder Income Fund,
see Scudder Income Fund's prospectus dated March 1, 2001, as supplemented from
time to time, which is included in the materials you received with this document
and incorporated herein by reference (meaning that it is legally part of this
document). For a more detailed discussion of the investment objective, policies,
restrictions and risks of the Fund, see the Fund's prospectus dated January 1,
2001, as supplemented from time to time, which is also incorporated herein by
reference and a copy of which may be obtained upon request and without charge by
calling or writing the Fund at the telephone number or address listed above.
Also incorporated herein by reference is Scudder Income Fund's statement of
additional information dated March 1, 2001, as supplemented from time to time,
which may be obtained upon request and without charge by calling or writing
Scudder Income Fund at the telephone number or address listed above. A Statement
of Additional Information, dated March [ ], 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
Scudder Income Fund at the telephone number or address listed above. Shareholder
inquiries regarding Scudder Income Fund may be made by calling (800) [ ] and
shareholder inquiries regarding the Fund may be made by calling (800) [ ].
The information contained in this document concerning each Fund has been
provided by, and is included herein in reliance upon, that Fund.
The Board of Trustees that oversees the Fund is soliciting proxies from
shareholders of the Fund for the Special Meeting of Shareholders to be held on
May 24, 2001, at Scudder Kemper's offices, 13th Floor, Two International Place,
Boston, MA 02110-4103 at 4:00 p.m. (Eastern time), and at any and all
adjournments or postponements thereof (the "Meeting"). This Proxy
Statement/Prospectus, the Notice of Special Meeting and the proxy card(s) are
first being mailed to shareholders on or about March 6, 2001 or as soon as
practicable thereafter.
The Board of Trustees unanimously recommends that shareholders vote FOR the
nominees listed in Proposal 1, and FOR Proposals 2 and 3.
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<PAGE>
PROPOSAL 1: ELECTION OF TRUSTEES
At the Meeting, shareholders will be asked to elect eleven individuals to
constitute the Board of Trustees of the Acquired Trust. Shareholders are being
asked to elect these individuals to the Board of Trustees in case the Plan, as
described under Proposal 2, is not approved by shareholders. However, if the
Plan is approved, the current Board of Trustees of the Acquiring Trust will
oversee the operations of the combined fund (see "Synopsis - Other Differences
Between the Funds" under Proposal 2).
As discussed further below, Scudder Kemper commenced an initiative to
restructure and streamline the management and operations of the funds it
advises. In connection with that initiative, the Independent Trustees (as
defined below) of the two separate boards of Kemper Funds proposed to
consolidate into a single board. The eleven individuals who have been nominated
for election as Trustees of the Acquired Trust were nominated after careful
consideration by the present Board of Trustees. The nominees are listed below.
Seven of the nominees are currently Trustees of the Fund and three of the
nominees are currently trustees or directors of other Kemper Funds. One of the
nominees, although not currently a trustee or director of any Kemper Fund, is a
senior executive officer of Scudder Kemper. These eleven nominees are also
being nominated for election as trustees or directors of most of the other
Kemper Funds. The proposed slate of nominees reflects an effort to consolidate
the two separate boards who have historically supervised different Kemper Funds.
The proposed consolidation is expected to provide administrative efficiencies to
both the Funds and Scudder Kemper.
The persons named as proxies on the enclosed proxy card(s) will vote for
the election of the nominees named below unless authority to vote for any or all
of the nominees is withheld in the proxy. Each Trustee so elected will serve as
a Trustee commencing on July 1, 2001 and until the next meeting of shareholders,
if any, called for the purpose of electing Trustees and until the election and
qualification of a successor or until such Trustee sooner dies, resigns or is
removed as provided in the governing documents of the Acquired Trust. Each of
the nominees has indicated that he or she is willing to serve as a Trustee. If
any or all of the nominees should become unavailable for election due to events
not now known or anticipated, the persons named as proxies will vote for such
other nominee or nominees as the current Trustees may recommend. The following
tables present information about the nominees and the Trustees not standing for
re-election. Each nominee's or Trustee's date of birth is in parentheses after
his or her name. Unless otherwise noted, (i) each of the nominees and Trustees
has engaged in the principal occupation(s) noted in the following tables for at
least the most recent five years, although not necessarily in the same capacity,
and (ii) the address of each nominee is c/o Scudder Kemper Investments, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60606.
Nominees for Election as Trustees:
---------------------------------------------------------------------------
Year First
Name (Date of Birth), Principal Occupation and Affiliations Became a
Board
Member
---------------------------------------------------------------------------
John W. Ballantine (2/16/46),/(1)/ Retired; formerly, First 1999
Chicago NBD Corporation/The First National Bank of
Chicago: 1996-1998 Executive Vice President and Chief Risk
Management Officer; 1995-1996 Executive Vice President and
Head of International Banking.
---------------------------------------------------------------------------
-3-
<PAGE>
---------------------------------------------------------------------------
Year First
Name (Date of Birth), Principal Occupation and Affiliations Became a
Board
Member
---------------------------------------------------------------------------
Lewis A. Burnham (1/8/33),/(1)/ Retired; formerly, Partner, 1977
Business Resources Group; formerly, Executive Vice
President, Anchor Glass Container Corporation.
---------------------------------------------------------------------------
Linda C. Coughlin (1/1/52),*/(2)/ Managing Director, Scudder 2000
Kemper.
---------------------------------------------------------------------------
Donald L. Dunaway (3/8/37),/(1)/ Retired; formerly, Executive 1980
Vice President, A.O. Smith Corporation (diversified
manufacturer).
---------------------------------------------------------------------------
James R. Edgar (7/22/46),/(3)/ Distinguished Fellow, Nominee
University of Illinois Institute of Government and Public
Affairs; Director, Kemper Insurance Companies (not
affiliated with the Kemper Funds); formerly, Governor,
State of Illinois.
---------------------------------------------------------------------------
William F. Glavin (8/30/58),* Managing Director, Scudder Nominee
Kemper.
---------------------------------------------------------------------------
Robert B. Hoffman (12/11/36),/(1)/ Retired; formerly, 1981
Chairman, Harnischfeger Industries, Inc. (machinery for
the mining and paper industries); formerly, Vice Chairman
and Chief Financial Officer, Monsanto Company
(agricultural, pharmaceutical and nutritional/food
products); formerly, Vice President, Head of International
Operations, FMC Corporation (manufacturer of machinery and
chemicals); Director, Harnischfeger Industries, Inc.
---------------------------------------------------------------------------
Shirley D. Peterson (9/3/41),/(1)/ Retired; formerly, 1995
President, Hood College; formerly, Partner, Steptoe &
Johnson (attorneys); prior thereto, Commissioner, Internal
Revenue Service; prior thereto, Assistant Attorney General
(Tax), U.S. Department of Justice; Director, Bethlehem
Steel Corp.
---------------------------------------------------------------------------
Fred B. Renwick (2/1/30),/(3)/ Professor of Finance, New York Nominee
University, Stern School of Business; Director, the
Wartburg Foundation; Chairman, Investment Committee of
Morehouse College Board of Trustees; Director, American
Bible Society Investment Committee; previously member of
the Investment Committee of Atlanta University Board of
Trustees; formerly Director of Board of Pensions
Evangelical Lutheran Church in America.
---------------------------------------------------------------------------
-4-
<PAGE>
--------------------------------------------------------------------------
Year First
Name (Date of Birth), Principal Occupation and Affiliations Became a
Board
Member
--------------------------------------------------------------------------
William P. Sommers (7/22/33),/(1)/ Consultant and Director, 1981
SRI Consulting; prior thereto, President and Chief Executive
Officer, SRI International (research and development); prior
thereto, Executive Vice President,Iameter (medical
information and educational service provider); prior thereto,
Senior Vice President and Director, Booz, Allen & Hamilton
Inc. (management consulting firm); Director, PSI Inc.,
Evergreen Solar, Inc. and Litton Industries.
--------------------------------------------------------------------------
John G. Weithers (8/8/33),/(3)/ Formerly, Chairman of the Nominee
Board and Chief Executive Officer, Chicago Stock Exchange;
Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University.
--------------------------------------------------------------------------
* Interested person of the Acquired Trust, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
/(1)/ Messrs. Ballantine, Burnham, Dunaway, Hoffman, Sommers and Ms. Peterson
serve as board members of 26 investment companies, with 45 portfolios
managed by Scudder Kemper .
/(2)/ Ms. Coughlin serves as a board member of 52 investment companies with 97
portfolios managed by Scudder Kemper.
/(3)/ Messrs. Edgar, Renwick and Weithers serve as board members of 16
investment companies with 58 portfolios managed by Scudder Kemper.
Trustees Not Standing for Re-Election:
--------------------------------------------------------------------------------
Present Office with the Acquired Trust;
Principal Occupation or Employment
Name (Date of Birth) and Directorships
-------------------- -----------------
--------------------------------------------------------------------------------
Donald R. Jones (1/17/30) Trustee; Retired; Director, Motorola, Inc.
(manufacturer of electronic equipment and
components); formerly, Executive Vice
President and Chief Financial Officer,
Motorola, Inc.
--------------------------------------------------------------------------------
Thomas W. Littauer (4/26/55)* Chairman, Trustee and Vice President;
Managing Director, Scudder Kemper; formerly,
Head of Broker Dealer Division of Putnam
Investment Management; formerly, President of
Client Management Services for Fidelity
Investments.
--------------------------------------------------------------------------------
* Interested person of the Acquired Trust, as defined in the 1940 Act.
-5-
<PAGE>
Appendix 1 lists the number of shares of each series of the Acquired Trust
owned directly or beneficially by the Trustees and by the nominees for election.
Responsibilities of the Board of Trustees -- Board and Committee Meetings
The primary responsibility of the Board is to represent the interests of
the shareholders of the Fund and to provide oversight of the management of the
Fund. The board that is proposed for election at this Meeting is comprised of
two individuals who are considered "interested" Trustees, and nine individuals
who have no affiliation with Scudder Kemper and who are not considered
"interested" Trustees (the "Independent Trustees"). The SEC has recently
proposed a rule that would require a majority of the board members of a fund to
be "independent" if the fund were to take advantage of certain exemptive rules
under the 1940 Act. If the proposed Board of Trustees is approved by
shareholders, more than 75% will be Independent Trustees. The Independent
Trustees have been selected and nominated solely by the current Independent
Trustees of the Acquired Trust.
The Trustees meet multiple times during the year to review the investment
performance of the Fund and other operational matters, including policies and
procedures designed to assure compliance with regulatory and other requirements.
Furthermore, the Independent Trustees review the fees paid to the Investment
Manager and its affiliates for investment advisory services and other
administrative and shareholder services. The Trustees have adopted specific
policies and guidelines that, among other things, seek to further enhance the
effectiveness of the Independent Trustees in performing their duties. Many of
these are similar to those suggested in the Investment Company Institute's 1999
Report of the Advisory Group on Best Practices for Fund Directors (the "Advisory
Group Report"). For example, the Independent Trustees select independent legal
counsel to work with them in reviewing fees, advisory and other contracts and
overseeing fund matters, and regularly meet privately with their counsel.
Currently, the Board of Trustees has an Audit Committee and a Nominating
and Governance Committee, the responsibilities of which are described below. In
addition, the Board has a Valuation Committee and a Contract Renewal Committee.
During calendar year 2000, the Board of Trustees met eight times. Each then
current Trustee attended 75% or more of the respective meetings of the Board and
the Committees (if a member thereof) held during calendar year 2000.
Audit Committee
The Audit Committee makes recommendations regarding the selection of
independent auditors for the Fund, confers with the independent auditors
regarding the Fund's financial statements, the results of audits and related
matters, and performs such other tasks as the full Board of Trustees deems
necessary or appropriate. As suggested by the Advisory Group Report, the Audit
Committee is comprised of only Independent Trustees, receives annual
representations from the auditors as to their independence, and has a written
charter that delineates the committee's duties and powers. Currently, the
members of the Audit Committee are Donald L. Dunaway (Chairman), Robert B.
Hoffman and Donald R. Jones. The Audit Committee held five meetings during
calendar year 2000.
Nominating and Governance Committee
The Board of Trustees has a Nominating and Governance Committee, comprised
of only Independent Trustees, that seeks and reviews candidates for
consideration as nominees for membership on the Board and oversees the
administration of the Fund's Governance Procedures and Guidelines. The
Nominating and Governance Committee has a written charter that delineates the
committee's duties and powers. Shareholders wishing to submit the name of a
candidate for consideration by the committee should submit their
recommendation(s) to the Secretary of the Acquired Trust. Currently, the members
of
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<PAGE>
the Nominating and Governance Committee are Lewis A. Burnham (Chairman), John W.
Ballantine, Shirley D. Peterson and William P. Sommers. The Nominating and
Governance Committee held one meeting during calendar year 2000.
Officers
The following persons are officers of the Fund:
<TABLE>
<CAPTION>
Present Office with the
Acquired Trust; Principal
Name (Date of Birth) Occupation or Employment Year First Became an Officer/1/
-------------------- ------------------------ ----------------------------
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mark S. Casady (9/21/60) President; Managing Director, 1998
Scudder Kemper, formerly,
Institutional Sales Manager
of an unaffiliated mutual
fund distributor.
----------------------------------------------------------------------------------------------------------
Thomas W. Littauer (4/26/55) Chairman, Trustee and Vice 1998
President; Managing Director,
Scudder Kemper; formerly, Head of
Broker Dealer Division of an
unaffiliated investment
management firm during 1997;
prior thereto, President of
Client Management Services of an
unaffiliated investment
management firm from 1991 to 1996.
----------------------------------------------------------------------------------------------------------
Philip J. Collora (11/15/45) Vice President and Secretary; 1989
Attorney, Senior Vice President,
Scudder Kemper.
----------------------------------------------------------------------------------------------------------
Kathryn L. Quirk (12/3/52) Vice President; Managing 1998
Director, Scudder Kemper.
----------------------------------------------------------------------------------------------------------
Robert S. Cessine ([__/__/__]) Vice President; [ ], Scudder 1994
Kemper.
----------------------------------------------------------------------------------------------------------
Linda J. Wondrack (9/12/64) Vice President; Senior Vice 1998
President, Scudder Kemper.
----------------------------------------------------------------------------------------------------------
John R. Hebble (6/27/58) Treasurer; Senior Vice President, 1998
Scudder Kemper.
----------------------------------------------------------------------------------------------------------
Maureen E. Kane (2/14/62) Assistant Secretary; Vice 1998
President, Scudder Kemper;
formerly, Assistant Vice
President of an unaffiliated
investment management firm, prior
thereto, Associate Staff Attorney
of an unaffiliated investment
management firm, and Associate,
Peabody & Arnold (law firm).
----------------------------------------------------------------------------------------------------------
Caroline Pearson (4/1/62) Assistant Secretary; Senior Vice 1998
President, Scudder Kemper;
----------------------------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Present Office with the
Acquired Trust; Principal
Name (Date of Birth) Occupation or Employment Year First Became an Officer/1/
-------------------- ------------------------ -------------------------------
------------------------------------------------------------------------------------------
<S> <C> <C>
formerly, Associate, Dechert
Price & Rhoads (law firm) 1989 to
1997.
------------------------------------------------------------------------------------------
Brenda Lyons (2/21/63) Assistant Treasurer; Senior Vice 1998
President, Scudder Kemper.
------------------------------------------------------------------------------------------
</TABLE>
/1/ The President, Treasurer and Secretary each holds office until the first
meeting of Trustees in each calendar year and until his or her successor has
been duly elected and qualified, and all other officers hold offices as the
Trustees permit in accordance with the By-laws of the Fund.
Compensation of Trustees and Officers
The Fund pays the Independent Trustees a monthly retainer and an attendance
fee, plus expenses, for each Board meeting and committee meeting attended. As
reflected below, the Trustees currently serve as board members of various other
Kemper Funds. Scudder Kemper supervises the Fund's investments, pays the
compensation and expenses of its personnel who serve as Trustees and officers on
behalf of the Fund and receives a management fee for its services. Several of
the officers and Trustees are also officers, directors, employees or
stockholders of Scudder Kemper and participate in the fees paid to that firm,
although the Fund makes no direct payments to them.
To facilitate the restructuring of the boards of the Kemper Funds, certain
Independent Trustees agreed not to stand for re-election. The Independent
Trustees of the Acquired Trust are not entitled to benefits under any pension or
retirement plan. However, the board of each Kemper Fund determined that,
particularly given the benefits that would accrue to the Kemper Funds from the
restructuring of the boards, it was appropriate to provide the four Independent
Trustees who were not standing for re-election for various Kemper Funds a one-
time benefit. The cost of such benefit is being allocated among all the Kemper
Funds, with Scudder Kemper agreeing to bear one-half of the cost of such
benefit, given that Scudder Kemper also benefits from the administrative
efficiencies of a consolidated board. Mr. Jones, an Independent Trustee of the
Acquired Trust who is not standing for re-election, will receive such a one-time
benefit. The amount received on behalf of each fund for which he serves as a
trustee ranges from $1,071 to $8,078.
The following Compensation Table provides in tabular form the following
data:
Column (1) All Trustees who receive compensation from the Fund.
Column (2) Aggregate compensation received by each Trustee from the Fund
during calendar year 2000.
Column (3) Total compensation received by each Trustee from funds advised
by Scudder Kemper (collectively, the "Fund Complex") during calendar year 2000.
Compensation Table
--------------------------------------------------------------------------------
Aggregate Compensation Total Compensation From
Name of Trustee from the Fund Fund Complex/(2)(3)/
--------------- ------------- ------------
--------------------------------------------------------------------------------
John W. Ballantine $ [ ] $ [ ]
--------------------------------------------------------------------------------
-8-
<PAGE>
--------------------------------------------------------------------------------
Donald L. Dunaway/(1)/ $ [ ] $ [ ]
--------------------------------------------------------------------------------
Lewis A. Burnham $ [ ] $ [ ]
--------------------------------------------------------------------------------
Robert B. Hoffman $ [ ] $ [ ]
--------------------------------------------------------------------------------
Donald R. Jones $ [ ] $ [ ]
--------------------------------------------------------------------------------
Shirley D. Peterson $ [ ] $ [ ]
--------------------------------------------------------------------------------
William P. Sommers $ [ ] $ [ ]
--------------------------------------------------------------------------------
/(1)/ Includes deferred fees. Pursuant to deferred compensation agreements with
the Fund, deferred amounts accrue interest monthly at a rate equal to the yield
of Zurich Money Funds -- Zurich Money Market Fund. Total deferred fees
(including interest thereon) payable from the Fund to Mr. Dunaway are $_______.
/(2)/ Includes compensation for service on the boards of [_] Kemper
trusts/corporations comprised of [_] funds. Each Trustee currently serves on the
boards of [_] Kemper trusts/corporations comprised of [_] funds.
/(3)/ Aggregate compensation does not reflect amounts paid to the Trustees for
special meetings in connection with the Scudder Kemper restructuring initiative.
Such amounts totaled $_______, $_______, $_______, $_______, $_______, $_______
and $_______ for Messrs. Ballantine, Burnham, Dunaway, Hoffman, Jones, Sommers
and Ms. Peterson, respectively.
The Board of Trustees unanimously recommends
that the shareholders of the Fund vote FOR each nominee.
PROPOSAL 2: APPROVAL OF AGREEMENT
AND PLAN OF REORGANIZATION
I. SYNOPSIS
Introduction
The Board of Trustees, including all of the Independent Trustees, approved
the Plan at a meeting held on November 29, 2000. Subject to its approval by the
shareholders of the Fund, the Plan provides for (a) the transfer of all or
substantially all of the assets and all of the liabilities of the Fund to
Scudder Income Fund in exchange for Class A, Class B, Class C and Class I shares
of Scudder Income 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 Scudder Income Fund, a fund with similar investment
characteristics and managed by the same investment manager as the Fund.
Immediately after the Reorganization, each shareholder of the Fund will hold
shares of the class of shares of Scudder Income Fund that corresponds to the
class of shares of the Fund held by that shareholder on the Valuation Date,
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares of the Fund on the Valuation Date.
Scudder Kemper is the investment manager of both Funds. If the
Reorganization is completed, the Fund's shareholders will continue to enjoy all
of the same shareholder privileges as they currently enjoy, such as access to
professional service representatives, exchange privileges and automatic dividend
reinvestment. Services provided to the Class A, Class B, Class C and Class I
shareholders of Scudder Income Fund following the Reorganization will be
identical to those currently provided to shareholders of the corresponding class
of the Fund. See "Purchase, Redemption and Exchange Information."
Background of the Reorganization
-9-
<PAGE>
The Reorganization is part of a broader restructuring program to respond to
changing industry conditions and investor needs. The mutual fund industry has
grown dramatically over the last ten years. During this period of rapid growth,
investment managers expanded the range of fund offerings that are available to
investors in an effort to meet the growing and changing needs and desires of an
increasingly large and dynamic group of investors. With this expansion has come
increased complexity and competition among mutual funds, as well as the
potential for increased confusion among investors. The group of funds advised by
Scudder Kemper has followed this pattern.
As a result, Scudder Kemper has sought ways to restructure and streamline
the management and operations of the funds it advises by consolidating all of
the retail mutual funds that it currently sponsors into a single product line
offered under the "Scudder" name. Scudder Kemper believes, and has advised the
boards, that further reducing the number of funds it advises and adding the
classes of shares currently offered on all Kemper Funds to the Scudder Funds
will benefit fund shareholders. Scudder Kemper has, therefore, proposed the
combination of many Scudder Funds and Kemper Funds that have similar or
compatible investment objectives and policies. Scudder Kemper believes that the
larger funds, along with the fewer number of funds, that result from these
combinations may help to enhance investment performance and increase efficiency
of operations. The restructuring program will not result in any changes in the
shareholder services currently offered to shareholders of the Kemper Funds.
Most of the Scudder Funds have recently adopted a new fee structure for
certain administrative services. Under this fee structure, in exchange for
payment by a fund of a single administrative fee rate, Scudder Kemper provides
or pays for substantially all services that the fund normally requires for its
operations, other than those provided under the fund's investment management
agreement and certain other expenses. This administrative fee enables investors
to determine with greater certainty the expense level that a fund will
experience, and, for the term of the administration agreement, transfers
substantially all of the risk of increased costs to Scudder Kemper. Likewise,
Scudder Kemper receives all of the benefits of economies of scale from increases
in asset size or decreased operating expenses. Scudder Income Fund has
implemented such an administrative fee, as described in "Administrative Fee"
below. As part of the restructuring effort, Scudder Kemper has proposed
extending this administrative fee structure to those funds currently offered
under the Kemper name.
The fund consolidations and the consolidation of the boards currently
overseeing the Kemper Funds (see Proposal 1 above) are expected to have a
positive impact on Scudder Kemper, as well. These changes are likely to result
in reduced costs (and the potential for increased profitability) for Scudder
Kemper in advising or servicing funds.
Reasons for the Proposed Reorganization; Board Approval
Since receiving Scudder Kemper's proposals on May 24, 2000, the Independent
Trustees have conducted a thorough review of all aspects of the proposed
restructuring program. They have been assisted in this regard by their
independent counsel and by independent consultants with special expertise in
financial and mutual fund industry matters. In the course of discussions with
representatives of Scudder Kemper, the Independent Trustees have requested, and
Scudder Kemper has accepted, numerous changes designed to protect and enhance
the interests of shareholders. See "The Proposed Transaction - Board Approval of
the Proposed Transaction" below.
In determining whether to recommend that the shareholders of the Fund
approve the Reorganization, the Board of Trustees considered that:
. As part of Scudder Kemper's overall restructuring, the Fund would be
duplicative of another similar fund advised by Scudder Kemper in the
same distribution channel.
-10-
<PAGE>
. The combined fund would adopt the lower fee schedule of the two Funds'
investment management agreements.
. It is a condition of the Reorganization that each Fund receive an
opinion of tax counsel that the transaction would be a tax-free
transaction.
