Filed electronically with the Securities and Exchange Commission on
January 30, 1998
File No. 333-42335
File No. 811-08393
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
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Post-Effective Amendment No.
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1
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Kemper Securities Trust
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(Exact name of Registrant as Specified in Charter)
222 South Riverside Plaza Street, Chicago, IL 60606
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 781-1121
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Kathryn L. Quirk
Scudder Kemper Investments, Inc.
345 Park Avenue, New York, NY 10154
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It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
____ On __________ pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(i)
on ___________ pursuant to paragraph (a)(i)
_____ 75 days after filing pursuant to paragraph (a)(ii)
_____ on _______ pursuant to paragraph (a)(ii) of Rule 485
<PAGE>
KEMPER SECURITIES TRUST
KEMPER U.S. GROWTH AND INCOME FUND
CROSS-REFERENCE SHEET
Items Required by Form N-1A
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PART A
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<TABLE>
<CAPTION>
Item No. Item Caption Prospectus Caption
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<S> <C> <C>
1. Cover Page COVER PAGE
2. Synopsis SUMMARY
SUMMARY OF EXPENSES
3. Condensed Financial NOT APPLICABLE
Information
4. General Description of INVESTMENT OBJECTIVE, POLICIES AND RISK
Registrant FACTORS
SUMMARY
CAPITAL STRUCTURE
5. Management of the Fund SUMMARY
INVESTMENT MANAGER AND UNDERWRITER
5A. Management's Discussion of NOT APPLICABLE
Fund Performance
6. Capital Stock and Other SUMMARY
Securities INVESTMENT OBJECTIVE, POLICIES AND RISK
FACTORS
DIVIDENDS, DISTRIBUTIONS AND TAXES
PURCHASE OF SHARES
7. Purchase of Securities Being PURCHASE OF SHARES
Offered SUMMARY
INVESTMENT MANAGER AND UNDERWRITER
8. Redemption or Repurchase SUMMARY
REDEMPTION OR REPURCHASE OF SHARES
9. Pending Legal Proceedings NOT APPLICABLE
Cross Reference - Page 1
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
(continued)
PART B
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Caption in Statement of
Item No. Item Caption Additional Information
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10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and History NOT APPLICABLE
13. Investment Objectives and INVESTMENT RESTRICTIONS
Policies INVESTMENT POLICIES AND TECHNIQUES
14. Management of the Fund OFFICERS AND TRUSTEES
REMUNERATION
15. Control Persons and Principal OFFICERS AND TRUSTEES
Holders of Securities
16. Investment Advisory and Other INVESTMENT MANAGER AND UNDERWRITER
Services
17. Brokerage Allocation PORTFOLIO TRANSACTIONS
18. Capital Stock and Other INVESTMENT MANAGER AND UNDERWRITER
Securities
19. Purchase, Redemption and PURCHASE AND REDEMPTION OF SHARES
Pricing of Securities Being
Offered
20. Tax Status DIVIDENDS, DISTRIBUTIONS AND TAXES
21. Underwriters INVESTMENT MANAGER AND UNDERWRITER
22. Calculation of Performance Data PERFORMANCE
23. Financial Statements NOT APPLICABLE
</TABLE>
Cross Reference - Page 2
<PAGE>
Table of Contents
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Summary
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Summary of Expenses
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Investment Objective, Policies and
Risk Factors
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Investment Manager and Underwriter
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Dividends, Distributions and Taxes
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Net Asset Value
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Purchase of Shares
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Redemption or Repurchase of Shares
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Special Features
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Performance
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Fund Organization and Capital Structure
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This prospectus contains concisely the information about the Kemper U.S. Growth
and Income Fund (the "Fund"), a diversified series of Kemper Securities Trust
(the "Trust"), an open-end management investment company, that a prospective
investor should know before investing and should be retained for future
reference. A Statement of Additional Information, which contains additional
information about the Fund and the Trust, dated January 30, 1998, has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. It is available upon request without charge from the Fund at the
address or telephone number on this cover or the firm from which this prospectus
was received. It is also available along with other related materials on the
Securities and Exchange's Internet Web Site (http://www.sec.gov)
The Fund's shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, nor are they federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investment in the
Fund's shares involves risk, including the possible loss of
principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[KEMPER FUNDS LOGO]
Kemper
U.S. GROWTH AND INCOME
Fund
PROSPECTUS DATED JANUARY 30, 1998
KEMPER U.S. GROWTH AND INCOME FUND
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
The investment objective of Kemper U.S. Growth and Income Fund is to provide
long-term growth of capital, current income and growth of income. The Fund
invests primarily in common stocks, preferred stocks and securities convertible
into common stocks of U.S. companies that offer the prospect for growth of
earnings while paying current dividends.