. Although the Fund agreed to pay a portion of the estimated costs of
the Reorganization allocated to Class A, Class B, Class C and Class I
shares, management has estimated that such allocated costs will be
recoverable from lower overall expense rates within six months of
completion of the Reorganization. Scudder Kemper agreed to pay a
portion of the estimated costs of the Reorganization allocated to
Class A, Class B, Class C and Class I shares and all of the costs of
the Reorganization that exceed estimated costs.
For these reasons, as more fully described below under "The Proposed
Transaction -- Board Approval of the Proposed Transaction," the Board of
Trustees, including the Independent Trustees, has concluded that:
. the Reorganization is in the best interests of the Fund and its
shareholders; and
. the interests of the existing shareholders of the Fund will not be
diluted as a result of the Reorganization.
Accordingly, the Trustees unanimously recommend approval of the Plan
effecting the Reorganization. If the Plan is not approved, the Fund will
continue in existence unless other action is taken by the Trustees.
Investment Objectives, Policies and Restrictions of the Funds
This Section will help you compare the investment objectives and policies
of the Fund and Scudder Income Fund. Please be aware that this is only a
summary. More complete information may be found in the Funds' prospectuses.
The investment objectives, policies and restrictions of the Funds (and,
consequently, the risks of investing in either Fund) are similar. Some
differences do exist. The investment objective of Scudder Income Fund is to
provide high income while managing its portfolio in a way that is consistent
with the prudent investment of shareholders' capital. The investment objective
of the Fund is to seek as high a level of current income as is consistent with
reasonable risk, preservation of capital and ready marketability of its
portfolio by investing primarily in a diversified portfolio of investment-grade
debt securities. Both Funds have the same portfolio manager and are managed in a
substantially similar manner. There can be no assurance that either Fund will
achieve its investment objective.
Scudder Income Fund normally invests at least 65% of its total assets in
bonds of the three highest quality ratings of Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Services ("S&P"), while the Fund
normally invests at least 80% of its total assets in bonds rated in the top four
credit quality grades. Each Fund can buy many types of income-producing
securities, among them corporate bonds (historically the backbone of Scudder
Income Fund's portfolio), U.S. Government and agency bonds and mortgage- and
asset-backed securities. Generally, most are from U.S. issuers, but bonds of
foreign issuers are permitted. The Fund may invest up to 25% of its total assets
in bonds of foreign issuers, while Scudder Income Fund has no stated limit.
Scudder Income Fund may invest up to 20% of its total assets in "high-yield" or
"junk" bonds of the fifth and sixth quality ratings of Moody's or
-11-
<PAGE>
S&P (i.e., as low as grade B). The Fund may also invest up to 20% of its total
assets in junk bonds, but is not subject to a floor on the credit quality of
those bonds.
In deciding which securities to buy and sell for the Fund, the Investment
Manager uses independent analysis to look for bonds of companies whose
fundamental business prospects and cash flows are expected to improve, while
also considering valuation, preferring those bonds that appear attractively
priced in comparison to similar issues. For Scudder Income Fund, the Investment
Manager typically weighs a number of factors against each other, from economic
outlooks and possible interest rate movements to changes in supply and demand
within the bond market. In choosing individual bonds for Scudder Income Fund,
the Investment Manager uses independent analysis of issuers' creditworthiness to
look for bonds that, for example, show improving credit.
Although each Fund may adjust its duration (a measure of sensitivity to
interest rate movements), the Investment Manager generally intends to keep it
between 4 and 6 years for each Fund. Also, while the Funds are permitted to use
various types of derivatives (contracts whose value is based on, for example,
indices, commodities or securities), the Investment Manager does not intend to
use them as principal investments and, with respect to Scudder Income Fund,
might not use them at all.
The Funds' fundamental investment restrictions, as set forth under
"Investment Restrictions" in each Fund's statement of additional information,
are identical. Fundamental investment restrictions may not be changed without
the approval of Fund shareholders. The Funds' non-fundamental investment
restrictions (i.e., those changeable by the Board without shareholder approval),
as set forth under "Investment Restrictions" in each Fund's statement of
additional information, are identical, except that: (i) Scudder Income Fund may
not lend portfolio securities in an amount greater than 5% of its total assets,
while the Fund may not lend portfolio securities in an amount greater than one
third of its total assets, and (ii) the Fund, and not Scudder Income Fund, has a
stated non-fundamental investment restriction limiting the Fund's investments in
illiquid securities to no more than 15% of its net assets. Both Funds are,
however, subject to such a restriction pursuant to applicable regulation.
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 Scudder Income Fund, i.e., the ratio of the
lesser of annual sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator securities with
maturities at the time of acquisition of one year or less), for the fiscal year
ended January 31, 2000 was 81%. The portfolio turnover rate for the Fund for the
fiscal year ended October 31, 2000 was 234%. A higher portfolio turnover rate
involves greater brokerage and transaction expenses to a fund and may result in
the realization of net capital gains, which would be taxable to shareholders
when distributed.
Comparative Considerations
The portfolio characteristics of the combined Fund after the Reorganization
will reflect the blended characteristics of the Fund and Scudder Income Fund.
The following characteristics are as of [ ], 2000 for both Funds and also
reflect the blended characteristics of both Funds after the Reorganization as of
that same date.
-12-
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Avg. Avg. Portfolio Quality(3)
Maturity Duration
Yield(1) (Years)(2) (Years)(2)
--------------------------------------------------------
AAA AA A BBB Unrated
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fund
Scudder Income
Fund
New (Pro forma)(4)
-----------------------------------------------------------------------------------------------------
</TABLE>
(1) The yield provided for the Fund represents the yield for its Class A shares
and the yield provided for Scudder Income Fund represents the yield for its
Class S shares, for the 30 days ended ____________, 2000. The yield is computed
by dividing the net investment income per share earned during a specified one
month or 30-day period by the maximum offering price per share on the last day
of the period. In the case of the Class S shares of Scudder Income Fund, the
maximum offering price was calculated using the up-front sales charge [and the
current expense ratio] applicable to the Fund's Class A shares. The pro forma
yield reflects the Class A shares up-front sales charge and estimated expense
ratio of the combined Fund, giving effect to the Reorganization, and, therefore,
is not necessarily indicative of the actual yield to any particular shareholder.
The yield for other classes of shares would vary.
(2) Both dollar-weighted average maturity and duration reflect the sensitivity
of a Fund to interest rate fluctuations. The average dollar-weighted maturity
of a Fund is the dollar-weighted average of the stated maturities of all debt
instruments held by the Fund. Duration is the weighted present value of
principal and interest payments expressed in years and may more accurately
measure a Fund's sensitivity to incremental changes in interest rates than
average maturity. Other factors being equal (e.g., portfolio quality), a Fund
with a longer maturity and duration reacts more strongly to interest rate
changes than a Fund with a shorter maturity and duration. For example, a Fund
with a duration of five (5) years is expected to experience a price decrease of
roughly five percent (5%) for each percent increase in interest rates while a
comparable fund with a duration of four (4) years is expected to experience a
price decrease of roughly four percent (4%) for the same change in interest
rates.
(3) Represents the higher of ratings by Moody's and S&P. See Annex A to the
Statement of Additional Information for a general description of Moody's and
S&P's ratings.
(4) Reflects the blended characteristics of the Fund and Scudder Income Fund as
of ______________, 2000.
Performance
The following table shows how the returns of the Fund and Scudder
Income Fund over different periods average out. For context, the table also
includes a broad-based market index (which, unlike the Funds, does not have any
fees or expenses). The performances of both Funds and the index vary over time,
and past performance is not necessarily indicative of future results. All
figures assume reinvestment of dividends and distributions.
Average Annual Total Return
for the Periods Ended December 31, 2000
[Insert Table]
For management's discussion of Scudder Income Fund's performance for the
fiscal year ended January 31, 2000, please refer to Exhibit B.
Investment Manager; Fees and Expenses
Each Fund retains the investment management firm of Scudder Kemper,
pursuant to separate contracts, to manage its daily investment and business
affairs, subject to the policies established by each Fund's Trustees. Scudder
Kemper is a Delaware corporation located at Two International Place, Boston,
Massachusetts 02110-4103.
Pursuant to separate contracts, both Funds pay the Investment Manager a
graduated investment management fee, although the fee rates 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
-13-
<PAGE>
higher annual fee rate. As of January 31, 2000, Scudder Income Fund had total
net assets of $687,855,292. For the fiscal year ended January 31, 2000, Scudder
Income Fund paid the Investment Manager a fee of 0.12% (after waivers) of its
average daily net assets. For the fiscal year ended January 31, 2000 and for
the period February 1, 2000 to July 31, 2000, the investment management fee
payable for Scudder Income Fund was equal to 0.65% on the first $200 million of
the Fund's average daily net assets, 0.60% on the next $300 million of such net
assets and 0.55% on such net assets in excess of $500 million. In addition,
the Investment Manager had contractually agreed to cap Scudder Income Fund's
total operating expenses at 0.95% of its average daily net assets for the fiscal
year ended January 31, 2000 and for the period February 1, 2000, to July 31,
2000. As of October 31, 2000, the Fund had total net assets of $412,269,288.
For the fiscal year ended October 31, 2000, the Fund paid the Investment Manager
a fee of 0.53% of its average daily net assets.
Currently the fee schedules for the Fund and Scudder Income Fund are as
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Fund Scudder Income Fund
--------------------------------------------------------------------------------------------------------------
Average Daily Net Assets Fee Rate Average Daily Net Assets Fee Rate
------------------------ -------- ------------------------ --------
<S> <C> <C> <C>
First $250 million 0.55% First $200 million 0.650%
Next $750 million 0.52% Next $300 million 0.600%
Next $1.5 billion 0.50% Next $500 million 0.550%
Next $2.5 billion 0.48% Next $500 million 0.525%
Next $2.5 billion 0.45% Over $1.5 billion 0.500%
Next $2.5 billion 0.43%
Next $2.5 billion 0.41%
Over $12.5 billion 0.40%
-------------------------------------------------------------------------------------------------------------
</TABLE>
Scudder Kemper has proposed that Scudder Income Fund adopt the lower fee
schedule of the Fund stated in the table above. The effectiveness of the new
investment management agreement for Scudder Income Fund and the Closing are
contingent upon each other. Based upon each Fund's average net assets for the
twelve months ended September 30, 2000, the effective advisory fee rate for
Scudder Income Fund after the Reorganization would be 0.52% of average daily net
assets, giving effect to the proposed new investment management agreement.
Administrative Fee
Scudder Income Fund has entered into an administration agreement with
Scudder Kemper (the "Administration Agreement"), pursuant to which Scudder
Kemper provides or pays others to provide substantially all of the
administrative services required by Scudder Income Fund (other than those
provided by Scudder Kemper under its investment management agreement with that
Fund) in exchange for the payment by Scudder Income Fund of an annual
administrative services fee (the "Administrative Fee") equal to 0.30%, 0.30%,
0.20% and 0.10% of average daily net assets attributable to the Class A, Class
B, Class C and Class I shares, respectively, after waivers of 0.025%, 0.075% and
0.15% of the Administrative Fee for Class A, Class B and Class C, respectively.
The fees for the services provided by Kemper Distributors, Inc. ("KDI") under
its current services agreement and underwriting and distribution services
agreement with Scudder Income Fund are not covered by, and are in addition to,
the Administrative Fee. One effect of this arrangement is to make Scudder Income
Fund's future expense ratio more predictable. On the other hand, the
administrative fee rate does not decrease with economies of scale from increases
in asset size or decreased operating expenses. The details of this arrangement
(including expenses that are not covered) are set out below.
-14-
<PAGE>
Various service providers (the "Service Providers"), some of which are
affiliated with Scudder Kemper, provide certain services to Scudder Income Fund
pursuant to separate agreements. These Service Providers may differ from the
current service providers for the Fund. Scudder Fund Accounting Corporation, a
subsidiary of Scudder Kemper, computes net asset value for Scudder Income Fund
and maintains its accounting records. Kemper Service Company, also a subsidiary
of Scudder Kemper, is the transfer, shareholder servicing and dividend-paying
agent for the Class A, Class B, Class C and Class I shares of Scudder Income
Fund. Scudder Trust Company, an affiliate of Scudder Kemper, provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. As custodian, State Street Bank and Trust
Company holds the portfolio securities of Scudder Income Fund, pursuant to a
custodian agreement. Other Service Providers include the independent public
accountants and legal counsel for Scudder Income Fund.
Under the Administration Agreement, each Service Provider provides the
services to Scudder Income Fund described above, except that Scudder Kemper pays
these entities for the provision of their services to Scudder Income Fund and
pays most other fund expenses, including insurance, registration, printing and
postage fees. In return, Scudder Income Fund pays Scudder Kemper the
Administrative Fee.
The Administration Agreement will remain in effect with respect to the
Class A, Class B, Class C and Class I shares for an initial term ending
September 30, 2003, subject to earlier termination by the trustees that oversee
Scudder Income Fund. The fee payable by Scudder Income Fund to Scudder Kemper
pursuant to the Administration Agreement is reduced by the amount of any
credit received from Scudder Income Fund's custodian for cash balances.
Certain expenses of Scudder Income Fund are not 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). Scudder Income
Fund continues to pay the fees required by its investment management agreement
with Scudder Kemper. In addition, it pays the fees under its services agreement
and underwriting and distribution services agreement with KDI, as described in
"Distribution and Service Fees" below.
Comparison of Expenses
The tables and examples below are designed to assist you in understanding
the various costs and expenses that you will bear directly or indirectly as an
investor in the Class A, Class B, Class C and Class I shares of Scudder Income
Fund, and compares these with the expenses of the Fund. [Statement to be
inserted comparing 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 and on a pro forma basis as of that date and for the
twelve month period then ended, assuming the Reorganization had been in effect
for the period.
Expense Comparison Table
Class A Shares
Scudder
Income Pro Forma
Shareholder Fees Fund Fund (Combined)(1)
---------------- ---- ---- --------
-15-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases 4.50% 4.50% 4.50%
(as % of offering price)
Maximum Contingent Deferred Sales Charge (Load) None None None
(as % of redemption proceeds)(2)
Maximum Deferred Sales Charge (Load) imposed on None None None
reinvested dividends
Redemption Fee (as a percentage of amount None None None
redeemed, if applicable)
Annual Fund Operating Expenses (unaudited)
------------------------------------------
(as a % of average net assets)
------------------------------
Management Fees 0.54% 0.60% 0.52%
Rule 12b-1/ASF Fees 0.22% 0.25% 0.22%
Other Expenses 0.27% 0.33%(3) 0.33%
Total Annual Fund Operating Expenses 1.03% 1.18% 1.07%
Expense Waiver None 0.03%(4) 0.03%(3)
Net Annual Fund Operating Expenses 1.03% 1.15% 1.04%
Expense Example of Total Operating
----------------------------------
Expenses at the End of the Period(5)
------------------------------------
One Year $ 550 $ 562 $ 551
Three Years $ 763 $ 802 $ 769
Five Years $ 993 $1,064 $1,008
Ten Years $1,653 $1,812 $1,692
</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. Pro Forma expenses reflect the implementation of a new
investment management fee for Scudder Income Fund to be effective upon the
Reorganization and the implementation of Scudder Income Fund's
Administration Agreement and distribution plan.
(2) Class A shares purchased under the Large Order NAV Purchase Privilege have
a 1% contingent deferred sales charge for shares sold during the first year
after purchase and .50% for the second year after purchase.
(3) Restated to reflect the implementation of Scudder Income Fund's
Administration Agreement.
(4) By contract, Scudder Kemper has agreed to waive 0.025% of the
Administrative Fee for Class A shares until September 30, 2003, the initial
term of the Administration Agreement.
-16-
<PAGE>
(5) Expense examples reflect what an investor would pay on a $10,000
investment, assuming a 5% annual return, the reinvestment of all dividends,
total operating expenses remain the same and redemptions at the end of each
period.
Expense Comparison Table
Class B Shares
<TABLE>
<CAPTION>
Scudder
Income Pro Forma
Shareholder Fees Fund Fund (Combined)(1)
---------------- ---- ---- ----------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases None None None
(as % of offering price)
Maximum Contingent Deferred Sales Charge (Load) 4.00% 4.00% 4.00%
(as % of redemption proceeds)(2)
Maximum Deferred Sales Charge (Load) imposed on None None None
reinvested dividends
Redemption Fee (as a percentage of amount None None None
redeemed, if applicable)
Annual Fund Operating Expenses (unaudited)
------------------------------------------
(as a % of average net assets)
------------------------------
Management Fees 0.54% 0.60% 0.52%
Rule 12b-1/ASF Fees 1.00% 1.00% 1.00%
Other Expenses 0.38% 0.38%(3) 0.38%
Total Annual Fund Operating Expenses 1.92% 1.98% 1.90%
Expense Waiver None 0.08%(4) 0.08%(4)
Net Annual Fund Operating Expenses
1.92% 1.90% 1.82%
Expense Example of Total Operating Expenses
-------------------------------------------
Assuming Redemption at the End of the Period(5)
-------------------------------------------------
One Year $ 595 $ 593 $ 585
Three Years $ 903 $ 906 $ 889
Five Years $1,237 $1,252 $1,219
Ten Years $1,798 $1,896 $1,800
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Scudder
Income Pro Forma
Fund Fund (Combined)(1)
---- ---- -------------
Expense Example of Total Operating
----------------------------------
Expenses Assuming No Redemption at the
--------------------------------------
End of the Period(5)
-----------------
<S> <C> <C> <C>
One Year $ 195 $ 193 $ 185
Three Years $ 603 $ 606 $ 589
Five Years $1,037 $1,052 $1,019
Ten Years $1,798 $1,896 $1,800
</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. Pro Forma expenses reflect the implementation of a new
investment management fee for Scudder Income Fund to be effective upon the
Reorganization and the implementation of Scudder Income Fund's
Administration Agreement and distribution plan.
(2) Contingent deferred sales charges on Class B shares sold during the first
six years of ownership are 4% in the first year, 3% in the second and third
year, 2% in the fourth and fifth year, and 1% in the sixth year.
(3) Restated to reflect the implementation of Scudder Income Fund's
Administration Agreement.
(4) By contract, Scudder Kemper has agreed to waive 0.075% of the
Administrative Fee for Class B shares until September 30, 2003, the initial
term of the Administration Agreement.
(5) Expense examples reflect what an investor would pay on a $10,000
investment, assuming a 5% annual return, the reinvestment of all dividends
and total operating expenses remain the same. Assumes conversion to Class
A shares six years after purchase.
Expense Comparison Table
Class C Shares
<TABLE>
<CAPTION>
Scudder
Income Pro Forma
Fund Fund (Combined)(1)
---- ---- ----------
Shareholder Fees
----------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases None None None
(as % of offering price)
Maximum Contingent Deferred Sales Charge (Load) 1.00% 1.00% 1.00%
(as % of redemption proceeds)(2)
Maximum Deferred Sales Charge (Load) imposed on None None None
reinvested dividends
Redemption Fee (as a percentage of amount None None None
redeemed, if applicable)
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Scudder
Income Pro Forma
Fund Fund (Combined)(1)
---- ---- ----------
Annual Fund Operating Expenses (unaudited)
------------------------------
(as a % of average net assets)
------------------------------
<S> <C> <C> <C>
Management Fees 0.54% 0.60% 0.52%
Rule 12b-1/ASF Fees 1.00% 1.00% 1.00%
Other Expenses 0.21% 0.35%(3) 0.35%
Total Annual Fund Operating Expenses 1.75% 1.95% 1.87%
Expense Waiver None 0.15%(4) 0.15%(3)
Net Annual Fund Operating Expenses 1.75% 1.80% 1.72%
Expense Example of Total Operating Expenses
-------------------------------------------
Assuming Redemption at the End of the Period(5)
--------------------------------------------
One Year $ 278 $ 283 $ 275
Three Years $ 551 $ 582 $ 558
Five Years $ 949 $1,024 $ 982
Ten Years $2,062 $2,250 $2,165
Expense Example of Total Operating Expenses
-------------------------------------------
Assuming No Redemption at the End of the
----------------------------------------
Period(5)
------
One Year $ 178 $ 183 $ 175
Three Years $ 551 $ 582 $ 558
Five Years $ 949 $1,024 $ 982
Ten Years $2,062 $2,250 $2,165
</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. Pro Forma expenses reflect the implementation of a new
investment management fee for Scudder Income Fund to be effective upon the
Reorganization and the implementation of Scudder Income Fund's
Administration Agreement and distribution plan.
(2) Contingent deferred sales charge on Class C shares is 1% for shares sold
during the first year after purchase.
(3) Restated to reflect the implementation of Scudder Income Fund's
Administration Agreement.
(4) By contract, Scudder Kemper has agreed to waive 0.15% of the Administrative
Fee for Class C shares until September 30, 2003, the initial term of the
Administration Agreement.
(5) 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.
-19-
<PAGE>
Expense Comparison Table
Class I Shares
<TABLE>
<CAPTION>
Scudder
Income Pro Forma
Shareholder Fees Fund Fund (Combined)(1)
---------------- ----- ---- -----------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on None None None
Purchases (as % of offering price)
Maximum Contingent Deferred Sales Charge None None None
(Load) (as % of redemption proceeds)
None None None
Maximum Deferred Sales Charge (Load) imposed
on reinvested dividends
Redemption Fee (as a percentage of amount None None None
redeemed, if applicable)
Annual Fund Operating Expenses (unaudited)
------------------------------------------
(as a % of average net assets)
------------------------------
Management Fees 0.54% 0.60% 0.52%
Rule 12b-1/ASF Fees None None None
Other Expenses 0.15% 0.10%(2) 0.10%
Total Annual Fund Operating Expenses 0.69% 0.70% 0.62%
Expense Example of Total Operating Expenses
at the End of the Period(3)
-------------------------
One Year $ 70 $ 72 $ 63
Three Years $ 221 $ 224 $ 199
Five Years $ 384 $ 390 $ 346
Ten Years $ 859 $ 871 $ 774
</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. Pro Forma expenses reflect the implementation of a new
investment management fee for Scudder Income Fund to be effective upon the
Reorganization and the implementation of Scudder Income Fund's
Administration Agreement.
(2) Restated to reflect the implementation of Scudder Income Fund's
Administration Agreement.
(3) Expense examples reflect what an investor would pay on a $10,000
investment, assuming a 5% annual return, the reinvestment of all dividends,
total operating expenses remain the same and redemptions at the end of each
period.
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<PAGE>
Distribution and Services Fees
Pursuant to an underwriting and distribution services agreement with
Scudder Income Fund, KDI, 222 South Riverside Plaza, Chicago, Illinois 60606, an
affiliate of the Investment Manager, acts as the principal underwriter and
distributor of the Class A, Class B, Class C and Class I shares of that Fund and
acts as agent of the Fund in the continuing offer of such shares. Scudder Income
Fund has adopted distribution plans on behalf of Class A, Class B and Class C in
accordance with Rule 12b-1 under the 1940 Act that are substantially identical
to the existing distribution plans adopted by the Fund, with one exception. As
under the current distribution plans for the Fund, Scudder Income Fund pays KDI
an asset-based fee at an annual rate of 0.75% of Class B and Class C shares. The
distribution plans for Scudder Income Fund, however, unlike the distribution
plans for the Fund, also authorize the payment to KDI of the 0.25% services fee
with respect to the Class A, Class B and Class C shares pursuant to the services
agreement described below. Neither KDI nor the Trustees of the Fund believe that
the services performed by KDI under the services agreement have been primarily
intended to result in sales of fund shares (i.e., "distribution" services) as
defined in Rule 12b-1, but rather are post-sale administrative and other
services provided to existing shareholders. Nonetheless, to avoid legal
uncertainties due to the ambiguity of the language contained in Rule 12b-1 and
eliminate any doubt that may arise in the future regarding whether the services
performed by KDI under the services agreement are "distribution" services, the
distribution plans for Scudder Income Fund authorize the payment of the services
fee. The fact that the services fee is authorized by Scudder Income Fund's
distribution plans does not change the fee rate or affect the nature or quality
of the services provided by KDI.