<PAGE>
There is no assurance that the Fund's objective will be achieved.
KEMPER U.S. GROWTH AND INCOME FUND
222 South Riverside Plaza, Chicago, Illinois 60606, Telephone 1-800-621-1048
SUMMARY
Investment Objective. Kemper U.S. Growth and Income Fund (the "Fund") is a
diversified series of Kemper Securities Trust (the "Trust") a registered
open-end management investment company. The Fund's investment objective is to
seek long-term growth of capital, current income and growth of income. There is
no assurance that the Fund's objective will be achieved. The Fund invests
primarily in common stocks, preferred stocks and securities convertible into
common stocks of U.S. companies that offer the prospect for growth of earnings
while paying current dividends. Over time, continued growth of earnings tends to
lead to higher dividends and enhancement of capital value. The Fund allocates
its investments among different industries and companies, and adjusts its
portfolio securities for investment considerations and not for trading purposes.
The Fund may also engage in options and financial futures transactions
("Strategic Transactions") and may lend its portfolio securities. The Fund may
also invest to a limited extent in illiquid and restricted securities. See
"Investment Objective, Policies and Risk Factors" below.
Risk Factors. The Fund's risks are determined by the nature of the securities
held in the Fund and the portfolio management strategies used by Scudder Kemper
Investments, Inc. (the "Adviser"). The Fund is designed for long-term investors
who can accept moderate stock market risk. In return for accepting stock market
risk, investors may earn a greater return on their investments in the Fund than
from lower risk alternatives such as a money market or an income fund, but may
experience less risk than from a portfolio of more speculative equity
securities. The Fund's returns and net asset value will fluctuate. The following
are descriptions of certain risks related to the investments and techniques that
the Fund may use from time to time. For a more complete discussion of risks
involved in an investment in the Fund, please see "Special Risk Factors."
Securities lending. The risks of lending portfolio securities, as with other
extensions of secured credit, consist of possible delays in receiving additional
collateral or in the recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially. Loans will be made to
registered broker/dealers deemed by the Adviser to be in good standing and will
not be made unless, in the judgment of the Adviser, the consideration to be
earned from such loans would justify the risk.
Illiquid investments. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and it
may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.
Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. In
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. See "Investment Objective,
Policies and Risk Factors."
Purchases and Redemptions. The Fund provides investors with the option of
purchasing shares in the following ways:
2
<PAGE>
Class A Shares Offered at net asset value plus a maximum sales charge of 5.75%
of the offering price. Reduced sales charges apply to purchases
of $50,000 or more. Class A shares purchased at net asset value
under the "Large Order NAV Purchase Privilege" may be subject to
a 1% contingent deferred sales charge if redeemed within one
year of purchase and a 0.50% contingent deferred sales charge if
redeemed within the second year of purchase.
Class B Shares Offered at net asset value, subject to a Rule 12b-1 distribution
fee and a contingent deferred sales charge applied to the value
of shares redeemed within six years of purchase. The contingent
deferred sales charge is computed at the following rates:
Contingent Deferred
Year of Redemption After Purchase Sales Charge
--------------------------------- ------------
First 4%
Second 3%
Third 3%
Fourth 2%
Fifth 2%
Sixth 1%
Class C Shares Offered at net asset value without an initial sales charge, but
subject to a Rule 12b-1 distribution fee and a 1.00% contingent
deferred sales charge on redemptions made within one year of
purchase. Class C shares do not convert into any other class.
Each class of shares represents interests in the same portfolio of investments
of the Fund. The minimum initial investment for each class is $1,000 and
investments thereafter must be at least $100. Shares are redeemable at net asset
value, which may be more or less than original cost, subject to any applicable
contingent deferred sales charge. See "Purchase of Shares" and "Redemption or
Repurchase of Shares."