Pursuant to the services agreement with Scudder Income Fund, which is
substantially identical to the current services agreement with the Fund, KDI
receives a services fee of up to 0.25% per year with respect to the Class A,
Class B and Class C shares of Scudder Income Fund. KDI uses the services fee to
compensate financial services firms ("firms") for providing personal services
and maintenance of accounts for their customers that hold those classes of
shares of Scudder Income Fund, and may retain any portion of the fee not paid to
firms to compensate itself for administrative functions performed for the Fund.
All fee amounts are payable monthly and are based on the average daily net
assets of each Fund attributable to the relevant class of shares.
Purchases, Exchanges, and Redemptions
Both Funds are part of the Scudder Kemper complex of mutual funds. The
procedures for purchases, exchanges, and redemptions of Class A, Class B, Class
C and Class I shares of Scudder Income Fund are identical to those of the Fund.
Shares of Scudder Income Fund are exchangeable for shares of the same class of
most other open-end funds advised by Scudder Kemper offering such shares.
Corresponding classes of shares of Scudder Income Fund have identical sales
charges to those of the Fund. Scudder Income Fund has a maximum initial sales
charge of 4.50% on Class A shares. Shareholders who purchase $1 million or more
of Class A shares pay no initial sales charge but may have to pay a contingent
deferred sales charge (a "CDSC") of up to 1% if the shares are sold within 2
years of the date on which they were purchased. Class B shares are sold without
a front-end sales charge, but may be subject to a CDSC upon redemption,
depending on the length of time the shares are held. The CDSC begins at 4% for
shares sold in the first year, declines to 1% in the sixth year and is
eliminated after the sixth year. After six years, Class B shares automatically
convert to Class A shares. Class C shares are sold without a front-end sales
charge, but may be subject to a CDSC of up to 1% if the shares are sold within
one year of purchase. Class I shares are sold without a front-end sales
charge or a CDSC.
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<PAGE>
Class A, Class B, Class C and Class I shares of Scudder Income Fund
received in the Reorganization will be issued at net asset value, without a
sales charge, and no CDSC will be imposed on any shares of the Fund exchanged
for shares of Scudder Income Fund as a result of the Reorganization. However,
following the Reorganization, any CDSC that applies to shares of the Fund will
continue to apply to shares of Scudder Income Fund received in the
Reorganization, using the original purchase date for such shares to calculate
the holding period, rather than the date such shares are received in the
Reorganization.
Services available to shareholders of Class A, Class B, Class C and Class I
shareholders of Scudder Income Fund will be identical to those available to
shareholders of the corresponding classes of the Fund and include the purchase
and redemption of shares through an automated telephone system and over the
Internet, telephone redemptions, and exchanges by telephone to most other
Scudder Kemper funds that offer Class A, Class B, Class C and Class I shares,
and reinvestment privileges. Please see the Fund's prospectus for additional
information.
Dividends and Other Distributions
The Fund normally declares and distributes monthly dividends of net
investment income and distributes any net realized capital gains at least
annually. Scudder Income Fund intends to distribute investment company taxable
income, exclusive of net short-term capital gains in excess of net long-term
capital losses, in March, June, September and December each year. Distributions
of net capital gains realized during each fiscal year will be made annually
before the end of Scudder Income Fund's fiscal year on January 31. Each Fund may
make an additional distribution if necessary. Shareholders of each Fund can have
their dividends and distributions automatically 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.
Certain shareholders of the Fund also have the option of having dividends
invested in shares of the same class of another Kemper fund at the net asset
value of such class of such other fund. For retirement plans, reinvestment is
the only option.
If the Plan is approved by the Fund's shareholders, the Fund will pay its
shareholders a distribution of all undistributed net investment income and
undistributed realized net capital gains immediately prior to the Closing.
Other Differences Between the Funds
Charter Documents.
Each of the Acquired Trust and the Acquiring Trust is established as a
Massachusetts business trust pursuant to separate Declarations of Trust.
Although the organizational documents of the Acquired Trust and the Acquiring
Trust are similar, some differences do exist. The more significant differences
are listed below.
. A vote of a majority of the Acquired Trust's outstanding shares is
required to remove a trustee from office; a vote of two-thirds of the
Acquiring Trust's outstanding shares is required to remove a trustee
from office.
. A special meeting of Fund shareholders may be called by shareholders
holding at least 25% (or 10% if the purpose is to determine the
removal of a Trustee) of the Fund's shares then outstanding; 10% of
Scudder Income Fund's shares then outstanding are required to call a
special meeting of its shareholders.
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<PAGE>
Trustees and Officers.
The Trustees of the Fund, currently and as proposed under Proposal 1, are
different from those of Scudder Income Fund. As described in Scudder Income
Fund's prospectus that has been included in the materials that you received with
this document, the following individuals comprise the Board of Trustees of
Scudder Income Fund: Henry P. Becton, Jr., Linda C. Coughlin, Dawn-Marie
Driscoll, Edgar Fiedler, Keith R. Fox, Joan E. Spero, Jean Gleason Stromberg,
Jean C. Tempel, and Steven Zaleznick. In addition, the officers of the Fund and
Scudder Income Fund are different. (See Proposal 1 and the Statement of
Additional Information for further information.)
Fiscal Year.
The Fund's fiscal year-end is October 31. Scudder Income Fund's fiscal
year-end is January 31.
Auditors.
The Fund's auditors are Ernst & Young LLP. Scudder Income Fund's auditors
are PricewaterhouseCoopers 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 the Scudder Income Fund are similar to those
presented by the Fund. The main risks applicable to each Fund include, among
others, management risk (i.e., securities selection by the
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<PAGE>
Investment Manager), risk associated with interest rates, and risk associated
with credit quality. Credit quality risk may be more pronounced for the Fund
than for Scudder Income Fund because Scudder Income Fund generally invests
primarily in the top three credit grades, while the Fund generally invests
primarily in the top four credit grades. In addition, investments in high yield
securities, or "junk bonds," entail relatively greater risk of loss of income
and principal than investments in higher rated securities, and may fluctuate
more in value. This risk may affect both Funds, but may be more pronounced for
the Fund, which may invest in lower quality high-yield bonds than Scudder Income
Fund. If interest rates drop significantly, holders of mortgages represented by
mortgage-backed securities are more likely to refinance, thus prepaying their
obligations and potentially forcing a Fund, to the extent that it invests in
mortgage-backed securities, to reinvest in securities that pay lower interest
rates. In addition, to the extent that a Fund invests in foreign securities, it
may be exposed to the risks associated with such investments and foreign
currency risk. While both Funds may invest in foreign debt securities
denominated in currencies other than the U.S. dollar, Scudder Income Fund is
permitted to do so to a greater extent than the Fund and may, therefore, have
more exposure to the risks of investing in such securities and foreign currency
risk. Lastly, the Funds are not insured or guaranteed by the FDIC or any other
government agency. Share prices will go up and down, so be aware that you could
lose money.
For a further discussion of the investment techniques and risk factors
applicable to Scudder Income Fund and the Fund, see "Investment Objectives,
Policies and Restrictions of the Funds" above, and each Fund's prospectus and
statement of additional information, which are incorporated by reference herein.
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 Scudder Income Fund in exchange for that number
of full and fractional Class A, Class B, Class C and Class I shares having an
aggregate net asset value equal to the aggregate net asset value of the shares
of the corresponding classes of the Fund as of the close of business on the
Valuation Date. Scudder Income Fund will assume all of the liabilities of the
Fund. The Fund will distribute the Class A, Class B, Class C and Class I shares
received in the exchange to the shareholders of the Fund in complete liquidation
of the Fund. The Fund will then be terminated.
Upon completion of the Reorganization, each shareholder of the Fund will
own that number of full and fractional Class A, Class B, Class C and Class I
Shares having an aggregate net asset value equal to the aggregate net asset
value of such shareholder's shares of the corresponding classes of the Fund as
of the close of business on the Valuation Date. Such shares will be held in an
account with Scudder Income Fund identical in all material respects to the
account currently maintained by the Fund for such shareholder. In the interest
of economy and convenience, Class A, Class B, Class C and Class I shares issued
to the Fund's shareholders in the Reorganization will be in uncertificated form.
If Class A, Class B, Class C or Class I shares of the Fund are represented by
certificates prior to the Closing, such certificates should be returned to the
Fund's shareholder servicing agent. Any Class A, Class B, Class C or Class I
shares of Scudder Income Fund distributed in the Reorganization to shareholders
in exchange for certificated shares of the Fund may not be transferred,
exchanged or redeemed without delivery of such certificates.
Until the Closing, shareholders of the Fund will continue to be able to
redeem their shares at the net asset value next determined after receipt by the
Fund's transfer agent of a redemption request in proper form. Redemption and
purchase requests received on or after the Valuation Date by the transfer agent
will be treated as requests received for the redemption or purchase of Class A,
Class B, Class C or
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<PAGE>
Class I shares of Scudder Income Fund received by the shareholder in connection
with the Reorganization.
The obligations of the Fund and the Acquiring Trust, on behalf of Scudder
Income Fund, under the Plan are subject to various conditions, as stated
therein, which includes Scudder Income Fund's adoption of a new investment
management agreement. The Plan also requires that all filings be made with, and
all authority be received from, the SEC and state securities commissions as may
be necessary in the opinion of counsel to permit the parties to carry out the
transactions contemplated by the Plan. Each Fund is in the process of making
the necessary filings. To provide for unforeseen events, the Plan may be
terminated: (i) by the mutual agreement of the parties; (ii) by either party if
the Closing has not occurred by [ ], 2001, unless such date is extended by
mutual agreement of the parties; or (iii) by either party if the other party has
materially breached its obligations under the Plan or made a material
misrepresentation in the Plan or in connection with the Reorganization. The
Plan may also be amended by mutual agreement in writing. However, no amendment
may be made following the shareholder meeting if such amendment would have the
effect of changing the provisions for determining the number of shares of
Scudder Income Fund to be issued to the Fund in the Plan to the detriment of the
Fund's shareholders without their approval. For a complete description of the
terms and conditions of the Reorganization, please refer to the Plan at Exhibit
A.
Board Approval of the Proposed Transaction
As discussed above, the Reorganization is part of a Scudder Kemper
initiative that is intended to restructure and streamline the management and
operations of the funds Scudder Kemper advises. Scudder Kemper first proposed
the Reorganization to the Trustees of the Fund at a meeting held on May 24,
2000, see "Synopsis--Background of the Reorganization" above. This initiative
includes five major components:
(i) A change in branding to offer virtually all funds advised by Scudder
Kemper under the Scudder Investments name, with a concentration on
intermediary distribution;
(ii) The combination of funds with similar investment objectives and
policies, including in particular the combination of the Kemper Funds
with similar Scudder Funds currently offered to the general public;
(iii) The liquidation of certain small funds which have not achieved market
acceptance and which are unlikely to reach an efficient operating
size;
(iv) The implementation of an administration agreement for the Kemper
Funds similar to that recently adopted by the Scudder Funds covering,
for a single fee rate, substantially all services required for the
operation of the fund (other than those provided under the fund's
investment management agreement) and most expenses; and
(v) The consolidation of certain boards overseeing funds advised by
Scudder Kemper.
The Independent Trustees of the Fund reviewed the potential implications of
these proposals for the Fund as well as the various other funds for which they
serve as board members. They were assisted in this review by their independent
legal counsel and by independent consultants with special expertise in financial
and mutual fund industry matters. Following the May 24th meeting, the
Independent Trustees met in person or by telephone on numerous occasions
(including committee meetings) to review and discuss these proposals, both among
themselves and with representatives of Scudder Kemper, including
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<PAGE>
the "interested" Trustees. In the course of their review, the Independent
Trustees requested and received substantial additional information and suggested
numerous changes to Scudder Kemper's proposals.
Following the conclusion of this process, the Trustees of the Fund, the
board members of other funds involved and Scudder Kemper reached general
agreement on the elements of a restructuring plan that they believed were in the
best interests of shareholders and, where required, agreed to submit elements of
the plan for approval to shareholders of those funds.
On November 29, 2000, the Board of Trustees, including the Independent
Trustees, unanimously approved the terms of the Reorganization and certain
related proposals. The Trustees have also unanimously agreed to recommend that
the Reorganization be approved by the Fund's shareholders.
In determining whether to recommend that the shareholders of the Fund
approve the Reorganization, the Board of Trustees considered that:
. As part of Scudder Kemper's overall restructuring, the Fund would be
duplicative of another similar fund advised by Scudder Kemper in the
same distribution channel.
. The combined fund would adopt the lower fee schedule of the two Funds'
investment management agreements.
. It is a condition of the Reorganization that each Fund receive an
opinion of tax counsel that the transaction would be a tax-free
transaction.
. Although the Fund agreed to pay a portion of the estimated costs of
the Reorganization allocated to Class A, Class B, Class C and Class I
shares, management has estimated that such allocated costs will be
recoverable from lower overall expense rates within six months of
completion of the Reorganization. Scudder Kemper agreed to pay a
portion of the estimated costs of the Reorganization allocated to
Class A, Class B, Class C and Class I shares and all of the costs of
the Reorganization that exceed estimated costs.
As part of their deliberations, the Trustees considered, among other
things: (a) the fees and expense ratios of the Funds, including comparisons
between the expenses of the Fund and the estimated operating expenses of Scudder
Income Fund after the Reorganization, and between the estimated operating
expenses of Scudder Income Fund and other mutual funds with similar investment
objectives; (b) the terms and conditions of the Reorganization and whether the
Reorganization would result in the dilution of shareholder interests; (c) the
compatibility of the Funds' investment objectives, policies, restrictions and
portfolios; (d) the service features available to shareholders of each Fund; (e)
prospects for Scudder Income Fund to attract additional assets; and (f) the
investment performance of each Fund.
As part of their analysis, the Trustees considered direct and indirect
costs to shareholders including: (a) the direct costs of the Reorganization to
be borne by existing shareholders; (b) the potential costs of any necessary
rebalancing of the Fund's portfolio; and (c) the potential tax consequences to
shareholders as a result of differences in the Funds' realized or unrealized
capital gains or losses and capital loss carry-forwards.
Costs. The anticipated costs of the Reorganization allocable to the Fund
are $173,271, which includes board meeting fees, legal, accounting and other
consultant fees, and proxy solicitation costs. Of these costs, $21,399 (17.97%)
of its allocable portion of $119,083 will be borne by the Fund's Class A shares,
$1,562 (3.73%) of its allocable portion of $41,901 will be borne by the Fund's
Class B shares, $936 (8.36%) of its allocable portion of $11,197 will be borne
by the Fund's Class C shares, and $944
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<PAGE>
(86.61%) of its allocable portion of $1,090 will be borne by the Fund's Class I
shares. Scudder Kemper is bearing the remaining costs, including any cost
overruns (except that Scudder Income Fund is bearing the SEC and state
registration and notice fees which are estimated to be $_________).
The costs of the Reorganization borne by the Fund have been (or will soon
be) expensed, resulting in a reduction of [$0.0005, $0.0001, $0.0004 and
$0.0012] of Class A, Class B, Class C and Class I shares', respectively, net
asset value per share based on [ ], 2000 net assets for the Fund.
Management of the Fund expects that reduced operating expenses resulting from
the Reorganization should allow for recovery of the allocated costs of the
Reorganization within six months after the Closing.
Portfolio Transaction Costs. To consider the potential costs of any
necessary rebalancing of the Fund's portfolio as a result of the Reorganization,
the Independent Trustees asked for, and Scudder Kemper provided, an estimate of
the expected turnover of the securities of the Fund, as a percentage of the
assets of the combined fund, as a result of the Reorganization. Scudder Kemper
estimated such turnover to be 10%, [which would result in estimated brokerage
expenses and/or transaction costs of $[0.0005] (less than $0.01 per share of the
Fund), which the Trustees considered were immaterial]. These estimates were
based upon current market conditions at the time and any actual costs will be
dependent upon liquidity and market conditions at the Closing. In a "bear"
market, for example, such costs could be substantially higher and could result
in capital losses.
Potential Tax Consequences. Although the Reorganizations will be achieved
on a federally tax-free basis (see "Federal Income Tax Consequences"), there are
differences in the Funds' realized or unrealized capital gains or losses and
capital loss carry forwards, which at [ ], 2000 were as follows
(although they may differ at the time of the Closing):
[Charts to be inserted]
As noted above, under the terms of the Plan, shareholders of the Fund will
receive shares of Scudder Income Fund in an amount equal to the relative net
asset value of their Fund shares. The Trustees considered whether an adjustment
in this formula should be made for the above tax differentials. The Trustees
determined that no adjustment should be made because the potential tax
consequences were not material, quantifiable or predictable because of (1)
uncertainties as to the amounts of any actual future realization of capital
gains or losses in view of future changes in portfolio values, (2) the exemption
of some shareholders from federal income taxation, and (3) the differing
consequences of federal and various other income taxation upon a distribution
received by each shareholder whose tax liability (if any) is determined by the
net effect of a multitude of considerations that are individual to the
shareholder. Shareholders should, however, review their own tax situation to
determine what effect, if any, these potential tax differences may have on them.
The Trustees also gave extensive consideration to possible economies of
scale that might be realized by Scudder Kemper in connection with the
Reorganization, as well as the other fund combinations included in Scudder
Kemper's restructuring proposal.
Based on all the foregoing, the Board concluded that the Fund's
participation in the Reorganization would be in the best interests of the Fund
and would not dilute the interests of the Fund's shareholders. The Board of
Trustees, including the Independent Trustees, unanimously recommends that
shareholders of the Fund approve the Reorganization.
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<PAGE>
Description of the Securities to Be Issued
Scudder Income Fund is a series of the Acquiring Trust, a Massachusetts
business trust established under a Declaration of Trust dated September 20,
1984. The Acquiring Trust's authorized capital consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share. The Trustees of the
Acquiring Trust are authorized to divide the Acquiring Trust's shares into
separate series. Scudder Income Fund is one of three series of the Acquiring
Trust. The Trustees of the Acquiring Trust are also authorized to further divide
the shares of the series of the Acquiring Trust into classes. The shares of
Scudder Income Fund are currently divided into six classes, Class AARP, 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 Board of Trustees
of the Acquiring Trust are borne by the class incurring such expenses.
Each share of each class of Scudder Income Fund represents an interest in
Scudder Income Fund that is equal to and proportionate with each other share of
that class of Scudder Income Fund. Scudder Income Fund shareholders are entitled
to one vote per share held on matters on which they are entitled to vote. In the
areas of shareholder voting and the powers and conduct of the Trustees, there
are no material differences between the rights of shareholders of the Fund and
the rights of shareholders of Scudder Income Fund, other than as described above
in "Other Differences Between the Funds - Charter Documents."
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 Scudder Income Fund of all or
substantially all of the assets of the Fund in exchange solely for Class A,
Class B, Class C and Class I shares and the assumption by Scudder Income Fund of
all of the liabilities of the Fund, followed by the distribution of such shares
to the Fund's shareholders in exchange for their shares of the Fund in complete
liquidation of the Fund, will constitute a "reorganization" within the meaning
of Section 368(a)(1) of the Code, and Scudder Income Fund and the Fund will each
be "a party to a reorganization" within the meaning of Section 368(b) of the
Code; (ii) no gain or loss will be recognized by the Fund upon the transfer of
all or substantially all of its assets to Scudder Income Fund in exchange solely
for Class A, Class B, Class C and Class I shares and the assumption by Scudder
Income Fund of all of the liabilities of the Fund or upon the distribution of
the Class A, Class B, Class C and Class I 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 Scudder Income Fund will be the same as the basis of such assets
of the Fund immediately prior to the transfer; (iv) the holding period of the
assets of the Fund in the hands of Scudder Income Fund will include the period
during which such assets were held by the Fund; (v) no gain or loss will be
recognized by Scudder Income Fund upon the receipt of the assets of the Fund in
exchange for Class A, Class B, Class C and Class I shares and the assumption by
Scudder Income Fund of all of the liabilities of the Fund; (vi) no gain or loss
will be recognized by the shareholders of the Fund upon the receipt of the Class
A, Class B, Class C and Class I shares solely in exchange for their shares of
the Fund as part of the transaction; (vii) the basis of the Class A, Class B,
Class C and Class I shares received by each shareholder of the Fund will be the
same as the basis of the shares of the Fund exchanged therefor; and (viii) the
holding period of Class A, Class B, Class C and Class I 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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<PAGE>
After the Closing, Scudder Income Fund may dispose of certain securities
received by it from the Fund in connection with the Reorganization, which may
result in transaction costs and capital gains.
While the Fund is not aware of any adverse state or local tax consequences
of the proposed Reorganization, it has not requested any ruling or opinion with
respect to such consequences and shareholders may wish to consult their own tax
adviser with respect to such matters.
Legal Matters
Certain legal matters concerning the federal income tax consequences of the
Reorganization will be passed on by Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, New York 10019. Certain legal matters concerning the issuance
of shares of Scudder Income 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
Scudder Income 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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<PAGE>
<TABLE>
<CAPTION>
Scudder Scudder Corporate Pro Forma Pro Forma
Income Fund Bond Fund(6) Fund Adjustments (Combined)
----------- ------------ ---- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net Assets
Class S Shares $639,400,340 $40,352,239 (3) $ 679,752,579
Class AARP Shares $179,024,337 (4) $ 179,024,337
Class A Shares $308,849,706 (5) $ 308,849,706
Class B Shares $ 77,495,608 (5) $ 77,495,608
Class C Shares $ 19,108,803 (5) $ 19,108,803
Class I Shares $ 6,224,678 (5) $ 6,224,678
-----------------
Total Net Assets $1,270,455,711/(2)/
=================
Shares Outstanding
Class S Shares 52,003,479 3,554,485 (273,815) $ 55,284,149
Class AARP Shares 14,584,301 $ 14,564,301
Class A Shares 38,637,583 (13,527,851) $ 25,109,732
Class B Shares 9,736,221 (3,435,765) 6,300,456
Class C Shares 2,391,283 (837,722) $ 1,553,561
Class I Shares 779,900 (273,829) $ 506,071
Net Asset Value per Share
Class S Shares $ 12.30 $ 11.35 $ 12.30
Class AARP Shares $ 12.29 $ 12.29
Class A Shares $ 7.99 $ 12.30
Class B Shares $ 7.96 $ 12.30
Class C Shares $ 7.99 $ 12.30
Class I Shares $ 7.98 $ 12.30
</TABLE>
(1) Assumes the Reorganization had been consummated on September 30, 2000, and
is for informational purposes only. No assurance can be given as to how
many shares of Scudder Income Fund will be received by the shareholders of
the Fund on the date the Reorganization takes place, and the foregoing
should not be relied upon to reflect the number of shares of Scudder Income
Fund that actually will be received on or after such date.
(2) Pro forma combined net assets do not reflect expense reductions that would
result from the implementation of Scudder Income Fund's Administration
Agreement.
(3) Represents one-time proxy, legal, accounting and other costs of the
Reorganization of $xxxx and $xxxx to be borne by the Class S shares of
Scudder Income Fund and Scudder Corporate Bond Fund, respectively.
(4) Represents one-time proxy, legal, accounting and other costs of the
Reorganization to be borne by the Class AARP shares of Scudder Income Fund.
(5) Represents one-time proxy, legal, accounting and other costs of the
Reorganization to be borne by the Fund.
(6) On [ ], 2000, the net assets of Scudder Corporate Bond Fund were acquired
by Scudder Income Fund.
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<PAGE>
The Board of Trustees unanimously recommends that the shareholders of the
Fund vote in favor of this Proposal 2.
PROPOSAL 3: RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT AUDITORS
The Board of Trustees, including all of the Independent Trustees, has
selected Ernst & Young LLP to act as independent auditors of the Fund for the
Fund's current fiscal year and recommends that shareholders ratify such
selection. However, if the Plan is approved, as described under Proposal 2,
PricewaterhouseCoopers LLP will serve as the independent auditors for the
combined fund. One or more representatives of Ernst & Young LLP are expected to
be present at the Meeting and will have an opportunity to make a statement if
they so desire. Such representatives are expected to be available to respond to
appropriate questions posed by shareholders or management.
The Board of Trustees unanimously recommends that shareholders of the
Fund vote in favor of this Proposal 3.
ADDITIONAL INFORMATION
Information about the Funds
Additional information about the Trusts, the Funds and the
Reorganization has been filed with the SEC and may be obtained without charge by
writing to Scudder Investor Services, Inc., Two International Place, Boston, MA
02110-4103, or by calling 1-800-[ ].
The Trusts are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and the 1940 Act, and in accordance
therewith, file reports, proxy material and other information about each of the
Funds with the SEC. Such reports, proxy material and other information filed by
the Acquiring Trust, and those filed by the Acquired Trust, can be inspected and
copied at the Public Reference Room maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following SEC Regional Offices:
Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, NY 10048;
Southeast Regional Office, 1401 Brickell Avenue, Suite 200, Miami, FL 33131;
Midwest Regional Office, Citicorp Center, 500 W. Madison Street, Chicago, IL
60661-2511; Central Regional Office, 1801 California Street, Suite 4800, Denver,
CO 80202-2648; and Pacific Regional Office, 5670 Wilshire Boulevard, 11th Floor,
Los Angeles, CA 90036-3648. Copies of such material can also be obtained from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The SEC maintains an Internet World
Wide Web site (at http://www.sec.gov) which contains the prospectuses and
statements of additional information for the Funds, materials that are
incorporated by reference into the prospectuses and statements of additional
information, and other information about the Trusts and the Funds.
General
Proxy Solicitation. Proxy solicitation costs will be considered
Reorganization expenses and will be allocated accordingly. See "The Proposed
Transaction - Board Approval of the Proposed Transaction." In addition to
solicitation by mail, certain officers and representatives of the Acquired
Trust, officers and employees of Scudder Kemper and certain financial services
firms and their representatives, who will receive no extra compensation for
their services, may solicit proxies by telephone, telegram or personally.
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<PAGE>
Any shareholder of the Fund giving a proxy has the power to revoke it
by mail (addressed to the Secretary at the principal executive office of the
Fund, c/o Scudder Kemper Investments, Inc., at the address for the Fund shown at
the beginning of this Proxy Statement/Prospectus) or in person at the Meeting,
by executing a superseding proxy or by submitting a notice of revocation to the
Fund. All properly executed proxies received in time for the Meeting will be
voted as specified in the proxy or, if no specification is made, in favor of
each Proposal.
The presence at any shareholders' meeting, in person or by proxy, of
the holders of 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 any Proposal is not obtained at the Meeting, the
persons named as proxies may propose one or more adjournments of the Meeting in
accordance with applicable law to permit further solicitation of proxies with
respect to that Proposal. Any such adjournment as to a matter will require the
affirmative vote of the holders of a majority of the 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 that Proposal and will vote against any such adjournment those proxies
to be voted against that Proposal. For purposes of determining the presence of
a quorum for transacting business at the Meeting, abstentions and broker "non-
votes" will be treated as shares that are present but which have not been voted.
Broker non-votes are proxies received by the Fund from brokers or nominees when
the broker or nominee has neither received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on a
particular matter. Accordingly, shareholders are urged to forward their voting
instructions promptly.
The election of the Trustees under Proposal 1 requires the affirmative
vote of a plurality of the shares of the Fund voting on such election. Approval
of Proposal 2 requires the affirmative vote of the holders of a majority of the
Fund's shares outstanding and entitled to vote thereon. Approval of Proposal 3
requires the affirmative vote of a majority of the shares of the Fund voting at
the Meeting. Abstentions and broker non-votes will not be counted in favor of,
but will have no other effect on, Proposals 1 and 3, and will have the effect of
a "no" vote on Proposal 2.
Holders of record of the shares of the Fund at the close of business
on March 5, 2001 will be entitled to one vote per share on all business of the
Meeting. As of February 5, 2001, there were [ ] Class A shares, [ ]
Class B shares, [ ] Class C shares and [ ] Class I
shares of the Fund outstanding.
[As of December 31, 2000, the officers and Trustees of the Acquiring
Trust as a group owned beneficially less than 1% of the outstanding shares of
each class of Scudder Income Fund.] Appendix 2 hereto sets forth the beneficial
owners of more than 5% of each class of each Fund's shares. To the best
knowledge of the Fund and the Acquiring Trust, as of December 31, 2000, no
person owned beneficially more than 5% of any class of either Fund's outstanding
shares, except as stated on Appendix 2.
Shareholder Communications Corporation ("SCC") has been engaged to
assist in the solicitation of proxies, at an estimated cost of $[ ]. As
the Meeting date approaches, certain shareholders of the Fund may receive a
telephone call from a representative of SCC if their votes have not yet been
received. Authorization to permit SCC to execute proxies may be obtained by
telephonic or electronically transmitted instructions from shareholders of the
Fund. Proxies that are obtained telephonically will be recorded in accordance
with the procedures described below. The Trustees believe that these procedures
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.
-32-
<PAGE>
In all cases where a telephonic proxy is solicited, the SCC
representative is required to ask for each shareholder's full name and address,
or the last four digits of the shareholder's social security or employer
identification number, or both, and to confirm that the shareholder has received
the proxy materials in the mail. If the shareholder is a corporation or other
entity, the SCC representative is required to ask for the person's title and
confirmation that the person is authorized to direct the voting of the shares.
If the information solicited agrees with the information provided to SCC, then
the SCC representative has the responsibility to explain the process, read the
Proposals on the proxy card(s), and ask for the shareholder's instructions on
the Proposals. Although the SCC representative is permitted to answer questions
about the process, he or she is not permitted to recommend to the shareholder
how to vote, other than to read any recommendation set forth in the Proxy
Statement/Prospectus. SCC will record the shareholder's instructions on the
card. Within 72 hours, the shareholder will be sent a letter or mailgram to
confirm his or her vote and asking the shareholder to call SCC immediately if
his or her instructions are not correctly reflected in the confirmation.
Shareholders may also provide their voting instructions through
telephone touch-tone voting or Internet voting. These options require
shareholders to input a control number which is located on each voting
instruction card. After inputting this number, shareholders will be prompted to
provide their voting instructions on the Proposals. Shareholders will have an
opportunity to review their voting instructions and make any necessary changes
before submitting their voting instructions and terminating their telephone call
or Internet link. Shareholders who vote on the Internet, in addition to
confirming their voting instructions prior to submission, will also receive an
e-mail confirming their instructions.
If a shareholder wishes to participate in the Meeting, but does not
wish to give a proxy by telephone or electronically, the shareholder may still
submit the proxy card(s) originally sent with the Proxy Statement/Prospectus or
attend in person. Should shareholders require additional information regarding
the proxy or replacement proxy card(s), they may contact SCC toll-free at 1-800-
[ ]. Any proxy given by a shareholder is revocable until voted at the
Meeting.
Shareholder Proposals for Subsequent Meetings. Shareholders wishing
to submit proposals for inclusion in a proxy statement for a shareholder meeting
subsequent to the Meeting, if any, should send their written proposals to the
Secretary of the Acquired Trust, c/o Scudder Kemper Investments, Inc., 222 South
Riverside Plaza, Chicago, Illinois 60606, within a reasonable time before the
solicitation of proxies for such meeting. The timely submission of a proposal
does not guarantee its inclusion.
Other Matters to Come Before the Meeting. The Board is not aware of
any matters that will be presented for action at the Meeting other than the
matters described in this material. Should any other matters requiring a vote
of shareholders arise, the proxy in the accompanying form will confer upon the
person or persons entitled to vote the shares represented by such proxy the
discretionary authority to vote the shares as to any such other matters in
accordance with their best judgment in the interest of the Acquired Trust and/or
the Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) (OR TAKE ADVANTAGE
OF AVAILABLE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES) PROMPTLY. NO POSTAGE
IS REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board,
/s/ Philip J. Collora
Philip J. Collora
Secretary
-33-
<PAGE>
INDEX OF EXHIBITS AND APPENDICES
EXHIBIT A: FORM OF AGREEMENT AND PLAN OF REORGANIZATION.....................
EXHIBIT B: MANAGEMENT'S DISCUSSION OF SCUDDER INCOME FUND'S PERFORMANCE.....
APPENDIX 1: TRUSTEE AND NOMINEE SHAREHOLDINGS...............................
APPENDIX 2: BENEFICIAL OWNERS OF FUND SHARES................................
-34-
<PAGE>
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this [ ] day of [ ], 2001, by and among Scudder Portfolio Trust (the
"Acquiring Trust"), a Massachusetts business trust, on behalf of Scudder Income
Fund (the "Acquiring Fund"), a separate series of the Acquiring Trust, Kemper
Income and Capital Preservation Fund (the "Acquired Trust" and, together with
the Acquiring Trust, each a "Trust" and collectively the "Trusts"), a
Massachusetts business trust, on behalf of Kemper Income and Capital
Preservation Fund (the "Acquired Fund" and, together with the Acquiring Fund,
each a "Fund" and collectively the "Funds"), the only active series of the
Acquired Trust, and Scudder Kemper Investments, Inc. ("Scudder Kemper"),
investment adviser to the Funds (for purposes of Paragraph 10.2 of the Agreement
only). The principal place of business of the Acquiring Trust is Two
International Place, Boston, Massachusetts 02110-4103. The principal place of
business of the Acquired Trust is 222 South Riverside Plaza, Chicago, Illinois
60606.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization")
will consist of the transfer of all or substantially all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for Class A, Class B,
Class C and Class I voting shares of beneficial interest ($.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 A, Class B, Class C and
Class I shareholders of the Acquired Fund in complete liquidation of the
Acquired Fund as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES
AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer to the Acquiring Fund all or substantially all of the Acquired
Fund's assets as set forth in section 1.2, and the Acquiring Fund agrees in
exchange therefor (i) to deliver to the Acquired Fund that number of full and
fractional Class A, Class B, Class C and Class I Acquiring Fund Shares
determined by dividing the value of the Acquired Fund's assets net of any
liabilities of the Acquired Fund with respect to the Class A, Class B, Class C
and Class I shares of the Acquired Fund, computed in the manner and as of the
time and date set forth in section 2.1, by the net asset value of one Acquiring
Fund Share of the corresponding class, computed in the manner and as of the time
and date set forth in section 2.2; and (ii) to assume all of the liabilities of
the Acquired Fund, including, but not limited to, any deferred compensation to
the Acquired Fund board members. All Acquiring Fund Shares delivered to the
Acquired Fund shall be delivered at net asset value without sales load,
commission or other similar fee being imposed. Such transactions shall take
place at the closing provided for in section 3.1 (the "Closing").
<PAGE>
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(the "Assets") shall consist of all assets, including, without limitation, all
cash, cash equivalents, securities, commodities and futures interests and
dividends or interest or other receivables that are owned by the Acquired Fund
and any deferred or prepaid expenses shown on the unaudited statement of assets
and liabilities of the Acquired Fund prepared as of the effective time of the
Closing in accordance with generally accepted accounting principles ("GAAP")
applied consistently with those of the Acquired Fund's most recent audited
balance sheet. The Assets shall constitute at least 90% of the fair market value
of the net assets, and at least 70% of the fair market value of the gross
assets, held by the Acquired Fund immediately before the Closing (excluding for
these purposes assets used to pay the dividends and other distributions paid
pursuant to section 1.4).
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in section 3.6.
1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of Assets provided for in section 1.1,
the Acquired Fund will distribute to the Acquired Fund's shareholders of record
with respect to each class of its shares (the "Acquired Fund Shareholders"),
determined as of the Valuation Time (as defined in section 2.1), on a pro rata
basis within that class, the Acquiring Fund Shares of the same class received by
the Acquired Fund pursuant to section 1.1 and will completely liquidate. Such
distribution and liquidation will be accomplished with respect to each class of
the Acquired Fund by the transfer of the Acquiring Fund Shares then credited to
the account of the Acquired Fund on the books of the Acquiring Fund to open
accounts on the share records of the Acquiring Fund in the names of the Acquired
Fund Shareholders. The Acquiring Fund shall have no obligation to inquire as to
the validity, propriety or correctness of such records, but shall assume that
such transaction is valid, proper and correct. The aggregate net asset value of
Class A, Class B, Class C and Class I Acquiring Fund Shares to be so credited to
the Class A, Class B, Class C and Class I Acquired Fund Shareholders shall, with
respect to each class, be equal to the aggregate net asset value of the Acquired
Fund shares of the same class owned by such shareholders as of the Valuation
Time. All issued and outstanding shares of the Acquired Fund will simultaneously
be cancelled on the books of the Acquired Fund, although share certificates
representing interests in Class A, Class B, Class C and Class I shares of the
Acquired Fund will represent a number of Acquiring Fund Shares after the Closing
Date as determined in accordance with section 2.3. The Acquiring Fund will not
issue certificates representing Acquiring Fund Shares in connection with such
exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
<PAGE>
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, shall be
available to the Acquiring Fund from and after the Closing Date and shall be
turned over to the Acquiring Fund as soon as practicable following the Closing
Date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. (the "NYSE") on the business day
immediately preceding the Closing Date, as defined in section 3.1 (the
"Valuation Time") after the declaration and payment of any dividends and/or
other distributions on that date, using the valuation procedures set forth in
the Acquiring Trust's Declaration of Trust, as amended, and then-current
prospectus or statement of additional information, copies of which have been
delivered to the Acquired Fund.
2.2. The net asset value of a Class A, Class B, Class C or Class I
Acquiring Fund Share shall be the net asset value per share computed with
respect to that class as of the Valuation Time using the valuation procedures
referred to in section 2.1. Notwithstanding anything to the contrary contained
in this Agreement, in the event that, as of the Valuation Time, there are no
Class A, Class B, Class C and/or Class I Acquiring Fund Shares issued and
outstanding, then, for purposes of this Agreement, the per share net asset value
of a Class A, Class B, Class C and/or Class I share, as applicable, shall be
equal to the net asset value of one Class S Acquiring Fund Share.
2.3. The number of the Class A, Class B, Class C and Class I Acquiring Fund
Shares to be issued (including fractional shares, if any) in exchange for the
Assets shall be determined with respect to each such class by dividing the value
of the Assets with respect to Class A, Class B, Class C and Class I 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 June 25, 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
<PAGE>
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. State Street, as transfer agent for the Acquired Fund, on behalf of
the Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that its records contain the names and addresses of the Acquired
Fund Shareholders and the number and percentage ownership (to three decimal
places) of outstanding Class A, Class B, Class C and Class I Acquired Fund
shares owned by each such shareholder immediately prior to the Closing. The
Acquiring Fund shall issue and deliver a confirmation evidencing the Acquiring
Fund Shares to be credited on the Closing Date to the Acquired Fund or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have
been credited to the Acquired Fund's account on the books of the Acquiring Fund.
At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, share certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request to effect the
transactions contemplated by this Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the NYSE
or another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund shall be closed to trading or trading thereupon shall be
restricted, or (b) trading or the reporting of trading on such Exchange or
elsewhere shall be disrupted so that, in the judgment of the Board members of
either party to this Agreement, accurate appraisal of the value of the net
assets with respect to the Class A, Class B, Class C and Class I 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
<PAGE>
Fund, the only active series of the Acquired Trust, is 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 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 October 31, [1999], have been
audited by Ernst & Young LLP, independent auditors, and are in accordance with
GAAP consistently applied, and such statements (a copy of each of which has been
furnished to the Acquiring Fund) present fairly, in all material respects, the
financial position of the Acquired Fund as of such date in accordance with GAAP,
and there are no known contingent liabilities of the Acquired Fund required to
be reflected on a balance sheet (including the notes thereto) in accordance with
GAAP as of such date not disclosed therein;
<PAGE>
(g) Since October 31, [1999], there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred except as otherwise disclosed to and
accepted in writing by the Acquiring Fund. For purposes of this subsection (g),
a decline in net asset value per share of the Acquired Fund due to declines in
market values of securities in the Acquired Fund's portfolio, the discharge of
Acquired Fund liabilities, or the redemption of Acquired Fund shares by Acquired
Fund Shareholders shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law to have been filed
by such dates (including any extensions) shall have been filed and are or will
be correct in all material respects, and all federal and other taxes shown as
due or required to be shown as due on said returns and reports shall have been
paid or provision shall have been made for the payment thereof, and, to the best
of the Acquired Fund's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(i) For each taxable year of its operation (including the taxable
year ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company and
has elected to be treated as such, has been eligible to and has computed its
federal income tax under Section 852 of the Code, and will have distributed all
of its investment company taxable income and net capital gain (as defined in the
Code) that has accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have
been offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the 1933
Act and state securities laws, (ii) are, and on the Closing Date will be, duly
and validly issued and outstanding, fully paid and non-assessable and not
subject to preemptive or dissenter's rights (recognizing that, under
Massachusetts law, Acquired Fund Shareholders, under certain circumstances,
could be held personally liable for obligations of the Acquired Fund), and (iii)
will be held at the time of the Closing by the persons and in the amounts set
forth in the records of State Street, as provided in section 3.4. The Acquired
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, nor is there
outstanding any security convertible into any of the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Fund's assets to be transferred to the
Acquiring Fund pursuant to section 1.2 and full right, power, and authority to
sell, assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the Acquiring
Fund has received notice at or prior to the Closing, and upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act and the 1940 Act,
except those restrictions as to which the Acquiring Fund has received notice and
necessary documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action on
the part of the Board members of the Acquired Trust (including the
determinations required by Rule 17a-8(a) under the 1940 Act), and, subject to
the approval of the Acquired Fund Shareholders, this Agreement constitutes a
valid and binding obligation of the Acquired Trust, on behalf of the Acquired
Fund, enforceable in accordance with its
<PAGE>
terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for use
in any other document filed or to be filed with any federal, state or local
regulatory authority (including the National Association of Securities Dealers,
Inc. (the "NASD")), which may be necessary in connection with the transactions
contemplated hereby, shall be accurate and complete in all material respects and
shall comply in all material respects with federal securities and other laws and
regulations applicable thereto;
(n) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of the
Registration Statement and on the Closing Date, (i) comply in all material
respects with the provisions and Regulations of the 1933 Act, 1934 Act and 1940
Act, as applicable, and (ii) not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which such
statements are made, not materially misleading; provided, however, that the
representations and warranties in this section shall not apply to statements in
or omissions from the Proxy Statement and the Registration Statement made in
reliance upon and in conformity with information that was furnished or should
have been furnished by the Acquiring Fund for use therein.
4.2. The Acquiring Trust, on behalf of the Acquiring Fund, represents and
warrants to the Acquired Fund as follows:
(a) The Acquiring Trust is a voluntary association with transferable
shares commonly referred to as a Massachusetts business trust duly organized and
validly existing under the laws of The Commonwealth of Massachusetts with power
under the Acquiring Trust's Declaration of Trust, as amended, to own all of its
properties and assets and to carry on its business as it is now being conducted
and, subject to the approval of shareholders of the Acquired Fund, to carry out
the Agreement. The Acquiring Fund is a separate series of the Acquiring Trust
duly designated in accordance with the applicable provisions of the Acquiring
Trust's Declaration of Trust. The Acquiring Trust and Acquiring Fund are
qualified to do business in all jurisdictions in which they are required to be
so qualified, except jurisdictions in which the failure to so qualify would not
have material adverse effect on the Acquiring Trust or Acquiring Fund. The
Acquiring Fund has all material federal, state and local authorizations
necessary to own all of the properties and assets and to carry on its business
as now being conducted, except authorizations which the failure to so obtain
would not have a material adverse effect on the Acquiring Fund;
(b) The Acquiring Trust is registered with the Commission as an open-
end management investment company under the 1940 Act, and such registration is
in full force and effect and
<PAGE>
the Acquiring Fund is in compliance in all material respects with the 1940 Act
and the rules and regulations thereunder;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required by state
securities laws;
(d) The Acquiring Trust is not, and the execution, delivery and
performance of this Agreement by the Acquiring Trust will not result (i) in
violation of Massachusetts law or of the Acquiring Trust's Declaration of Trust,
as amended, or By-Laws, or (ii) in a violation or breach of, or constitute a
default under, any material agreement, indenture, instrument, contract, lease or
other undertaking known to counsel to which the Acquiring Fund is a party or by
which it is bound, and the execution, delivery and performance of this Agreement
by the Acquiring Fund will not result in the acceleration of any obligation, or
the imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Acquiring Fund is a party or by
which it is bound, or (iii) in the creation or imposition of any lien, charge or
encumbrance on any property or assets of the Acquiring Fund;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Acquiring Fund or any properties or
assets held by it. The Acquiring Fund knows of no facts which might form the
basis for the institution of such proceedings which would materially and
adversely affect its business and is not a party to or subject to the provisions
of any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate the
transactions herein contemplated;
(f) The Statements of Assets and Liabilities, Operations, and Changes
in Net Assets, the Financial Highlights, and the Investment Portfolio of the
Acquiring Fund at and for the fiscal year ended January 31, [1999], 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 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 January 31, [1999], 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
<PAGE>
provision shall have been made for the payment thereof, and, to the best of the
Acquiring Fund's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(i) For each taxable year of its operation, the Acquiring Fund has
met the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has been
eligible to and has computed its federal income tax under Section 852 of the
Code, and will do so for the taxable year including the Closing Date;
(j) All issued and outstanding shares of the Acquiring Fund (i) have
been offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the 1933
Act and state securities laws and (ii) are, and on the Closing Date will be,
duly and validly issued and outstanding, fully paid and non-assessable, and not
subject to preemptive or dissenter's rights (recognizing that, under
Massachusetts law, Acquiring Fund Shareholders, under certain circumstances,
could be held personally liable for the obligations of the Acquiring Fund). The
Acquiring Fund does not have outstanding any options, warrants or other rights
to subscribe for or purchase any of the Acquiring Fund shares, nor is there
outstanding any security convertible into any of the Acquiring Fund shares;
(k) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to
the terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued and
outstanding Acquiring Fund Shares, and will be fully paid and non-assessable
(recognizing that, under Massachusetts law, Acquiring Fund Shareholders, under
certain circumstances, could be held personally liable for the obligations of
the Acquiring Fund);
(l) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired Fund
has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action on
the part of the Board members of the Acquiring Trust (including the
determinations required by Rule 17a-8(a) under the 1940 Act) and this Agreement
will constitute a valid and binding obligation of the Acquiring Trust, on behalf
of the Acquiring Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for use
in any other document filed or to be filed with any federal, state or local
regulatory authority (including the NASD), which may be necessary in connection
with the transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(o) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not include any untrue statement of a
<PAGE>
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading;
(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, will, on the effective date of
the Registration Statement and on the Closing Date, (i) comply in all material
respects with the provisions and Regulations of the 1933 Act, 1934 Act, and 1940
Act and (ii) not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not materially misleading; provided, however, that the
representations and warranties in this section shall not apply to statements in
or omissions from the Proxy Statement and the Registration Statement made in
reliance upon and in conformity with information that was furnished or should
have been furnished by the Acquired Fund for use therein; and
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and such
of the state securities laws as may be necessary in order to continue its
operations after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each covenants to operate its
business in the ordinary course between the date hereof and the Closing Date, it
being understood that (a) such ordinary course of business will include (i) the
declaration and payment of customary dividends and other distributions and (ii)
such changes as are contemplated by the Funds' normal operations; and (b) each
Fund shall retain exclusive control of the composition of its portfolio until
the Closing Date. No party shall take any action that would, or reasonably would
be expected to, result in any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect. The Acquired
Fund and Acquiring Fund covenant and agree to coordinate the respective
portfolios of the Acquired Fund and Acquiring Fund from the date of the
Agreement up to and including the Closing Date in order that at Closing, when
the Assets are added to the Acquiring Fund's portfolio, the resulting portfolio
will meet the Acquiring Fund's investment objective, policies and restrictions,
as set forth in the Acquiring Fund's Prospectus, a copy of which has been
delivered to the Acquired Fund.
5.2. Upon reasonable notice, the Acquiring Fund's officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. The Acquired Fund covenants to call a meeting of the Acquired Fund
Shareholders entitled to vote thereon to consider and act upon this Agreement
and to take all other reasonable action necessary to obtain approval of the
transactions contemplated herein. Such meeting shall be scheduled for no later
than May 24, 2001.