Investment Manager and Underwriter. Scudder Kemper Investments, Inc. (the
"Adviser") serves as the Fund's investment manager. The Fund pays the Adviser an
annual fee of 0.60% for the first $250 million of average daily net assets,
0.57% of such assets for the next $750 million, 0.55% of such assets for the
next $1.5 billion and 0.53% of such assets in excess of $2.5 billion. Kemper
Distributors, Inc. ("KDI"), a subsidiary of the Adviser, is principal
underwriter and administrator for the Fund. For each of the Class B and Class C
shares, KDI receives a Rule 12b-1 distribution fee of 0.75% of average daily net
assets of each such class. KDI also receives the amount of any contingent
deferred sales charges paid on the redemption of shares. Administrative services
are provided to shareholders under an administrative services agreement with
KDI. The Fund pays an administrative services fee at an annual rate of up to
0.25% of average daily net assets of each of Class A, B and C shares of the
Fund, which KDI pays to financial services firms. See "Investment Manager and
Underwriter."
Dividends. The Fund normally distributes quarterly dividends of net investment
income, and any net realized short-term and long-term capital gains at least
annually. Income and capital gain dividends of the Fund are automatically
reinvested in additional shares of the Fund, without a sales charge, unless the
investor makes an election otherwise. See "Dividends and Taxes."
3
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
Class A Class B Class C
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<S> <C> <C> <C>
Shareholder Transaction Expenses(1)
Maximum Sales Charge on Purchases
(as a percentage of offering price) ..................... 5.75%(2) None None
Maximum Sales Charge on Reinvested Dividends ............ None None None
Redemption Fees ......................................... None None None
Exchange Fee ............................................ None None None
Maximum Deferred Sales Charge (as a percentage of
redemption proceeds) ................................... None(3) 4%(4) 1%(5)
</TABLE>
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(1) Investment dealers and other firms may independently charge additional
fees for shareholder transactions or for advisory services; please see
their materials for details. The table does not include the $9.00
quarterly small account fee. See "Redemption or Repurchase of Shares".
(2) Reduced sales charges apply to purchases of $50,000 or more. See "Purchase
of Shares--Initial Sales Charge Alternative--Class A Shares."
(3) The redemption of Class A shares purchased at net asset value under the
"Large Order NAV Purchase Privilege" may be subject to a contingent
deferred sales charge of 1% during the first year and 0.50% during the
second year. See "Purchase of Shares--Initial Sales Charge
Alternative--Class A Shares."
(4) The maximum Contingent Deferred Sales Charge on Class B Shares applies to
redemptions during the first year. The Charge is 4% during the first year,
3% during the second and third years, 2% during the fourth and fifth
years, and 1% in the sixth year.
(5) The Contingent Deferred Sales Charge of 1% on Class C Shares applies to
redemptions during the first year after purchase.
4
<PAGE>
Annual Fund Operating Expenses (estimated as a percentage of average net assets)
Class A Shares
Management Fees (after waiver)* .. 0.45%
12b-1 Fees........................ None
Other Expenses 0.79%
Total Fund Operating Expenses
(after waiver)* .................. 1.24%
Class B Shares
Management Fees (after waiver)*... 0.45%
12b-1 Fees(6) .................... 0.75%
Other Expenses ................... 0.81%
Total Fund Operating Expenses
(after waiver)*.....................2.01%
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* For a one year period, the Adviser has agreed to waive a portion of its
management fee amounting to 0.15% of average daily net assets for the Fund.
Absent such waiver, estimated management fees would be 0.60% for each class and
total fund operating expenses would be 1.39%, 2.16% and 2.14% for Class A
shares, Class B shares and Class C shares, respectively.
(6) Long-term Class B shareholders of the Fund may, as a result of the Fund's
Rule 12b-1 fees, pay more than the economic equivalent of the maximum
initial sales charges permitted by the National Association of Securities
Dealers, Inc., although KDI believes that this is unlikely because of the
automatic conversion feature described under "Purchase of Shares--Deferred
Sales Charge Alternative--Class B Shares."
Class C Shares
Management Fees* ................... 0.45%
12b-1 Fees(7)....................... 0.75%
Other Expenses...................... 0.79%
----
Total Fund Operating Expenses*...... 1.99%
====
* After waiver
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(7) As a result of the accrual of Rule 12b-1 fees, long-term Class C
shareholders of the Fund may pay more than the economic equivalent of the
maximum initial sales charges permitted by the National Association of
Securities Dealers, Inc.
Example**
The following example assumes reinvestment of all dividends and distributions
and that the percentage amounts under "Total Fund Operating Expenses" remain the
same each year.