5.4. The Acquired Fund covenants that the Acquiring Fund Shares to be
issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this Agreement.
<PAGE>
5.5. The Acquired Fund covenants that it will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Acquired Fund shares.
5.6. Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all actions, and do or
cause to be done, all things reasonably necessary, proper, and/or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.7. Each Fund covenants to prepare in compliance with the 1933 Act, the
1934 Act and the 1940 Act the Registration Statement on Form N-14 (the
"Registration Statement") in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. The Acquired Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the Proxy Statement referred to
in section 4.1(o), all to be included in the Registration Statement, in
compliance in all material respects with the 1933 Act, the 1934 Act and the 1940
Act.
5.8. The Acquired Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquiring Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action as the Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Fund's title to and possession of all the assets and otherwise to
carry out the intent and purpose of this Agreement.
5.9. The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and such
of the state securities laws as it deems appropriate in order to continue its
operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund may take such
actions it reasonably deems advisable after the Closing Date as circumstances
change.
5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause to
be executed and delivered all such assignments, assumption agreements, releases,
and other instruments, and will take or cause to be taken such further action,
as the Acquired Fund may reasonably deem necessary or desirable in order to (i)
vest and confirm to the Acquired Fund title to and possession of all Acquiring
Fund shares to be transferred to the Acquired Fund pursuant to this Agreement
and (ii) assume the liabilities from the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired
Fund shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.12. The Acquiring Fund and the Acquired Fund shall each use its
reasonable best efforts to fulfill or obtain the fulfillment of the conditions
precedent to effect the transactions contemplated by this Agreement as promptly
as practicable.
5.13. The intention of the parties is that the transaction will qualify as
a reorganization within the meaning of Section 368(a) of the Code. Neither the
Trusts, the Acquiring Fund nor the Acquired
<PAGE>
Fund shall take any action, or cause any action to be taken (including, without
limitation, the filing of any tax return) that is inconsistent with such
treatment or results in the failure of the transaction to qualify as a
reorganization within the meaning of Section 368(a) of the Code. At or prior to
the Closing Date, the Trusts, the Acquiring Fund and the Acquired Fund will take
such action, or cause such action to be taken, as is reasonably necessary to
enable Willkie Farr & Gallagher to render the tax opinion contemplated herein in
section 8.5.
5.14. At or immediately prior to the Closing, the Acquired Fund may declare
and pay to its stockholders a dividend or other distribution in an amount large
enough so that it will have distributed substantially all (and in any event not
less than 98%) of its investment company taxable income (computed without regard
to any deduction for dividends paid) and realized net capital gain, if any, for
the current taxable year through the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of the Acquiring Trust, on behalf
of the Acquiring Fund, contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be affected
by the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than the Acquired Fund, its adviser or any of their affiliates) against the
Acquiring Fund or its investment adviser(s), Board members or officers arising
out of this Agreement and (ii) no facts known to the Acquiring Fund which the
Acquiring Fund reasonably believes might result in such litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Trust, on behalf of
the Acquired Fund, and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquiring Fund made in this Agreement are
true and correct on and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as the Acquired Fund shall reasonably request.
6.3. The Acquired Fund shall have received on the Closing Date an opinion
of Dechert, in a form reasonably satisfactory to the Acquired Fund, and dated as
of the Closing Date, to the effect that:
(a) The Acquiring Trust has been duly formed and is an existing
business trust; (b) the Acquiring Fund has the power to carry on its business as
presently conducted in accordance with the description thereof in the Acquiring
Fund's registration statement under the 1940 Act; (c) the Agreement has been
duly authorized, executed and delivered by the Acquiring Trust, on behalf of the
Acquiring Fund, and constitutes a valid and legally binding obligation of the
Acquiring Trust, on behalf of the Acquiring Fund, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity principles; (d) the execution
and delivery of the Agreement did not, and the exchange of the Acquired Fund's
assets for Acquiring Fund Shares pursuant to the Agreement will not, violate the
Acquiring Trust's Declaration of Trust, as amended, or By-laws; and (e) to the
knowledge of
<PAGE>
such counsel, and without any independent investigation, (i) the Acquiring Trust
is not subject to any litigation or other proceedings that might have a
materially adverse effect on the operations of the Acquiring Trust, (ii) the
Acquiring Trust is duly registered as an investment company with the Commission
and is not subject to any stop order; and (iii) all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquiring Fund under the federal laws of the United States or the laws of The
Commonwealth of Massachusetts for the exchange of the Acquired Fund's assets for
Acquiring Fund Shares, pursuant to the Agreement have been obtained or made.
The delivery of such opinion is conditioned upon receipt by Dechert of
customary representations it shall reasonably request of each of the Acquiring
Trust and the Acquired Trust.
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
6.5. The Acquiring Fund shall have [(i) adopted a new investment management
agreement and (ii)] entered into an administrative services agreement with
Scudder Kemper, 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.
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Trust, on behalf
of the Acquiring Fund, and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquired Trust with respect to the
Acquired Fund made in this Agreement are true and correct on and as of the
Closing Date, except as they may be affected by the transactions contemplated by
this Agreement, and as to such other matters as the Acquiring Fund shall
reasonably request.
<PAGE>
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Dechert, in a form reasonably satisfactory to the Acquiring Fund, and dated
as of the Closing Date, to the effect that:
(a) The Acquired Trust has been duly formed and is an existing
business trust; (b) the Acquired Fund has the power to carry on its business as
presently conducted in accordance with the description thereof in the Acquired
Trust's registration statement under the 1940 Act; (c) the Agreement has been
duly authorized, executed and delivered by the Acquired Trust, on behalf of the
Acquired Fund, and constitutes a valid and legally binding obligation of the
Acquired Trust, on behalf of the Acquired Fund, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity principles; (d) the execution
and delivery of the Agreement did not, and the exchange of the Acquired Fund's
assets for Acquiring Fund Shares pursuant to the Agreement will not, violate the
Acquired Trust's Declaration of Trust, as amended, or By-laws; and (e) to the
knowledge of such counsel, and without any independent investigation, (i) the
Acquired Trust is not subject to any litigation or other proceedings that might
have a materially adverse effect on the operations of the Acquired Trust, (ii)
the Acquired Trust is duly registered as an investment company with the
Commission and is not subject to any stop order, and (iii) all regulatory
consents, authorizations, approvals or filings required to be obtained or made
by the Acquired Fund under the federal laws of the United States or the laws of
The Commonwealth of Massachusetts for the exchange of the Acquired Fund's assets
for Acquiring Fund Shares, pursuant to the Agreement have been obtained or made.
The delivery of such opinion is conditioned upon receipt by Dechert of
customary representations it shall reasonably request of each of the Acquiring
Trust and the Acquired Trust.
7.5. The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below have not been met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of the Acquired Trust's
Declaration of Trust, as amended, and By-Laws, applicable Massachusetts law and
the 1940 Act, and certified copies of the resolutions evidencing such approval
shall have been delivered to the Acquiring Fund. Notwithstanding anything herein
to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
conditions set forth in this section 8.1.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions contemplated
herein.
<PAGE>
8.3. All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5. The parties shall have received an opinion of Willkie Farr & Gallagher
addressed to each of the Acquiring Fund and the Acquired Fund, in a form
reasonably satisfactory to each such party to this Agreement, substantially to
the effect that, based upon certain facts, assumptions and representations of
the parties, for federal income tax purposes: (i) the transfer to the Acquiring
Fund of all or substantially all of the assets of the Acquired Fund in exchange
solely for Acquiring Fund Shares and the assumption by the Acquiring Fund of all
of the liabilities of the Acquired Fund, followed by the distribution of such
shares to the Acquired Fund Shareholders in exchange for their shares of the
Acquired Fund in complete liquidation of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Code, and the
Acquiring Fund and the Acquired Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by the Acquired Fund upon the transfer of all or substantially all of
its assets to the Acquiring Fund in exchange solely for Acquiring Fund Shares
and the assumption by the Acquiring Fund of all of the liabilities of the
Acquired Fund; (iii) the basis of the assets of the Acquired Fund in the hands
of the Acquiring Fund will be the same as the basis of such assets of the
Acquired Fund immediately prior to the transfer; (iv) the holding period of the
assets of the Acquired Fund in the hands of the Acquiring Fund will include the
period during which such assets were held by the Acquired Fund; (v) no gain or
loss will be recognized by the Acquiring Fund upon the receipt of the assets of
the Acquired Fund in exchange for Acquiring Fund Shares and the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund; (vi) no gain
or loss will be recognized by Acquired Fund Shareholders upon the receipt of the
Acquiring Fund Shares solely in exchange for their shares of the Acquired Fund
as part of the transaction; (vii) the basis of the Acquiring Fund Shares
received by Acquired Fund Shareholders will be the same as the basis of the
shares of the Acquired Fund exchanged therefor; and (viii) the holding period of
Acquiring Fund Shares received by Acquired Fund Shareholders will include the
holding period during which the shares of the Acquired Fund exchanged therefor
were held, provided that at the time of the exchange the shares of the Acquired
Fund were held as capital assets in the hands of Acquired Fund Shareholders. The
delivery of such opinion is conditioned upon receipt by Willkie Farr & Gallagher
of representations it shall request of each of the Acquiring Trust and Acquired
Trust. Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Acquired Fund may waive the condition set forth in this section
8.5.
9. INDEMNIFICATION
9.1. The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's Board members and officers from and against
any and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Acquired Fund or any of its
Board members or
<PAGE>
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 Trust, on behalf of the Acquiring Fund, and the
Acquired Trust, on behalf of the Acquired Fund, represents and warrants to the
other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
10.2. The anticipated costs of the Reorganization are $173,271, which
includes board meeting fees, legal, accounting and other consultant fees, and
proxy solicitation costs. Of these costs, $21,399 (17.97%) of its allocable
portion of $119,083 will be borne by the Acquired Fund's Class A shares, $1,562
(3.73%) of its allocable portion of $41,901 will be borne by the Acquired Fund's
Class B shares, $936 (8.36%) of its allocable portion of $11,197 will be borne
by the Acquired Fund's Class C shares, and $944 (86.61%) of its allocable
portion of $1,090 will be borne by the Acquired Fund's Class I shares. Scudder
Kemper will bear the remaining costs, including any cost overruns (except that
the Acquiring Fund will bear the SEC and state registration and notice fees
which are estimated to be $_________). Any such expenses which are so borne by
Scudder Kemper will be solely and directly related to the Reorganization within
the meaning of Revenue Ruling 73-54, 1973-1 C.B. 187. Acquired Fund Shareholders
will pay their own expenses, if any, incurred in connection with the
Reorganization.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing and the obligations of each of the
Acquiring Fund and Acquired Fund in sections 9.1 and 9.2 shall survive the
Closing.
12. TERMINATION
12.1. This Agreement may be terminated and the transactions contemplated
hereby may be abandoned by either party by (i) mutual agreement of the parties,
or (ii) by either party if the Closing shall not have occurred on or before [ ],
2001, unless such date is extended by mutual agreement of the parties, or (iii)
by either party if the other party shall have materially breached its
obligations under this
<PAGE>
Agreement or made a material and intentional misrepresentation herein or in
connection herewith. In the event of any such termination, this Agreement shall
become void and there shall be no liability hereunder on the part of any party
or their respective Board members or officers, except for any such material
breach or intentional misrepresentation, as to each of which all remedies at law
or in equity of the party adversely affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by any authorized officer of the Acquired
Fund and any authorized officer of the Acquiring Fund; provided, however, that
following the meeting of the Acquired Fund Shareholders called by the Acquired
Fund pursuant to section 5.3 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund Shareholders under this Agreement
to the detriment of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, 222 South Riverside Plaza, Chicago, Illinois 60606, with a copy
to Dechert, Ten Post Office Square South, Boston, MA 02109-4603, Attention:
Joseph R. Fleming, Esq., or to the Acquiring Fund, Two International Place,
Boston, Massachusetts 02110-4103, with a copy to Dechert, Ten Post Office Square
South, Boston, MA 02109-4603, Attention: Joseph R. Fleming, Esq., or to any
other address that the Acquired Fund or the Acquiring Fund shall have last
designated by notice to the other party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and the shareholders of the
Acquiring Fund and the Acquired Fund and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
15.4. References in this Agreement to each Trust mean and refer to the
Board members of each Trust from time to time serving under its Declaration of
Trust on file with the Secretary of State of The Commonwealth of Massachusetts,
as the same may be amended from time to time, pursuant to which each Trust
conducts its business. It is expressly agreed that the obligations of each Trust
hereunder shall
<PAGE>
not be binding upon any of the Board members, shareholders, nominees, officers,
agents, or employees of the Trusts or the Funds personally, but bind only the
respective property of the Funds, as provided in each Trust's Declaration of
Trust. Moreover, no series of either Trust other than the Funds shall be
responsible for the obligations of the Trusts hereunder, and all persons shall
look only to the assets of the Funds to satisfy the obligations of the Trusts
hereunder. The execution and the delivery of this Agreement have been authorized
by each Trust's Board members, on behalf of the applicable Fund, and this
Agreement has been signed by authorized officers of each Fund acting as such,
and neither such authorization by such Board members, nor such execution and
delivery by such officers, shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the respective property of the Funds, as provided in each Trust's
Declaration of Trust.
Notwithstanding anything to the contrary contained in this Agreement, the
obligations, agreements, representations and warranties with respect to each
Fund shall constitute the obligations, agreements, representations and
warranties of that Fund only (the "Obligated Fund"), and in no event shall any
other series of the Trusts or the assets of any such series be held liable with
respect to the breach or other default by the Obligated Fund of its obligations,
agreements, representations and warranties as set forth herein.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of The Commonwealth of Massachusetts, without regard
to its principles of conflicts of laws.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by an authorized officer and its seal to be affixed thereto and
attested by its Secretary or Assistant Secretary.
Attest: SCUDDER PORTFOLIO TRUST
on behalf of Scudder Income Fund
_________________________
Secretary
______________________________
By:___________________________
Its:__________________________
Attest: KEMPER INCOME AND CAPITAL PRESERVATION
FUND
_________________________
Secretary
______________________________
By:___________________________
Its:__________________________
AGREED TO AND ACKNOWLEDGED
ONLY WITH RESPECT TO
PARAGRAPH 10.2 HERETO
SCUDDER KEMPER INVESTMENTS, INC.
___________________________________
By:________________________________
Its:_______________________________
<PAGE>
EXHIBIT B
Management's Discussion of Scudder Income Fund's Performance
<PAGE>
Performance Update
--------------------------------------------------------------------------------
January 31, 2000
--------------------------------------------------------------------------------
Growth of a $10,000 Investment
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Scudder Income Fund LB Aggregate Bond Index*
90 10000 10000
91 11140 11161
92 12658 12615
93 14033 13999
94 15840 15278
95 15053 14925
96 17690 17453
97 18215 18021
98 19938 19956
99 21143 21565
00 20591 21163
Yearly periods ended January 31
--------------------------------------------------------------------------------
Fund Index Comparison
--------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 1/31/2000 $10,000 Cumulative Annual
--------------------------------------------------------------------------------
Scudder Income Fund
--------------------------------------------------------------------------------
1 year $ 9,739 -2.61% -2.61%
--------------------------------------------------------------------------------
5 year $ 13,678 36.78% 6.46%
--------------------------------------------------------------------------------
10 year $ 20,591 105.91% 7.49%
--------------------------------------------------------------------------------
LB Aggregate Bond Index*
--------------------------------------------------------------------------------
1 year $ 9,814 -1.86% -1.86%
--------------------------------------------------------------------------------
5 year $ 14,180 41.80% 7.23%
--------------------------------------------------------------------------------
10 year $ 21,163 111.63% 7.78%
6
<PAGE>
* The unmanaged Lehman Brothers (LB) Aggregate Bond Index is a market
value-weighted measure of treasury issues, agency issues, corporate bond
issues and mortgage securities. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased.
** If the Adviser had not maintained the Fund's expenses, total returns would
have been lower.
7
<PAGE>
Portfolio Management Discussion
--------------------------------------------------------------------------------
January 31, 2000
In the following interview, portfolio manager Robert S. Cessine discusses
Scudder Income Fund's strategy and the market environment in the twelve-month
period ended January 31, 2000.
Q: The bond market experienced extremely poor performance over the past year.
How did this play out in the various subsectors you follow, and what were some
of the causes?
A: The fact that growth in both the United States and the overseas economies has
come in well above expectations has put pressure on bond prices since early last
year. Yields on long-term Treasuries began 1999 at slightly above 5%, reflecting
the widely held expectation that growth would remain tame and that deflation,
not inflation, would be the market's primary concern. As the year progressed,
however, it became apparent that the global economy would in fact be much
stronger than expected. Asia staged a sharp recovery, thereby removing one of
the key factors that was supporting bond prices in 1998. Commodity prices have
also staged a rebound, led by the surge in oil prices to nine-year highs in
January 2000. On the domestic front, continued gains in the stock market helped
fuel a 9% rise in holiday sales, and gross domestic product posted a strong 5.8%
gain in the fourth quarter. Most important, the extreme tightness in the labor
markets sparked concerns that a sharp increase in wage growth was inevitable.
While actual evidence of inflation on the consumer level remains spotty, the
consensus opinion among market participants is that the Fed will be forced to
raise interest rates on multiple occasions in 2000. These factors have combined
to create an extremely negative environment for bonds. The yield on the
benchmark 30-year Treasury issue, which stood at 5.09% on January 29, 1999, rose
to a peak of 6.75% by January 18, 2000. Five- and ten-year notes were hit
especially hard in the latter half of the period.
Other sectors of the bond market held up relatively well in relation to
Treasuries over the full year. Mortgage- and asset-backed securities both
outperformed, as did
9
<PAGE>
government agency notes (such as those issued by Fannie Mae). Corporate issues
performed poorly over the period, but outperformed Treasuries in the fourth
quarter of 1999 as fears of a supply-demand imbalance associated with Y2K
dissipated. The stronger performance of these sectors had a positive effect on
fund performance. Our emphasis on diversifying the portfolio among a variety of
corporates, asset-backeds, and agency notes helped mitigate the effects of a
difficult interest rate environment.
Q: How has the fund performed in this environment?
A: For the twelve-month period ended January 31, 2000, the fund provided a
return of -2.61%, which trailed the -1.86% return of its unmanaged benchmark,
the Lehman Brothers Aggregate Bond Index. However, the fund's return placed it
in the top 25% of all domestic taxable bond funds, as calculated by Lipper
Analytical Services. The fund has also outperformed its peer group over the
five- and ten-year periods ended on the same date.
Q: The fund is heavily weighted in corporate bonds. How did you position the
portfolio within that sector?
A: In the last report, which covered the six months ended July 31, we stated
that we were raising our weighting in corporates. At that juncture, market
participants were concerned that the approach of Y2K would bring about a glut of
supply in the third quarter -- as corporations rushed to complete their
financing needs ahead of year-end -- as well as a reduction in demand as
investors shunned riskier assets in anticipation of possible disruptions
associated with Y2K. Believing that these fears were overblown, we added to the
portfolio's position in corporates in order to take advantage of their more
attractive yields, and the fund was therefore positioned to benefit when the
sector outperformed Treasuries over the latter part of the period. Even though
yield spreads (the difference between the yield on corporates and the Treasury
bond of equivalent maturity) have contracted, we believe that the sector remains
attractive relative to
10
<PAGE>
historical levels. We currently hold 61% of assets in corporate bonds, including
17% of assets in high yield issues. The fund is currently approaching the
maximum allocation it can hold in high yield bonds (20%), so this represents a
relatively aggressive positioning. We feel that the combination of attractive
valuations, continued strength in the domestic economy, and powerful corporate
earnings growth should work to the benefit of high yield issues in the coming
month.
Within the corporate sector, we continue to focus on bonds issued by companies
with strong, reliable cash flows. The financial press generally focuses on the
way a company's earnings report affects its stock price, but the strength and
quality of earnings is also an important driver of corporate bond prices. As a
result, we utilize intensive credit research in order to avoid companies whose
bonds can "blow up" due to disappointing earnings. The fund has also been
well-positioned to benefit from the rally in the media and telecom sectors. In
addition, our position in the energy sector was boosted by the sharp rise in oil
prices. Looking ahead, we are confident that the fund's diversified mix of
high-quality bonds in a variety of industries -- including utilities,
financials, retailers, and auto manufacturers -- will help the fund produce
steady performance over time.
Q: What was your strategy with respect to duration and credit quality?
A: When we last spoke six months ago, we mentioned that we were reducing the
fund's duration to a neutral level with respect to its benchmark. We
accomplished this by moving out of bonds with the longest maturities (20-30
years) and investing in intermediate-term bonds, which we believed were more
attractive given the flattening of the yield curve. Although intermediate-term
bonds suffered a sell-off in the latter part of January, this decision had a
positive effect on performance in the negative interest rate environment of the
last six months.
As of January 31, the average credit quality of the fund's holdings stood at A1,
which was down slightly from the
11
<PAGE>
end of July. We achieved this rating by employing a "barbell" approach, whereby
we balanced the fund's increased weighting in high-yield issues (which carry
ratings of BB or below) with an increased weighting in bonds A rated. The
impetus for this strategy has been our belief that high-quality investment grade
bonds and high-yield issues offer better value than bonds that lie in between
the two (such as those rated BBB).
Q: What is your outlook for the year ahead?
A: We believe that the bond market will remain unsettled well into 2000.
Economic reports should continue to have a significant impact on short-term
market movements as investors search for signs of incipient inflation. Until
there is a clearer indication that the Fed will be able to move away from its
current bias toward higher rates, we expect bond market performance to remain
volatile. As a result, we intend to maintain a neutral duration strategy until
the interest rate outlook stabilizes. In doing so, we intend to position the
portfolio to ride out the effects of further bond market volatility, while at
the same time providing the portfolio with the flexibility to increase the
fund's interest rate exposure once it becomes apparent that the Fed is finished
raising rates. Until that time, the fund's positioning should help mitigate the
effects of bond market volatility. We have increased the level of liquidity and
diversification in the portfolio, and are confident that the fund's mix of
corporate bonds, government issues, and mortgage-backed securities will provide
strong risk-adjusted returns going forward.
12
<PAGE>
APPENDIX 1
Trustee and Nominee Shareholdings
<PAGE>
APPENDIX 2
Beneficial Owners of Fund Shares
<PAGE>
This Proxy Statement/Prospectus is accompanied by Scudder Income
Fund's prospectus offering Class A, Class B, Class C and Class I shares dated
March 1, 2001, which was previously filed with the Securities and Exchange
Commission (the "Commission") via EDGAR on December 26, 2000 (File No. 811-
00042), and is incorporated by reference herein.
Kemper Income and Capital Preservation Fund's prospectus dated January
1, 2001, which was previously filed with the Commission via EDGAR on October 13,
2000 (File No. 811-02305), is incorporated by reference herein.
Scudder Income Fund's statement of additional information offering
Class A, Class B, Class C and Class I shares dated March 1, 2001, which was
previously filed with the Commission via EDGAR on December 26, 2000 (File No.
811-00042), is incorporated by reference herein.
<PAGE>
PART B
SCUDDER PORTFOLIO TRUST
----------------------------------------------------
Statement of Additional Information
March [ ], 2001
----------------------------------------------------
Acquisition of the Assets of By and in Exchange for Shares of
Kemper Income and Capital Preservation Fund, Scudder Income Fund, a series of
a series of Scudder Portfolio Trust
Kemper Income and Capital Preservation Fund (the "Acquiring Trust")
222 South Riverside Plaza Two International Place
Chicago, IL 60606 Boston, MA 02110-4103
This Statement of Additional Information is available to the
shareholders of Kemper Income and Capital Preservation Fund in connection with a
proposed transaction whereby Scudder Income Fund will acquire all or
substantially all of the assets and all of the liabilities of Kemper Income and
Capital Preservation Fund in exchange for shares of the Scudder Income Fund (the
"Reorganization").
This Statement of Additional Information of the Acquiring Trust
contains material which may be of interest to investors but which is not
included in the Proxy Statement/Prospectus of the Acquiring Trust relating to
the Reorganization. This Statement of Additional Information consists of this
cover page and the following documents:
1. Scudder Income Fund's statement of additional information offering
Class A, Class B, Class C and Class I shares dated March 1, 2001, which was
previously filed with the Securities and Exchange Commission (the "Commission")
via EDGAR on December 26, 2000 (File No. 811-00042) and is incorporated by
reference herein.
2. Scudder Income Fund's annual report to shareholders for the fiscal
year ended January 31, 2000, which was previously filed with the Commission via
EDGAR on March 29, 2000 (File No. 811-00042) and is incorporated by reference
herein.
3. Scudder Income Fund's semiannual report to shareholders for the period
ended July 31, 2000, which was previously filed with the Commission via EDGAR on
October 4, 2000 (File No. 811-00042) and is incorporated by reference herein.
4. Kemper Income and Capital Preservation Fund's prospectus dated January
1, 2001, which was previously filed with the Commission via EDGAR on October 13,
2000 (File No. 811-02305) and is incorporated by reference herein.
5. Kemper Income and Capital Preservation Fund's statement of additional
information dated January 1, 2001, which was previously filed with the
Commission via EDGAR on October 13, 2000 (File No. 811-02305) and is
incorporated by reference herein.
<PAGE>
6. Kemper Income and Capital Preservation Fund's annual report to
shareholders for the fiscal year ended October 31, 1999, which was previously
filed with the Commission via EDGAR on December 29, 1999 (File No. 811-02305)
and is incorporated by reference herein.
7. Kemper Income and Capital Preservation Fund's semiannual report to
shareholders for the period ended April 30, 2000, which was previously filed
with the Commission via EDGAR on June 29, 2000 (File No. 811-02305) and is
incorporated by reference herein.
8. The financial statements and schedules of Scudder Income Fund and
Kemper Income and Capital Preservation Fund required by Regulation S-X for the
periods specified in Article 3 thereof, which are filed herein.
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated March [ ], 2001 relating to the Reorganization may
be obtained by writing Kemper Income and Capital Preservation Fund at 222 South
Riverside Drive, Chicago, IL 60606 or by calling [ ] at 1-800-[ ].
This Statement of Additional Information should be read in conjunction with the
Proxy Statement/Prospectus.
<PAGE>
ANNEX A
The following is a description of the ratings given by Moody's and Standard
& Poor's to corporate and municipal bonds.
Ratings of Municipal and Corporate Bonds
Standard & Poor's Corporation:
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Moody's:
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
<PAGE>
great length of time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Standard & Poor's Corporation Earnings and Dividend Rankings for Common
Stocks
The investment process involves assessment of various factors -- such as
product and industry position, corporate resources and financial policy -- with
results that make some common stocks more highly esteemed than others. In this
assessment, Standard & Poor's Corporation believes that earnings and dividend
performance is the end result of the interplay of these factors and that, over
the long run, the record of this performance has a considerable bearing on
relative quality. The rankings, however, do not pretend to reflect all of the
factors, tangible or intangible, that bear on stock quality.
Relative quality of bonds or other debt, that is, degrees of protection for
principal and interest, called creditworthiness, cannot be applied to common
stocks, and therefore rankings are not to be confused with bond quality ratings
which are arrived at by a necessarily different approach.
Growth and stability of earnings and dividends are deemed key elements in
establishing Standard & Poor's earnings and dividend rankings for common stocks,
which are designed to capsulize the nature of this record in a single symbol. It
should be noted, however, that the process also takes into consideration certain
adjustments and modifications deemed desirable in establishing such rankings.
The point of departure in arriving at these rankings is a computerized
scoring system based on per-share earnings and dividend records of the most
recent ten years -- a period deemed long enough to measure significant time
segments of secular growth, to capture indications of basic change in trend as
they develop, and to encompass the full peak-to-peak range of the business
cycle. Basic scores are computed for earnings and dividends, then adjusted as
indicated by a set of predetermined modifiers for growth, stability within long-
term trend, and cyclicality. Adjusted scores for earnings and dividends are then
combined to yield a final score.
Further, the ranking system makes allowance for the fact that, in general,
corporate size imparts certain recognized advantages from an investment
standpoint. Conversely, minimum size limits (in terms of corporate sales volume)
are set for the various rankings, but the system provides for making exceptions
where the score reflects an outstanding earnings-dividend record.
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample of
stocks. The range of scores in the array of this sample has been aligned with
the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower
NR signifies no ranking because of insufficient data or because the stock
is not amenable to the ranking process.
<PAGE>
The positions as determined above may be modified in some instances by
special considerations, such as natural disasters, massive strikes, and non-
recurring accounting adjustments.
A ranking is not a forecast of future market price performance, but is
basically an appraisal of past performance of earnings and dividends, and
relative current standing. These rankings must not be used as market
recommendations; a high-score stock may at times be so overpriced as to justify
its sale, while a low-score stock may be attractively priced for purchase.
Rankings based upon earnings and dividend records are no substitute for complete
analysis. They cannot take into account potential effects of management
changes, internal company policies not yet fully reflected in the earnings and
dividend record, public relations standing, recent competitive shifts, and a
host of other factors that may be relevant to investment status and decision.
<PAGE>
<TABLE>
<CAPTION>
Scudder Scudder
Pro Forma Income Corp Bond
Portfolio of Investments Par/Share Par/Share
as of September 30, 2000 (Unaudited) Amount Amount
----------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS (3.0%)
----------------------------
Repurchase Agreement with State Street 34,232,000 2,668,000
Bank, 6.48%, 10/02/2000
Total Repurchase Agreements (Cost of $34,232,000, $2,668,000, $381,000, and
$37,281,000 respectively)
SHORT TERM INVESTMENTS (3.0%)
-----------------------------
Sara Lee Corp, 6.51%, 10/20/2000
Ford Motor Credit Co., 6.49%, 10/10/2000
BellSouth Telecommunications, 6.48%, 10/04/2000
Coca-Cola Co., 6.45%, 10/06/2000
FCar Owner Trust, 6.49%, 10/05/2000
Ford Motor Credit Co., 6.49%, 10/12/2000
General Electric Capital Corp., 6.48%, 10/11/2000
General Motors Acceptance Corp., 6.46%, 10/03/2000
Merrill Lynch & Co., 6.49%, 10/02/2000
Total Short Term Investments (Cost of $0, $0, $36,960,078, and
$36,960,078 respectively)
U.S. Treasury Obligations (18.6%)
---------------------------------
U.S. Treasury Bond, 6.125%, 08/15/2029 47,170,000 2,350,000
U.S. Treasury Bond, 6.25%, 05/15/2030 20,825,000 1,010,000
U.S. Treasury Bond, 6.50%, 02/15/2010
U.S. Treasury Note, 6.75%, 05/15/2005 57,265,000 1,100,000
U.S. Treasury Note, 5.75%, 08/15/2010 13,500,000 1,320,000
U.S. Treasury Note, 6.125%, 08/31/2002 6,400,000 325,000
Total U.S. Treasury Obligations (Cost of $147,412,175, $6,074,163,
$76,247,691, and $229,734,029 respectively)
U.S. Government Agency Pass-thrus (17.0%)
-----------------------------------------
Federal National Mortgage Association, 7.0%, 07/01/2030 16,250,000 750,000
Federal National Mortgage Association, 6.50% with various maturities to 09/01/2029 46,564,000 2,300,000
Federal National Mortgage Association, 7.0%, with various maturities to 09/01/2030 35,702,855
Federal National Mortgage Association, 7.0%, 08/01/2030 800,000
Federal National Mortgage Association, 7.0%, 03/01/2015 8,299,173 399,961
Federal National Mortgage Association, 7.50% with various maturitites to 01/01/2029 24,750,000 1,200,000
Federal National Mortgage Association, 8.0% with various maturities to 01/01/2030 14,580,495 699,519
Total U.S. Government Agency Pass-thrus (Cost of $143,678,283, $6,016,025, $63,362,409,
and $213,056,717 respectively)
Government National Mortagage Assocation (5.2%)
-----------------------------------------------
Government National Mortgage Association Pass-thru, 6.50%, 06/15/2028 6,567,456 326,198
Government National Mortgage Association Pass-thru, 7.0%, with various maturities 06/15/2029 10,662,955 1,398,860
Government National Mortgage Association Pass-thru 6.50% with various maturities to 12/01/2028 6,506,881
Government National Mortgage Association Pass-thru 6.50% with various maturities to 04/15/2029 301,477
Government National Mortgage Association Pass-thru 8.00% with various maturities to 12/01/2021 2,474,377 599,971
Total Government National Mortage Assocation (Cost of $35,924,777, $2,587,522, $27,033,082,
and $65,545,381 respectively)
Collateralized Mortgage Obligations (1.2%)
------------------------------------------
Residential Accredit Loans, Inc., Series 1997-a7, 7.25%, 11/25/2027 15,804,350
Total Collateralized Mortgage Obligations (Cost of $16,069,002, $0, $0, and $16,069,002 respectively)
Long-term Municipal Investments (1.0%)
--------------------------------------
Riverside Loan Trust I, 8.484%, 07/16/2008 15,000,000
Total Long Term Investments (Cost of $15,000,000, $0,$0, and $15,000,000 respectively)
Foreign Bonds-U.S. $ Denominated (2.6%)
---------------------------------------
Den Danske Bank, 6.375%, 06/15/2008
<CAPTION>
Kemper Pro Forma
Pro Forma Income & Cap Pres. Combined
Portfolio of Investments Par/Share Par/Share
as of September 30, 2000 (Unaudited) Amount Amount
------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS (3.0%)
----------------------------
Repurchase Agreement with State Street 381,000 37,281,000
Bank, 6.48%, 10/02/2000
Total Repurchase Agreements (Cost of $34,232,000, $2,668,000, $381,000, and
$37,281,000 respectively)
SHORT TERM INVESTMENTS (3.0%)
-----------------------------
Sara Lee Corp, 6.51%, 10/20/2000 4,000,000 4,000,000
Ford Motor Credit Co., 6.49%, 10/10/2000 2,000,000 2,000,000
BellSouth Telecommunications, 6.48%, 10/04/2000 3,000,000 3,000,000
Coca-Cola Co., 6.45%, 10/06/2000 5,000,000 5,000,000
FCar Owner Trust, 6.49%, 10/05/2000 5,000,000 5,000,000
Ford Motor Credit Co., 6.49%, 10/12/2000 1,000,000 1,000,000
General Electric Capital Corp., 6.48%, 10/11/2000 4,500,000 4,500,000
General Motors Acceptance Corp., 6.46%, 10/03/2000 5,000,000 5,000,000
Merrill Lynch & Co., 6.49%, 10/02/2000 7,500,000 7,500,000
Total Short Term Investments (Cost of $0, $0, $36,960,078, and
$36,960,078 respectively)
U.S. Treasury Obligations (18.6%)
---------------------------------
U.S. Treasury Bond, 6.125%, 08/15/2029 27,755,000 77,275,000
U.S. Treasury Bond, 6.25%, 05/15/2030 9,250,000 31,085,000
U.S. Treasury Bond, 6.50%, 02/15/2010 9,155,000 9,155,000
U.S. Treasury Note, 6.75%, 05/15/2005 21,725,000 80,090,000
U.S. Treasury Note, 5.75%, 08/15/2010 5,200,000 20,020,000
U.S. Treasury Note, 6.125%, 08/31/2002 3,000,000 9,725,000
Total U.S. Treasury Obligations (Cost of $147,412,175, $6,074,163,
$76,247,691, and $229,734,029 respectively)
U.S. Government Agency Pass-thrus (17.0%)
-----------------------------------------
Federal National Mortgage Association, 7.0%, 07/01/2030 8,200,000 25,200,000
Federal National Mortgage Association, 6.50% with various maturities to 09/01/2029 24,000,000 72,864,001
Federal National Mortgage Association, 7.0%, with various maturities to 09/01/2030 8,550,000 44,252,855
Federal National Mortgage Association, 7.0%, 08/01/2030 800,000
Federal National Mortgage Association, 7.0%, 03/01/2015 4,224,580 12,923,714
Federal National Mortgage Association, 7.50% with various maturitites to 01/01/2029 12,475,000 38,425,000
Federal National Mortgage Association, 8.0% with various maturities to 01/01/2030 7,309,855 22,589,869
Total U.S. Government Agency Pass-thrus (Cost of $143,678,283, $6,016,025, $63,362,409,
and $213,056,717 respectively)
Government National Mortagage Assocation (5.2%)
-----------------------------------------------
Government National Mortgage Association Pass-thru, 6.50%, 06/15/2028 3,305,475 10,199,129
Government National Mortgage Association Pass-thru, 7.0%, with various maturities 06/15/2029 14,500,000 26,561,815
Government National Mortgage Association Pass-thru 6.50% with various maturities to 12/01/2028 3,291,126 9,798,007
Government National Mortgage Association Pass-thru 6.50% with various maturities to 04/15/2029 301,477
Government National Mortgage Association Pass-thru 8.00% with various maturities to 12/01/2021 6,324,684 19,399,032
Total Government National Mortage Assocation (Cost of $35,924,777, $2,587,522, $27,033,082,
and $65,545,381 respectively)
Collateralized Mortgage Obligations (1.2%)
------------------------------------------
Residential Accredit Loans, Inc., Series 1997-a7, 7.25%, 11/25/2027 15,804,350
Total Collateralized Mortgage Obligations (Cost of $16,069,002, $0, $0, and $16,069,002 respectively)
Long-term Municipal Investments (1.0%) -
--------------------------------------
Riverside Loan Trust I, 8.484%, 07/16/2008 15,000,000
Total Long Term Investments (Cost of $15,000,000, $0, $0, and $15,000,000 respectively)
Foreign Bonds-U.S. $ Denominated (2.6%)
---------------------------------------
Den Danske Bank, 6.375%, 06/15/2008 4,125,000 4,125,000
<CAPTION>
Scudder Scudder
Pro Forma Income Corp Bond
Portfolio of Investments Market Market
as of September 30, 2000 (Unaudited) Value($) Value($)
--------------------------
<S>
REPURCHASE AGREEMENTS (3.0%)
----------------------------
Repurchase Agreement with State Street 34,232,000 2,668,000
Bank, 6.48%, 10/02/2000
--------------------------
Total Repurchase Agreements (Cost of $34,232,000, $2,668,000, $381,000, and
$37,281,000 respectively) 34,232,000 2,668,000
==========================
SHORT TERM INVESTMENTS (3.0%)
-----------------------------
Sara Lee Corp, 6.51%, 10/20/2000
Ford Motor Credit Co., 6.49%, 10/10/2000
BellSouth Telecommunications, 6.48%, 10/04/2000
Coca-Cola Co., 6.45%, 10/06/2000
FCar Owner Trust, 6.49%, 10/05/2000
Ford Motor Credit Co., 6.49%, 10/12/2000
General Electric Capital Corp., 6.48%, 10/11/2000
General Motors Acceptance Corp., 6.46%, 10/03/2000
Merrill Lynch & Co., 6.49%, 10/02/2000
--------------------------
Total Short Term Investments (Cost of $0, $0, $36,960,078, and
$36,960,078 respectively)
==========================
U.S. Treasury Obligations (18.6%)
---------------------------------
U.S. Treasury Bond, 6.125%, 08/15/2029 48,179,909 2,400,313
U.S. Treasury Bond, 6.25%, 05/15/2030 21,885,825 1,061,449
U.S. Treasury Bond, 6.50%, 02/15/2010
U.S. Treasury Note, 6.75%, 05/15/2005 59,323,104 1,139,534
U.S. Treasury Note, 5.75%, 08/15/2010 13,445,190 1,314,640
U.S. Treasury Note, 6.125%, 08/31/2002 6,409,024 325,458
--------------------------
Total U.S. Treasury Obligations (Cost of $147,412,175, $6,074,163,
$76,247,691, and $229,734,029 respectively) 149,243,052 6,241,394
==========================
U.S. Government Agency Pass-thrus (17.0%)
-----------------------------------------
Federal National Mortgage Association, 7.0%, 07/01/2030 16,524,138 762,652
Federal National Mortgage Association, 6.50% with various maturities to 09/01/2029 44,694,167 2,207,641
Federal National Mortgage Association, 7.0%, with various maturities to 09/01/2030 34,972,064
Federal National Mortgage Association, 7.0%, 08/01/2030 783,625
Federal National Mortgage Association, 7.0%, 03/01/2015 8,253,787 397,773
Federal National Mortgage Association, 7.50% with various maturitites to 01/01/2029 24,775,781 1,201,250
Federal National Mortgage Association, 8.0% with various maturities to 01/01/2030 14,810,770 710,576
--------------------------
Total U.S. Government Agency Pass-thrus (Cost of $143,678,283, $6,016,025, $63,362,409, 144,030,707 6,063,517
and $213,056,717 respectively) ==========================
Government National Mortagage Assocation (5.2%)
-----------------------------------------------
Government National Mortgage Association Pass-thru, 6.50%, 06/15/2028 6,329,386 314,373
Government National Mortgage Association Pass-thru, 7.0%, with various maturities 06/15/2029 10,503,811 1,378,229
Government National Mortgage Association Pass-thru 6.50% with various maturities to 12/01/2028 6,266,940
Government National Mortgage Association Pass-thru 6.50% with various maturities to 04/15/2029 290,359
Government National Mortgage Association Pass-thru 8.00% with various maturities to 12/01/2021 12,696,577 610,658
--------------------------
Total Government National Mortage Assocation (Cost of $35,924,777, $2,587,522, $27,033,082,
and $65,545,381 respectively) 35,796,714 2,593,619
==========================
Collateralized Mortgage Obligations (1.2%)
------------------------------------------
Residential Accredit Loans, Inc., Series 1997-a7, 7.25%, 11/25/2027 15,364,673
--------------------------
Total Collateralized Mortgage Obligations (Cost of $16,069,002, $0, $0, and $16,069,002 respectively) 15,364,673
==========================
Long-term Municipal Investments (1.0%)
--------------------------------------
Riverside Loan Trust I, 8.484%, 07/16/2008 12,308,730
--------------------------
Total Long Term Investments (Cost of $15,000,000, $0, $0, and $15,000,000 respectively) 12,308,730
==========================
Foreign Bonds-U.S. $ Denominated (2.6%)
---------------------------------------
Den Danske Bank, 6.375%, 06/15/2008
<CAPTION>
Kemper Pro Forma
Pro Forma Income & Cap Pres. Combined
Portfolio of Investments Market Market
as of September 30, 2000 (Unaudited) Value($) Value($)
-----------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS (3.0%)
----------------------------
Repurchase Agreement with State Street 381,000 37,281,000
Bank, 6.48%, 10/02/2000
-----------------------------
Total Repurchase Agreements (Cost of $34,232,000, $2,668,000, $381,000, and 381,000 37,281,000
$37,281,000 respectively) =============================
SHORT TERM INVESTMENTS (3.0%)
-----------------------------
Sara Lee Corp, 6.51%, 10/20/2000 3,986,256 3,986,256
Ford Motor Credit Co., 6.49%, 10/10/2000 1,996,755 1,996,755
BellSouth Telecommunications, 6.48%, 10/04/2000 2,998,380 2,998,380
Coca-Cola Co., 6.45%, 10/06/2000 4,995,520 4,995,520
FCar Owner Trust, 6.49%, 10/05/2000 4,996,394 4,996,394
Ford Motor Credit Co., 6.49%, 10/12/2000 998,016 998,016
General Electric Capital Corp., 6.48%, 10/11/2000 4,491,900 4,491,900
General Motors Acceptance Corp., 6.46%, 10/03/2000 4,998,205 4,998,205
Merrill Lynch & Co., 6.49%, 10/02/2000 7,498,647 7,498,647
----------------------------
Total Short Term Investments (Cost of $0, $0,$36,960,078, and
$36,960,078 respectively) 36,960,073 36,960,073
============================
U.S. Treasury Obligations (18.6%)
---------------------------------
U.S. Treasury Bond, 6.125%, 08/15/2029 28,349,234 78,929,456
U.S. Treasury Bond, 6.25%, 05/15/2030 9,721,195 32,668,469
U.S. Treasury Bond, 6.50%, 02/15/2010 9,539,784 9,539,784
U.S. Treasury Note, 6.75%, 05/15/2005 22,505,796 82,968,434
U.S. Treasury Note, 5.75%, 08/15/2010 5,178,888 19,938,718
U.S. Treasury Note, 6.125%, 08/31/2002 3,004,230 9,738,712
----------------------------
Total U.S. Treasury Obligations (Cost of $147,412,175, $6,074,163, 78,299,127 233,783,573
$76,247,691, and $229,734,029 respectively) ============================
U.S. Government Agency Pass-thrus (17.0%)
-----------------------------------------
Federal National Mortgage Association, 7.0%, 07/01/2030 8,338,334 25,625,124
Federal National Mortgage Association, 6.50% with various maturities to 09/01/2029 23,036,251 69,938,059
Federal National Mortgage Association, 7.0%, with various maturities to 09/01/2030 8,374,992 43,347,056
Federal National Mortgage Association, 7.0%, 08/01/2030 783,625
Federal National Mortgage Association, 7.0%, 03/01/2015 4,201,476 12,853,036
Federal National Mortgage Association, 7.50% with various maturitites to 01/01/2029 12,488,156 38,465,187
Federal National Mortgage Association, 8.0% with various maturities to 01/01/2030 7,425,601 22,946,947
----------------------------
Total U.S. Government Agency Pass-thrus (Cost of $143,678,283, $6,016,025, $63,362,409, 63,864,810 213,959,034
and $213,056,717 respectively) ============================
Government National Mortagage Assocation (5.2%)
-----------------------------------------------
Government National Mortgage Association Pass-thru, 6.50%, 06/15/2028 3,185,651 9,829,410
Government National Mortgage Association Pass-thru, 7.0%, with various maturities 06/15/2029 14,287,139 26,169,179
Government National Mortgage Association Pass-thru 6.50% with various maturities to 12/01/2028 3,169,765 9,436,705
Government National Mortgage Association Pass-thru 6.50% with various maturities to 04/15/2029 290,359
Government National Mortgage Association Pass-thru 8.00% with various maturities to 12/01/2021 6,437,342 19,744,577
----------------------------
Total Government National Mortage Assocation (Cost of $35,924,777, $2,587,522, $27,033,082, 27,079,897 65,470,230
and $65,545,381 respectively) ============================
Collateralized Mortgage Obligations (1.2%)
------------------------------------------
Residential Accredit Loans, Inc., Series 1997-a7, 7.25%, 11/25/2027 15,364,673
----------------------------
Total Collateralized Mortgage Obligations (Cost of $16,069,002, $0,$0, and $16,069,002 respectively) 15,364,673
============================
Long-term Municipal Investments (1.0%)
--------------------------------------
Riverside Loan Trust I, 8.484%, 07/16/2008 12,308,730
----------------------------
Total Long Term Investments (Cost of $15,000,000, $0, $0, and $15,000,000 respectively) 12,308,730
============================
Foreign Bonds-U.S. $ Denominated (2.6%)
---------------------------------------
Den Danske Bank, 6.375%, 06/15/2008 4,056,071 4,056,071
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Province of Quebec, 8.625%, 01/19/2005
Repsol International Finance, 7.45%, 07/15/2005 8,600,000 400,000
PacifiCorp Australia LLC, 6.15%, 01/15/2008 11,000,000 1,000,000
Total Foreign Bonds-U.S. $ Denominated (Cost of $19,554,738, $1,398,342, $13,413,749,
and $34,366,829 respectively)
Asset Backed (1.9%)
--------------------------------------------------
AUTOMOBILE RECEIVABLES Daimler Chrysler Auto Trust 2000-C, 6.82%, 09/06/2004 4,975,000 250,000
First Security Auto Owner Trust, Series 1999-2 A3, 6.00%, 10/15/2003 8,585,879 476,993
CREDIT CARD RECEIVABLES Citibank Credit Card Issuance Trust 2000-A1, 6.90%, 10/17/2007 4,350,000 225,000
HOME EQUITY LOANS First Plus Residential Trust Series 1998A, 8.50%, 05/15/2023 1,361,524
MANUFACTURED HOUSING RECEIVABLES Green Tree Financial Corp. Series 1997-2 B2, 8.05%, 06/15/2028 483,449
Total Asset Backed (Cost of $19,744,706, $951,841, $4,698,524, and $25,395,071 respectively)
Corporate Bonds (46.5%)
--------------------------------------------------
COMMUNICATIONS Deutsch Telekom Int Fin, 7.75%, 06/15/2005 7,550,000 375,000
Level 3 Communications Inc., 9.125%, 05/01/2008 2,000,000 250,000
Nextel Communications, 9.375%, 11/15/2009 5,650,000 250,000
Qwest Communications International, 7.50%, 11/01/2008 8,300,000 400,000
Sprint Capital Corp., 6.125%, 11/15/2008 8,575,000 425,000
Vodafone Airtouch PLC, 6.25%, 02/15/2010 8,300,000 400,000
CONSUMER DISCRETIONARY MGM Grand Inc., 9.75%, 06/01/2007 800,000 175,000
MGM Grand Inc., 9.75%, 06/01/2007 2,900,000
Park Place Entertainment, Inc., 11/15/2006 2,450,000 100,000
Tricon Global Restaurants, 7.65%, 05/15/2008 5,600,000 450,000
CONSUMER STAPLES Bass North America Inc., 6.625%, 03/01/2003 11,000,000 500,000
The Great Atlantic & Pacific Tea Co., Inc., 7.70%, 01/15/2004 3,000,000 1,000,000
Safeway Inc., 7.25%, 09/15/2004 8,600,000 375,000
DURABLES Daimler-Chrysler NA Holdings, 7.375%, 09/15/2006 4,150,000 200,000
ENERGY Barrett Resources Corp., 7.55%, 02/01/2007 8,200,000 300,000
Conoco, Inc., 6.35%, 04/15/2009 8,550,000 425,000
Louis Dreyfus Natural Gas Corp., 6.875%, 12/01/2007 2,500,000 500,000
Petroleum Geo-Services, 7.50%, 03/31/2007 7,700,000 400,000
Phillips Petroleum Co., 8.75%, 05/25/2010 8,600,000 425,000
Pioneer Natural Resources, 9.625%, 04/01/2010 8,825,000 400,000
Texas Eastern Transmission Corp., 10.0%, 08/15/2001 7,500,000 500,000
Williams Gas Pipeline Center, 7.375, 11/15/2006 4,175,000 150,000
FINANCIAL ABN AMRO, 8.25%, 08/01/2009
Bank of America Corp., 7.80%, 02/15/2010 8,600,000 425,000
Bank United Capital Trust, 10.25%, 12/31/2026 4,250,000
Bank United Capital Trust, Series B, 10.25%, 12/31/2026 250,000
Bell Atlantic Financial Services, 7.60%, 03/15/2007 1,400,000 300,000
Bell Atlantic Financial Services, 7.60%, 03/15/2007 5,000,000
Chase Manhattan Corp., 5.75%, 04/15/2004 8,300,000 400,000
Crestar Financial Corp., 8.75%, 11/15/2004
Firststar Bank, 7.125%, 12/01/2009 1,100,000 200,000
Firststar Bank, 7.125%, 12/01/2009 4,900,000
FleetBoston Financial Corp. Series 2000-C, 7.25%, 09/15/2005 7,275,000 350,000
GS Escrow Corp., 7.00%, 08/01/2003 9,000,000
General Electric Capital Corp., 7.00%, 02/03/2003 9,450,000 425,000
General Motors Acceptance Corp., 6.15%, 04/05/2007 5,600,000 400,000
General Motors Acceptance Corp., 6.15%, 04/05/2007 2,700,000
Goldman Sachs Group, Inc., 7.80%, 01/28/2010 8,600,000 425,000
MBNA Master Credit Card Trust, 6.90%, 01/15/2008 10,325,000 500,000
Merrill Lynch & Co., Inc., 6.00%, 02/17/2009 8,750,000 400,000
National Westminster Bank, 7.375%, 10/01/2009 8,300,000 400,000
PNC Funding Corp., 7.00%, 09/01/2004 5,500,000 200,000
<CAPTION>
<S> <C> <C>
Province of Quebec, 8.625%, 01/19/2005 4,500,000 4,500,000
Repsol International Finance, 7.45%, 07/15/2005 4,350,000 13,350,000
PacifiCorp Australia LLC, 6.15%, 01/15/2008 12,000,000
Total Foreign Bonds-U.S.$Denominated (Cost of $19,554,738, $1,398,342, $13,413,749,
and $34,366,829 respectively)
Asset Backed (1.9%)
--------------------------------------------------
AUTOMOBILE RECEIVABLES Daimler Chrysler Auto Trust 2000-C, 6.82%, 09/06/2004 2,525,000 7,750,000
First Security Auto Owner Trust, Series 1999-2 A3, 6.00%, 10/15/2003 9,062,872
CREDIT CARD RECEIVABLES Citibank Credit Card Issuance Trust 2000-A1, 6.90%, 10/17/2007 2,175,000 6,750,000
HOME EQUITY LOANS First Plus Residential Trust Series 1998A, 8.50%, 05/15/2023 1,361,524
MANUFACTURED HOUSING RECEIVABLES Green Tree Financial Corp. Series 1997-2 B2, 8.05%, 06/15/2028 483,449
Total Asset Backed (Cost of $19,744,706, $951,841, $4,698,524, and $25,395,071 respectively)
Corporate Bonds (46.5%)
--------------------------------------------------
COMMUNICATIONS Deutsch Telekom Int Fin, 7.75%, 06/15/2005 3,725,000 11,650,000
Level 3 Communications Inc., 9.125%, 05/01/2008 2,250,000
Nextel Communications, 9.375%, 11/15/2009 3,000,000 8,900,000
Qwest Communications International, 7.50%, 11/01/2008 4,100,000 12,800,000
Sprint Capital Corp., 6.125%, 11/15/2008 4,250,000 13,250,000
Vodafone Airtouch PLC, 6.25%, 02/15/2010 4,100,000 12,800,000
CONSUMER DISCRETIONARY MGM Grand Inc., 9.75%, 06/01/2007 1,850,000 2,825,000
MGM Grand Inc., 9.75%, 06/01/2007 2,900,000
Park Place Entertainment, Inc., 11/15/2006 1,200,000 3,750,000
Tricon Global Restaurants, 7.65%, 05/15/2008 2,900,000 8,950,000
CONSUMER STAPLES Bass North America Inc., 6.625%, 03/01/2003 1,800,000 13,300,000
The Great Atlantic & Pacific Tea Co., Inc., 7.70%, 01/15/2004 4,000,000
Safeway Inc., 7.25%, 09/15/2004 4,500,000 13,475,000
DURABLES Daimler-Chrysler NA Holdings, 7.375%, 09/15/2006 2,050,000 6,400,000
ENERGY Barrett Resources Corp., 7.55%, 02/01/2007 8,500,000
Conoco, Inc., 6.35%, 04/15/2009 4,275,000 13,250,000
Louis Dreyfus Natural Gas Corp., 6.875%, 12/01/2007 3,000,000
Petroleum Geo-Services, 7.50%, 03/31/2007 4,100,000 12,200,000
Phillips Petroleum Co., 8.75%, 05/25/2010 4,275,000 13,300,000
Pioneer Natural Resources, 9.625%, 04/01/2010 4,650,000 13,875,000
Texas Eastern Transmission Corp., 10.0%, 08/15/2001 8,000,000
Williams Gas Pipeline Center, 7.375, 11/15/2006 2,525,000 6,850,000
FINANCIAL ABN AMRO, 8.25%, 08/01/2009 7,000,000 7,000,000
Bank of America Corp., 7.80%, 02/15/2010 4,275,000 13,300,000
Bank United Capital Trust, 10.25%, 12/31/2026 4,250,000
Bank United Capital Trust, Series B, 10.25%, 12/31/2026 250,000
Bell Atlantic Financial Services, 7.60%, 03/15/2007 3,500,000 5,200,000
Bell Atlantic Financial Services, 7.60%, 03/15/2007 5,000,000
Chase Manhattan Corp., 5.75%, 04/15/2004 4,100,000 12,800,000
Crestar Financial Corp., 8.75%, 11/15/2004 5,000,000 5,000,000
Firststar Bank, 7.125%, 12/01/2009 4,300,000 5,600,000
Firststar Bank, 7.125%, 12/01/2009 4,900,000
FleetBoston Financial Corp. Series 2000-C, 7.25%, 09/15/2005 3,675,000 11,300,000
GS Escrow Corp., 7.00%, 08/01/2003 9,000,000
General Electric Capital Corp., 7.00%, 02/03/2003 5,000,000 14,875,000
General Motors Acceptance Corp., 6.15%, 04/05/2007 4,100,000 10,100,000
General Motors Acceptance Corp., 6.15%, 04/05/2007 2,700,000
Goldman Sachs Group, Inc., 7.80%, 01/28/2010 4,275,000 13,300,000
MBNA Master Credit Card Trust, 6.90%, 01/15/2008 5,200,000 16,025,000
Merrill Lynch & Co., Inc., 6.00%, 02/17/2009 4,100,000 13,250,000
National Westminster Bank, 7.375%, 10/01/2009 4,150,000 12,850,000
PNC Funding Corp., 7.00%, 09/01/2004 2,900,000 8,600,000
<CAPTION>
<S> <C> <C>
Province of Quebec, 8.625%, 01/19/2005
Repsol International Finance, 7.45%, 07/15/2005 8,693,310 404,340
PacifiCorp Australia LLC, 6.15%, 01/15/2008 10,260,470 932,770
-------------------------
Total Foreign Bonds-U.S. $ Denominated (Cost of $19,554,738, $1,398,342, $13,413,749, and $34,366,829
respectively) 18,953,780 1,337,110
=========================
Asset Backed (1.9%)
--------------------------------------------------
AUTOMOBILE RECEIVABLES Daimler Chrysler Auto Trust 2000-C, 6.82%, 09/06/2004 4,981,034 250,303
First Security Auto Owner Trust, Series 1999-2 A3, 6.00%, 10/15/2003 8,526,567 473,698
-------------------------
13,507,601 724,001
=========================
CREDIT CARD RECEIVABLES Citibank Credit Card Issuance Trust 2000-A1, 6.90%, 10/17/2007 4,359,515 225,492
-------------------------
4,359,515 225,492
=========================
HOME EQUITY LOANS First Plus Residential Trust Series 1998A, 8.50%, 05/15/2023 544,609
-------------------------
544,609
=========================
MANUFACTURED HOUSING RECEIVABLES Green Tree Financial Corp. Series 1997-2 B2, 8.05%, 06/15/2028 223,444
-------------------------
Total Asset Backed (Cost of $19,744,706, $951,841, $4,698,524, and $25,395,071 respectively) 223,444
=========================
Corporate Bonds (46.5%)
--------------------------------------------------
COMMUNICATIONS Deutsch Telekom Int Fin, 7.75%, 06/15/2005 7,681,143 381,513
Level 3 Communications Inc., 9.125%, 05/01/2008 1,710,000 213,750
Nextel Communications, 9.375%, 11/15/2009 5,558,187 245,937
Qwest Communications International, 7.50%, 11/01/2008 8,195,420 394,960
Sprint Capital Corp., 6.125%, 11/15/2008 7,745,797 383,902
Vodafone Airtouch PLC, 6.25%, 02/15/2010 8,447,242 407,096
-------------------------
39,337,789 2,027,158
=========================
CONSUMER DISCRETIONARY MGM Grand Inc.,9.75%, 06/01/2007 826,000 180,687
MGM Grand Inc.,9.75%, 06/01/2007 2,994,250
Park Place Entertainment, Inc., 11/15/2006 2,472,883 100,934
Tricon Global Restaurants, 7.65%, 05/15/2008 5,276,712 424,021
-------------------------
11,569,845 705,642
=========================
CONSUMER STAPLES Bass North America Inc., 6.625%, 03/01/2003 10,766,250 489,375
The Great Atlantic & Pacific Tea Co., Inc., 7.70%, 01/15/2004 2,904,030 968,010
Safeway Inc., 7.25%, 09/15/2004 8,583,832 374,295
-------------------------
22,254,112 1,831,680
=========================
DURABLES Daimler-Chrysler NA Holdings, 7.375%, 09/15/2006 4,137,342 199,390
-------------------------
4,137,342 199,390
=========================
ENERGY Barrett Resources Corp., 7.55%, 02/01/2007 7,728,500 282,750
Conoco, Inc., 6.35%, 04/15/2009 8,102,322 402,747
Louis Dreyfus Natural Gas Corp., 6.875%, 12/01/2007 2,388,950 477,790
Petroleum Geo-Services, 7.50%, 03/31/2007 7,583,576 393,952
Phillips Petroleum Co., 8.75%, 05/25/2010 9,340,288 461,584
Pioneer Natural Resources, 9.625%, 04/01/2010 9,354,500 424,000
Texas Eastern Transmission Corp., 10.0%, 08/15/2001 7,655,625 510,375
Williams Gas Pipeline Center, 7.375, 11/15/2006 4,152,914 149,206
-------------------------
56,306,675 3,102,404
=========================
FINANCIAL ABN AMRO, 8.25%, 08/01/2009
Bank of America Corp., 7.80%, 02/15/2010 8,827,641 436,249
Bank United Capital Trust, 10.25%, 12/31/2026 3,310,750
Bank United Capital Trust, Series B, 10.25%, 12/31/2026 194,750
Bell Atlantic Financial Services, 7.60%, 03/15/2007 1,425,802 305,529
Bell Atlantic Financial Services, 7.60%, 03/15/2007 5,092,150
Chase Manhattan Corp., 5.75% ,04/15/2004 7,975,885 384,380
Crestar Financial Corp.,8.75%, 11/15/2004
Firststar Bank, 7.125%, 12/01/2009 1,076,350 195,700
Firststar Bank, 7.125%, 12/01/2009 4,794,650
FleetBoston Financial Corp. Series 2000-C, 7.25%, 09/15/2005 7,324,251 352,369
GS Escrow Corp., 7.00%, 08/01/2003 8,570,160
General Electric Capital Corp., 7.00%, 02/03/2003 9,516,055 427,970
General Motors Acceptance Corp., 6.15%, 04/05/2007 5,224,352 373,168
General Motors Acceptance Corp., 6.15%, 04/05/2007 2,518,884
Goldman Sachs Group, Inc., 7.80%, 01/28/2010 8,751,446 432,484
MBNA Master Credit Card Trust, 6.90%, 01/15/2008 10,383,078 502,812
Merrill Lynch & Co., Inc., 6.00%, 02/17/2009 8,002,400 365,824
National Westminster Bank, 7.375%, 10/01/2009 8,221,731 396,228
PNC Funding Corp., 7.00%, 09/01/2004 5,443,130 197,932
<CAPTION>
<S> <C> <C>
Province of Quebec, 8.625%, 01/19/2005 4,797,630 4,797,630
Repsol International Finance, 7.45%, 07/15/2005 4,397,197 13,494,847
PacifiCorp Australia LLC, 6.15%, 01/15/2008 11,193,240
---------------------------
Total Foreign Bonds-U.S. $ Denominated (Cost of $19,554,738, $1,398,342, $13,413,749, and $34,366,829
respectively) 13,250,898 33,541,788
===========================
Asset Backed (1.9%)
--------------------------------------------------
AUTOMOBILE RECEIVABLES Daimler Chrysler Auto Trust 2000-C, 6.82%, 09/06/2004 2,528,062 7,759,399
First Security Auto Owner Trust,Series 1999-2 A3, 6.00%,10/15/2003 9,000,265
---------------------------
2,528,062 16,759,664
===========================
CREDIT CARD RECEIVABLES Citibank Credit Card Issuance Trust 2000-A1, 6.90%, 10/17/2007 2,179,757 6,764,764
---------------------------
2,179,757 6,764,764
===========================
HOME EQUITY LOANS First Plus Residential Trust Series 1998A, 8.50%, 05/15/2023 544,609
---------------------------
544,609
===========================
MANUFACTURED HOUSING RECEIVABLES Green Tree Financial Corp. Series 1997-2 B2, 8.05%, 06/15/2028 223,444
---------------------------
Total Asset Backed (Cost of $19,744,706, $951,841, $4,698,524, and $25,395,071 respectively) 223,444
===========================
Corporate Bonds (46.5%)
--------------------------------------------------
COMMUNICATIONS Deutsch Telekom Int Fin, 7.75%, 06/15/2005 3,789,703 11,852,359
Level 3 Communications Inc., 9.125%, 05/01/2008 1,923,750
Nextel Communications, 9.375%, 11/15/2009 2,951,250 8,755,374
Qwest Communications International, 7.50%, 11/01/2008 4,048,340 12,638,720
Sprint Capital Corp., 6.125%, 11/15/2008 3,839,025 11,968,724
Vodafone Airtouch PLC, 6.25%, 02/15/2010 4,172,734 13,027,072
---------------------------
18,801,052 60,165,999
===========================
CONSUMER DISCRETIONARY MGM Grand Inc., 9.75%, 06/01/2007 1,910,125 2,916,812
MGM Grand Inc., 9.75%, 06/01/2007 2,994,250
Park Place Entertainment, Inc., 11/15/2006 1,211,208 3,785,025
Tricon Global Restaurants, 7.65%, 05/15/2008 2,732,583 8,433,316
---------------------------
5,853,916 18,129,403
===========================
CONSUMER STAPLES Bass North America Inc., 6.625%, 03/01/2003 1,761,750 13,017,375
The Great Atlantic & Pacific Tea Co., Inc., 7.70%, 01/15/2004 3,872,040
Safeway Inc., 7.25%, 09/15/2004 4,491,540 13,449,667
---------------------------
6,253,290 30,339,082
===========================
DURABLES Daimler-Chrysler NA Holdings, 7.375%, 09/15/2006 2,043,747 6,380,479
---------------------------
2,043,747 6,380,479
===========================
ENERGY Barrett Resources Corp., 7.55%, 02/01/2007 8,011,250
Conoco, Inc., 6.35%, 04/15/2009 4,051,161 12,556,230
Louis Dreyfus Natural Gas Corp., 6.875%, 12/01/2007 2,866,740
Petroleum Geo-Services, 7.50%, 03/31/2007 4,038,008 12,015,536
Phillips Petroleum Co., 8.75%, 05/25/2010 4,642,992 14,444,864
Pioneer Natural Resources, 9.625%, 04/01/2010 4,929,000 14,707,500
Texas Eastern Transmission Corp., 10.0%, 08/15/2001 8,166,000
Williams Gas Pipeline Center, 7.375, 11/15/2006 2,511,642 6,813,762
---------------------------
20,172,803 79,581,882
===========================
FINANCIAL ABN AMRO, 8.25%, 08/01/2009 7,115,430 7,115,430
Bank of America Corp., 7.80%, 02/15/2010 4,388,159 13,652,049
Bank United Capital Trust, 10.25%, 12/31/2026 3,310,750
Bank United Capital Trust, Series B, 10.25%, 12/31/2026 194,750
Bell Atlantic Financial Services, 7.60%, 03/15/2007 3,564,505 5,295,836
Bell Atlantic Financial Services, 7.60%, 03/15/2007 5,092,150
Chase Manhattan Corp., 5.75% ,04/15/2004 3,939,895 12,300,160
Crestar Financial Corp., 8.75%, 11/15/2004 5,262,200 5,262,200
Firststar Bank, 7.125%, 12/01/2009 4,207,550 5,479,600
Firststar Bank, 7.125%, 12/01/2009 4,794,650
FleetBoston Financial Corp. Series 2000-C, 7.25%, 09/15/2005 3,699,879 11,376,499
GS Escrow Corp., 7.00%, 08/01/2003 8,570,160
General Electric Capital Corp., 7.00%, 02/03/2003 5,034,950 14,978,975
General Motors Acceptance Corp., 6.15%, 04/05/2007 3,824,972 9,422,492
General Motors Acceptance Corp., 6.15%, 04/05/2007 2,518,884
Goldman Sachs Group, Inc., 7.80%, 01/28/2010 4,350,282 13,534,212
MBNA Master Credit Card Trust, 6.90%, 01/15/2008 5,229,250 16,115,140
Merrill Lynch & Co., Inc., 6.00%, 02/17/2009 3,749,696 12,117,920
National Westminster Bank, 7.375%, 10/01/2009 4,110,865 12,728,824
PNC Funding Corp., 7.00%, 09/01/2004 2,870,014 8,511,076
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
PNC Funding Corp., 7.50%, 11/01/2009 3,300,000 150,000 1,600,000 5,050,000
Prudential Insurance Co., 6.375%, 07/23/2006 12,000,000 1,000,000 13,000,000
Wells Fargo Company, 7.25%, 08/24/2005 8,600,000 450,000 4,300,000 13,350,000
MANUFACTURING Dow Chemical Co., 7.00%, 08/15/200 8,300,000 400,000 4,100,000 12,800,000
International Paper Co., 8.125%, 07/08/2005 1,875,000 425,000 4,325,000 6,625,000
International Paper Co., 8.125%, 07/08/2005 6,825,000 6,825,000
MEDIA British Sky Broadcasting, 6.875%, 02/23/2009 9,950,000 400,000 5,200,000 15,550,000
Cablevision Systems Corp., 7.875%, 12/15/2007 9,610,000 475,000 8,000,000 18,085,000
AMFM., 8.00%, 11/01/2008 2,750,000 500,000 4,450,000 7,700,000
AMFM., 8.00%, 11/01/2008 6,000,000 6,000,000
Charter Communications Holdings LLC, 8.25%, 04/01/2007 9,500,000 500,000 4,250,000 14,250,000
News America Holdings, Inc., 9.25%, 02/01/2013 8,300,000 400,000 4,100,000 12,800,000
Outdoor Systems, Inc., 8.875%, 06/15/2007 11,000,000 250,000 11,250,000
Time Warner Inc., 9.125%, 01/15/2013 6,500,000 400,000 4,100,000 11,000,000
Time Warner Inc., 9.125%, 01/15/2013 1,000,000 1,000,000
TRANSPORTATION Delta Air Lines, 7.90%, 12/15/2009 2,500,000 100,000 1,350,000 3,950,000
UTILITIES Alabama Power Co., 7.125%, 08/15/2004 2,500,000 500,000 3,500,000 6,500,000
Calpine Corp, 7.75%, 04/15/2009 4,185,000 220,000 2,415,000 6,820,000
Calpine Corp, 8.625%, 08/15/2010 3,815,000 105,000 1,585,000 5,505,000
Cleveland Electric Illumination Co., 7.67%, 07/01/2004 8,600,000 600,000 5,900,000 15,100,000
Detroit Edison Co., 7.50%, 02/01/2005 8,600,000 375,000 4,300,000 13,275,000
Niagara Mohawk Power Corp., 6.625%, 07/01/2005 2,000,000 400,000 4,750,000 7,150,000
Niagara Mohawk Power Corp., 6.625%, 07/01/2005 7,250,000 7,250,000
Total Corporate Bonds (Cost of $385,455,986, $20,202,123, $181,104,822,
and $586,762,931 respectively
TOTAL INVESTMENT PORTFOLIO (Cost of $817,071,667, $39,898,106,
$403,201, 355, and $1,260,171,128 respectively
<CAPTION>
Funding Corp., 7.50%, 11/01/2009 3,297,195 149,872 1,598,640 5,045,707
Prudential Insurance Co., 6.375%, 07/23/2006 11,442,480 953,540 12,396,020
Wells Fargo Company, 7.25%, 08/24/2005 8,689,870 454,702 4,344,935 13,489,507
----------------------------------------------------------
129,888,260 6,123,509 67,291,222 203,302,991
==========================================================
MANUFACTURING Dow Chemical Co., 7.00%, 08/15/200 8,352,124 402,512 4,125,748 12,880,384
International Paper Co., 8.125%, 07/08/2005 1,936,725 438,991 4,467,379 6,843,095
International Paper Co., 8.125%, 07/08/2005 7,049,679 7,049,679
----------------------------------------------------------
17,338,528 841,503 8,593,127 26,773,158
==========================================================
MEDIA British Sky Broadcasting, 6.875%, 02/23/2009 8,637,296 347,228 4,513,964 13,498,488
Cablevision Systems Corp., 7.875%, 12/15/2007 9,273,650 458,375 7,720,000 17,452,025
AMFM., 8.00%, 11/01/2008 2,780,937 505,625 4,500,062 7,786,624
AMFM., 8.00%, 11/01/2008 6,067,500 6,067,500
Charter Communications Holdings LLC, 8.25%, 8,550,000 450,000 3,825,000 12,825,000
News America Holdings, Inc., 9.25%, 02/01/2013 9,084,101 437,788 4,487,327 14,009,216
Outdoor Systems, Inc., 8.875%, 06/15/2007 11,288,750 256,562 11,545,312
Time Warner Inc., 9.125%, 01/15/2013 7,292,155 448,748 4,599,667 12,340,570
Time Warner Inc., 9.125%, 01/15/2013 1,121,870 1,121,870
----------------------------------------------------------
64,096,259 2,904,326 29,646,020 96,646,605
==========================================================
TRANSPORTATION Delta Air Lines, 7.90%, 12/15/2009 2,386,450 95,458 1,288,683 3,770,591
----------------------------------------------------------
2,386,450 95,458 1,288,683 3,770,591
==========================================================
UTILITIES Alabama Power Co., 7.125%, 08/15/2004 2,511,725 502,341 3,516,415 6,530,481
Calpine Corp, 7.75%, 04/15/2009 3,968,802 208,634 2,290,241 6,467,677
Calpine Corp, 8.625%, 08/15/2010 3,803,745 104,690 1,580,324 5,488,759
Cleveland Electric Illumination Co., 7.67%, 07/01/2004 8,676,712 605,352 5,952,628 15,234,692
Detroit Edison Co., 7.50%, 02/01/2005 8,646,096 377,010 4,323,048 13,346,154
Niagara Mohawk Power Corp., 6.625%, 07/01/2005 1,936,800 387,378 4,599,917 6,924,095
Niagara Mohawk Power Corp., 6.625%, 07/01/2005 7,020,914 7,020,914
----------------------------------------------------------
Total Corporate Bonds (Cost of $385,455,986, $20,202,123,
$181,104,822, and $586,762,931 respectively) 36,564,794 2,185,405 22,262,573 61,012,772
==========================================================
--------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO (Cost of $817,071,667, $39,898,106,
$403,201,355, and $1,260,171,128 respectively) 812,444,879 39,869,608 406,750,057 1,259,064,544
====================================================================
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Scudder Scudder Corporate Kemper Income & Pro Forma Pro Forma
Income Bond Capital Preservation Adjustments Combined
--------------- ------------------ -------------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Investments, at value $ 812,444,879 $ 39,869,608 $ 406,750,057 $1,259,064,544
Cash 676,609 26,097 213,694 $ 916,400
Other assets less liabilities 5,303,189 456,534 4,715,044 $ - (2) $ 10,474,767
------------- ------------ ------------- ------------ --------------
Total Net assets $ 818,424,677 $ 40,352,239 $ 411,678,795 $ - $1,270,455,711
============= ============ ============= ============ ==============
Net Assets
Class S Shares $ 639,400,340 $ 40,352,239 $ 679,752,579
Class AARP Shares $ 179,024,337 $ 179,024,337
Class A Shares $ 308,849,706 $ 308,849,706
Class B Shares $ 77,495,608 $ 77,495,608
Class C Shares $ 19,108,803 $ 19,108,803
Class I Shares $ 6,224,678 $ 6,224,678
Shares Outstanding
Class S Shares 52,003,479 3,554,485 (273,815) 55,284,149
Class AARP Shares 14,564,301 14,564,301
Class A Shares 38,637,583 (13,527,851) 25,109,732
Class B Shares 9,736,221 (3,435,765) 6,300,456
Class C Shares 2,391,283 (837,722) 1,553,561
Class I Shares 779,900 (273,829) 506,071
Net Asset Value per Share
Class S Shares $ 12.30 $ 11.35 12.30
Class AARP Shares $ 12.29 12.29
Class A Shares 7.99 12.30
Class B Shares 7.96 12.30
Class C Shares 7.99 12.30
Class I Shares 7.98 12.30
</TABLE>
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Kemper Income &
Scudder Scudder Capital Pro Forma Pro Forma
Income Corporate Bond Preservation Adjustments Combined
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest and dividend income $ 54,455,101 2,918,569 33,137,606 $ - $ 90,511,276
-------------------------------------------------------------------------------
Total Investment Income 54,455,101 2,918,569 33,137,606 90,511,276
Expenses
Management fees 4,282,831 265,219 2,394,927 (651,132) (3) 6,291,845
12B-1 - - 1,804,815 1,804,815
Trustees Fees 88,561 37,938 24,961 - (4) 151,460
All other expenses 6,025,488 445,124 1,386,466 (4,099,992) (5) 3,757,086
-------------------------------------------------------------------------------
Total expenses before reductions 10,396,880 748,281 5,611,169 (4,751,124) 12,005,206
Expense reductions (3,151,532) (739,387) - 3,712,092 (6) (178,827)
-------------------------------------------------------------------------------
Expenses, net 7,245,348 8,894 5,611,169 (1,039,032) 11,826,379
-------------------------------------------------------------------------------
Net investment income (loss) 47,209,753 2,909,675 27,526,437 1,039,032 78,684,897
-------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain (loss) from investments (45,145,178) (2,085,465) (37,204,391) -- (84,435,034)
Net unrealized appreciation (depreciation)
of investments 33,926,789 1,857,915 28,703,222 -- 64,487,926
-------------------------------------------------------------------------------
Net increase in net assets from operations $ 35,991,364 $ 2,682,125 $ 19,025,268 $ 1,039,032 $ 58,737,789
===============================================================================
</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 Scudder Income Fund, Scudder
Corporate Bond Fund and Kemper Income & Capital Preservation 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, $xxxxx and $xxxxxx to be borne by Scudder Income
Fund, Scudder Corporate Bond Fund and the Fund, respectively.
3. Represents reduction in management fees resulting from the utilization of
Scudder Income Fund's a new investment management agreement for the entire
year.
4. Reduction in trustee fees resulting from the Reorganization.
5. Represents reduction in other expenses resulting from the utilization of
Scudder Income Fund's administration fee for the entire year.
6. Reflects adjustment for fee waivers currently in effect.
<PAGE>
PART C. OTHER INFORMATION
Item 15. Indemnification.
-------- ----------------
A policy of insurance covering Scudder Kemper Investments,
Inc., its affiliates including Scudder Investor Services, Inc.,
and all of the registered investment companies advised by
Scudder Kemper Investments, Inc. insures the Registrant's
Trustees and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent
act, error or accidental omission in the scope of their duties.
Article IV Sections 4.1 - 4.3 of Registrant's Declaration of
Trust provide as follows:
Section 4.1. No personal Liability of Shareholders, Trustees,
etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or
the acts, obligations or affairs of the Trust. No Trustee,
officer, employee or agent of the Trust shall be subject to any
personal liability whatsoever to any Person, other than to the
Trust or its Shareholders, in connection with Trust Property or
the affairs of the Trust, save only that arising from bad
faith, willful misfeasance, gross negligence or reckless
disregard of his duties with respect to such Person; and all
such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature arising in connection with
the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust, is made a party to
any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by
reason of his being or having been a Shareholder, and shall
reimburse such Shareholder for all legal and other expenses
reasonably incurred by him in connection with any such claim or
liability. The indemnification and reimbursement by the
preceding sentence shall be made only out of the assets of the
one or more series of which the Shareholder who is entitled to
indemnification or reimbursement was a Shareholder at the time
the act or event occurred which gave rise to the claim against
or liability of said Shareholders. The rights accruing to a
Shareholder under this Section 4.1 shall not impair any other
right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust
to indemnify or reimburse a Shareholder in any appropriate
situation even though not specifically provided herein.
Section 4.2. Non-Liability of Trustees, etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee,
officer, employee, or agent thereof for any action or failure
to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of the duties involved in the
conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer
of the Trust shall be indemnified by the Trust to the fullest
extent permitted by law against all liability and against all
expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by
<PAGE>
virtue of his being or having been a Trustee or officer and
against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings
(civil, criminal, or other, including appeals), actual or
threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Trustee
or officer:
(i) against any liability to the Trust or the
Shareholders by reason of a final adjudication by the court or
other body before which the proceeding was brought that he
engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office;
(ii) with respect to any matter as to which he shall have
been finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of
the Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i)
resulting in a payment by a Trustee or officer, unless there
has been a determination that such Trustee or officer did not
engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office;
(A) by the court or other body approving the settlement or
other disposition; or
(B) based upon a review of readily available facts (as
opposed to a full trial-type inquiry) by (x) vote of a
majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then
in office act on the matter) or (y) written opinion of
independent legal counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not affect any rights to which any Trustee or
officer may now or hereafter be entitled, shall continue as to
a person who has ceased to be such Trustee or officer and shall
inure to the benefit of the heirs, executors, administrators
and assigns of such a person. Nothing contained herein shall
affect any rights to indemnification to which personnel of the
Trust other than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to
any claim, action, suit, or proceeding of the character
described in paragraph (a) of this Section 4.3 shall be
advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient, to
repay such amount if it is ultimately determined that he is not
entitled to indemnification under this Section 4.3, provided
that either:
(i) such undertaking is secured by a surety bond or some
other appropriate security provided by the recipient, or the
Trust shall be insured against losses arising out of any such
advances; or
<PAGE>
(ii) a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the Disinterested
Trustees act on the matter) or an independent legal counsel in
a written opinion shall determine, based upon a review of
readily available facts (as opposed to a full trial-type
inquiry), that there is a reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an "Interested Person" of the Trust (including
anyone who has been exempted from being an "Interested Person"
by any rule, regulation or order of the Commission), or (ii)
involved in the claim, action, suit or proceeding.
Item 16. Exhibits.
-------- ---------
(1) (a)(1) Amended and Restated Declaration of Trust dated
November 3, 1987 is incorporated by reference to Post-
Effective Amendment No. 69 to the Registrant's
Registration Statement on Form N-1A, as amended (the
"Registration Statement").
(a)(2) Certificate of Amendment of Declaration of Trust dated
November 13, 1990 is incorporated by reference to Post-
Effective Amendment No. 69 to the Registration
Statement.
(a)(3) Certificate of Amendment of Declaration of Trust dated
October 13, 1992 is incorporated by reference to Post-
Effective Amendment No. 69 to the Registration
Statement.
(a)(4) Establishment and Designation of Series dated October
13, 1992 is incorporated by reference to Post-Effective
Amendment No. 69 to the Registration Statement.
(a)(5) Establishment and Designation of Series dated April 9,
1996 is incorporated by reference to Post-Effective
Amendment No. 61 to the Registration Statement.
(a)(6) Establishment and Designation of Series, on behalf of
Corporate Bond Fund, dated August 25, 1998 is
incorporated by reference to Post-Effective Amendment
No. 77 to the Registration Statement.
(a)(7) Establishment and Designation of Classes of Shares of
Beneficial Interest, $0.01 par value, Class S and Class
AARP, with respect to Scudder Balanced Fund is
incorporated by reference to Post-Effective Amendment
No. 82 to the Registration Statement.
(a)(8) Establishment and Designation of Classes of Shares of
Beneficial Interest, $0.01 par value, Class S and Class
AARP, with respect to Scudder High Yield Bond Fund is
incorporated by reference to Post-Effective Amendment
No. 82 to the Registration Statement.
<PAGE>
(a)(9) Establishment and Designation of Classes of Shares of
Beneficial Interest, $0.01 par value, Class S and Class
AARP, with respect to Scudder Income Fund is
incorporated by reference to Post-Effective Amendment
No. 82 to the Registration Statement.
(2) (b)(1) By-Laws of the Registrant dated September 20, 1984 are
incorporated by reference to Post-Effective Amendment
No. 69 to the Registration Statement.
(b)(2) Amendment to By-Laws of the Registrant dated August 13,
1991 is incorporated by reference to Post-Effective
Amendment No. 69 to the Registration Statement.
(b)(3) Amendment to By-Laws of the Registrant dated November
12, 1991 is incorporated by reference to Post-Effective
Amendment No. 78 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 Scudder Income Fund, and Scudder Kemper
Investments, Inc. dated September 7,1998 is
incorporated by reference to Post-Effective Amendment
No. 78 to the Registration Statement.
(d)(2) Investment Management Agreement between the Registrant,
on behalf of Scudder Balanced Fund, and Scudder Kemper
Investments, Inc. dated September 7,1998 is
incorporated by reference to Post-Effective Amendment
No. 78 to the Registration Statement.
(d)(3) Investment Management Agreement between the Registrant,
on behalf of Scudder High Yield Bond Fund, and Scudder
Kemper Investments, Inc. dated September 7,1998 is
incorporated by reference to Post-Effective Amendment
No. 78 to the Registration Statement.
(d)(4) Investment Management Agreement between the Registrant,
on behalf of Scudder Corporate Bond Fund, and Scudder
Kemper Investments, Inc. dated September 7,1998 is
incorporated by reference to Post-Effective Amendment
No. 78 to the Registration Statement.
<PAGE>
(d)(5) Form of Investment Management Agreement between
the Registrant, on behalf of Scudder Income Fund,
and Scudder Kemper Investments, Inc. dated July
31, 2000 is incorporated by reference to Post-
Effective Amendment No. 83 to the Registration
Statement.
(d)(6) Form of Investment Management Agreement between
the Registrant, on behalf of Scudder Balanced
Fund, and Scudder Kemper Investments, Inc. dated
August 28, 2000 is incorporated by reference to
Post-Effective Amendment No. 83 to the
Registration Statement.
(d)(7) Form of Investment Management Agreement between
the Registrant, on behalf of Scudder High Yield
Bond Fund, and Scudder Kemper Investments, Inc.
dated October 2, 2000 is incorporated by reference
to Post-Effective Amendment No. 83 to the
Registration Statement.
(7) (e)(1) Underwriting Agreement between the Registrant and
Scudder Investor Services, Inc. dated September 7,
1998 is incorporated by reference to Post-
Effective Amendment No. 77 to the Registration
Statement.
(e)(2) Underwriting Agreement between the Registrant and
Scudder Investor Services, Inc. dated May 8, 2000
is incorporated by reference to Post-Effective
Amendment No. 83 to the Registration Statement.
(8) Inapplicable.
(9) (g)(1) Custodian Contract and fee schedule between the
Registrant and State Street Bank and Trust Company
("State Street") dated December 31, 1984 is
incorporated by reference to Post-Effective
Amendment No. 69 to the Registration Statement.
(g)(2) Fee schedule for Exhibit (9)(g)(1) dated October
7, 1986 is incorporated by reference to Post-
Effective Amendment No. 69 to the Registration
Statement.
(g)(3) Amendment to Custodian Contract between the
Registrant and State Street dated April 1, 1985 is
incorporated by reference to Post-Effective
Amendment No. 69 to the Registration Statement.
(g)(4) Amendment to Custodian Contract between the
Registrant and State Street dated March 10, 1987
is incorporated by reference to Post-Effective
Amendment No. 69 to the Registration Statement.
(g)(5) Amendment to Custodian Contract between the
Registrant and State Street dated March 10, 1987
is incorporated by reference to Post-Effective
Amendment No. 69 to the Registration Statement.
<PAGE>
(g)(6) Amendment to Custodian Contract between the
Registrant and State Street dated August 11, 1987
is incorporated by reference to Post-Effective
Amendment No. 69 to the Registration Statement.
(g)(7) Amendment to Custodian Contract between the
Registrant and State Street dated August 9, 1988
is incorporated by reference to Post-Effective
Amendment No. 69 to the Registration Statement.
(g)(8) Fee schedule for Exhibit (9)(g)(1) is incorporated
by reference to Post-Effective Amendment No. 60 to
the Registration Statement.
(g)(9) Amendment to Custodian Contract between the
Registrant and State Street dated April 9, 1996 is
incorporated by reference to Post-Effective
Amendment No. 63 to the Registration Statement.
(g)(10) Fee schedule for Exhibit (9)(g)(1) is incorporated
by reference to Post-Effective Amendment No. 63 to
the Registration Statement.
(g)(11) Subcustodian Agreement with fee schedule between
State Street and The Bank of New York, London
office, dated December 31, 1978 is incorporated by
reference to Post-Effective Amendment No. 69 to
the Registration Statement.
(g)(12) Amendment dated February 8, 1999 to Custodian
Contract between the Registrant and State Street
dated December 31, 1984 is incorporated by
reference to Post-Effective Amendment No. 78 to
the Registration Statement.
(10) (n)(1) Plan with respect to Scudder Balanced Fund
pursuant to Rule 18f-3 is incorporated by
reference to Post-Effective Amendment No. 83 to
the Registration Statement.
(n)(2) Plan with respect to Scudder Income Fund pursuant
to Rule 18f-3 is incorporated by reference to
Post-Effective Amendment No. 83 to the
Registration Statement.
(n)(3) Plan with respect to Scudder High Yield Bond Fund
pursuant to Rule 18f-3 is incorporated by
reference to Post-Effective Amendment No. 83 to
the Registration Statement.
(n)(4) Amended and Restated Plan with respect to Scudder
Balanced Fund pursuant to Rule 18f-3 is
incorporated by reference to Post-Effective
Amendment No. 83 to the Registration Statement.
(n)(5) Amended and Restated Plan with respect to Scudder
Income Fund pursuant to Rule 18f-3 is incorporated
by reference to Post-Effective Amendment No. 83 to
the Registration Statement.
(n)(6) Amended and Restated Plan with respect to Scudder
High Yield Bond Fund pursuant to Rule 18f-3 is
incorporated by reference to Post-Effective
Amendment No. 83 to the Registration Statement.
<PAGE>
(n)(7) Plan with respect to Scudder Corporate Bond Fund
pursuant to Rule 18f-3 is incorporated by
reference to Post-Effective Amendment No. 83 to
the Registration Statement.
(n)(8) Amended and Restated Plan with respect to Scudder
Corporate Bond Fund pursuant to Rule 18f-3 is
incorporated by reference to Post-Effective
Amendment No. 83 to the Registration Statement.
(n)(9) Scudder Funds Amended and Restated Multi-
Distribution System Plan is filed herewith.
(11) Opinion and Consent of Dechert is filed herewith.
(12) Opinion and Consent of Willkie, Farr & Gallagher
is to be filed by post-effective amendment.
(13) (h)(1) Transfer Agency and Service Agreement with fee
schedule between the Registrant and Scudder
Service Corporation dated October 2, 1989 is
incorporated by reference to Post-Effective
Amendment No. 69 to the Registration Statement.
(h)(2) Revised Fee Schedule dated October 1, 1995 for
Exhibit (13)(h)(1) is incorporated by reference to
Post-Effective Amendment No. 67 to the
Registration Statement.
(h)(3) Revised Fee Schedule dated October 1, 1996 for
Exhibit (13)(h)(1) is incorporated by reference to
Post-Effective Amendment No. 67 to the
Registration Statement.
(h)(4) COMPASS Service Agreement between Scudder Trust
Company and the Registrant dated October 1, 1995
is incorporated by reference to Post-Effective
Amendment No. 61 to the Registration Statement.
(h)(5) Revised Fee Schedule dated October 1, 1996 for
Exhibit (13)(h)(4) is incorporated by reference to
Post-Effective Amendment No. 67 to the
Registration Statement.
(h)(6) Service Agreement between Copeland Associates,
Inc. and Scudder Service Corporation (on behalf of
Scudder Balance Fund) dated June 8, 1995 is
incorporated by reference to Post-Effective
Amendment No. 62 to the Registration Statement.
(h)(7) Shareholder Services Agreement between the
Registrant and Charles Schwab & Co., Inc. dated
June 1, 1990 is incorporated by reference to Post-
Effective Amendment No. 69 to the Registration
Statement.
<PAGE>
(h)(8) Fund Accounting Services Agreement between the
Registrant, on behalf of Scudder Balanced Fund,
and Scudder Fund Accounting Corporation dated
January 18, 1995 is incorporated by reference to
Post-Effective Amendment No. 69 to the
Registration Statement.
(h)(9) Fund Accounting Services Agreement between the
Registrant, on behalf of Scudder Income Fund, and
Scudder Fund Accounting Corporation dated January
12, 1995 is incorporated by reference to Post-
Effective Amendment No. 60 to the Registration
Statement.
(h)(10) Fund Accounting Services Agreement between the
Registrant, on behalf of Scudder High Yield Bond
Fund, and Scudder Fund Accounting Corporation
dated June 28, 1996 is incorporated by reference
to Post-Effective Amendment No. 63 to the
Registration Statement.
(h)(11) Fund Accounting Services Agreement between the
Registrant, on behalf of Scudder Corporate Bond
Fund, and Scudder Fund Accounting Corporation
dated August 31, 1998 is incorporated by reference
to Post-Effective Amendment No. 78 to the
Registration Statement.
(h)(12) Form of Administrative Agreement between the
Registrant and Scudder Kemper Investments, Inc.
dated July 24, 2000 is incorporated by reference
to Post-Effective Amendment No. 83 to the
Registration Statement.
(14) Consents of Independent Accountants are filed
herewith.
(15) Inapplicable.
(16) Powers of Attorney are filed herewith.
(17) Form of Proxy is filed herewith.
Item 17. Undertakings.
-------- ------------
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933 (the "1933
Act") [17 CFR 230.145c], the reoffering prospectus will contain the
information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the registration statement and will not be used until
the amendment is effective, and that, in determining any liability
under the 1933 Act, each post-effective amendment shall be deemed
to be a new registration
<PAGE>
statement for the securities offered therein, and the offering of
the securities at that time shall be deemed to be the initial bona
fide offering of them.
(3) The undersigned Registrant undertakes to file, by post-effective
amendment, an opinion of counsel supporting the tax consequences of
the proposed reorganization within a reasonable time after receipt
of such opinion.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Scudder Portfolio Trust 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 28th day of December, 2000.
SCUDDER PORTFOLIO TRUST
By: /s/ Linda C. Coughlin
-------------------------
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/ Linda C. Coughlin President and Trustee December 28, 2000
---------------------------
Linda C. Coughlin
/s/ Henry P. Becton, Jr. * Trustee December 28, 2000
---------------------------
Henry P. Becton, Jr.
/s/ Dawn-Marie Driscoll * Trustee December 28, 2000
---------------------------
Dawn-Marie Driscoll
/s/ Edgar R. Fiedler * Trustee December 28, 2000
---------------------------
Edgar R. Fiedler
/s/ Keith R. Fox * Trustee December 28, 2000
---------------------------
Keith R. Fox
/s/ Joan E. Spero * Trustee December 28, 2000
---------------------------
Joan E. Spero
/s/ Jean Gleason Stromberg* Trustee December 28, 2000
---------------------------
Jean Gleason Stromberg
/s/ Jean C. Tempel * Trustee December 28, 2000
---------------------------
Jean C. Tempel
/s/ Steven Zaleznick * Trustee December 28, 2000
---------------------------
Steven Zaleznick
/s/ John R. Hebble Treasurer (Principal Financial and December 28, 2000
--------------------------- Accounting Officer)
John R. Hebble
*By: /s/ Joseph R. Fleming December 28, 2000
----------------------------
Joseph R. Fleming, Attorney-in-fact
</TABLE>
*Executed pursuant to powers of attorney filed herein as an exhibit to the
Registrant's Registration Statement on Form N-14.
<PAGE>
SCUDDER PORTFOLIO TRUST
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit 10(n)(9) Scudder Funds Amended and Restated Multi-Distribution System Plan
Exhibit 11 Opinion and Consent of Dechert
Exhibit 14 Consents of Independent Accountants
Exhibit 16 Powers of Attorney
Exhibit 17 Form of Proxy
</TABLE>