1 year 3 years
------ -------
Class A Shares (8)
Based on the estimated level of total operating
expenses listed above, you would pay the
following expenses on a $1,000 investment,
assuming a 5% annual return and redemption at the
end of each time period: $69 $95
5
<PAGE>
Class B Shares (9)
Based on the estimated level of total operating
expenses listed above, you would pay the
following expenses on a $1,000 investment,
assuming a 5% annual return and redemption at the
end of each time period: $60 $93
You would pay the following expenses on the same
investment, assuming no redemption: $20 $63
Class C Shares (10)
Based on the estimated level of total operating
expenses listed above, you would pay the
following expenses on a $1,000 investment,
assuming a 5% annual return and redemption at the
end of each time period: $30 $62
You would pay the following expenses on the same
investment assuming no redemption: $20 $62
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** Based on Total Fund Operating Expenses net of fee waiver (see "Annual Fund
Operating Expenses" table above).
(8) Assumes deduction of the maximum 5.75% initial sales charge at the time of
purchase and no deduction of a Contingent Deferred Sales Charge at the
time of redemption.
(9) Assumes that the shareholder was an owner of the shares on the first day
of the first year and the contingent deferred sales charge was applied as
follows: 1 year (4%) and 3 years (3%).
(10) Assumes that the shareholder was an owner on the first day of the first
year and the contingent deferred sales charge of 1.00% was applied.
The purpose of the preceding tables is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. See "Investment Manager and Underwriter" for more information. The
Fund commenced operations on January 30, 1998 thus "Management Fees" and "Other
Expenses" are estimated for the current fiscal year and expenses are shown for
only the one and three year periods.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission (the "SEC"). This hypothetical rate of return
is not intended to be representative of past or future performance of the Fund.
The Example should not be considered to be a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
The following information sets forth the Fund's investment objectives, policies
and risk factors. The Fund's returns and net asset value will fluctuate, and
there is no assurance that the Fund will achieve its objective.
The Fund seeks long-term growth of capital, current income and growth of income.
The Fund seeks this objective by investing primarily in common stocks, preferred
stocks, and securities convertible into common stocks of U.S. companies that
offer the prospect for growth of earnings while paying current dividends. Over
time, continued growth of earnings tends to lead to higher dividends and
enhancement of capital value. The Fund will invest at least 80% of its assets in
the equity securities of U.S. issuers and has no current intention of investing
in the equity securities of foreign issuers.
6
<PAGE>
The Fund allocates its investments among different industries and companies, and
adjusts its portfolio securities for investment considerations and not for
trading purposes.
The Fund may also purchase securities of real estate investment trusts
("REITs"), as well as securities that do not pay current dividends but that
offer prospects for growth of capital and future income. Convertible securities
(which may be current coupon or zero coupon securities) are bonds, notes,
debentures, preferred stocks and other securities that may be converted or
exchanged at a stated or determinable exchange ratio into underlying shares of
common stock. The Fund may also invest in nonconvertible preferred stocks
consistent with the Fund's objective. From time to time, for temporary defensive
purposes, when the Adviser feels such a position is advisable in light of
economic or market conditions, the Fund may invest all or a portion of its
assets in cash and cash equivalents. It is impossible to accurately predict for
how long such alternative strategies will be utilized. The Fund may also invest
in repurchase agreements and loan securities and may engage in strategic
transactions. The Fund will not invest in foreign securities. The Fund may also
invest to a limited extent in illiquid and restricted securities. The Fund's
share price fluctuates with changes in interest rates and market conditions.
These fluctuations may cause the value of shares to be higher or lower than when
purchased. The Fund may also invest in Standard and Poor's Depository Receipts
("SPDRs") and DIAMONDS. SPDRs and DIAMONDS typically trade like a share of
common stock and provide investment results that generally correspond to the
price and yield performance of the component common stocks of the S&P 500 Index
and Dow Jones Industrial Average, respectively. More information about
investment techniques is provided under "Additional Investment Information."
The Fund seeks to provide participation in the long-term growth of the economy
through the potential investment returns offered by U.S. common stocks and other
domestic equity securities. It maintains a diversified portfolio consisting
primarily of common stocks, preferred stocks and convertible securities of
companies with long-standing records of earnings growth and higher-than-average
dividend payouts. These companies, many of which are mainstays of the U.S.
economy, offer prospects for future growth of earnings and dividends, and
therefore may offer investors attractive long-term investment opportunities. The
Fund's investment strategy, which emphasizes higher-yielding equity securities
issued by U.S. companies deemed to be underrated by the Adviser, may be more
appropriate for the conservative portion of an investor's equity portfolio.
The Fund cannot guarantee a gain or eliminate the risk of loss. The net asset
value of the Fund's shares will increase or decrease with changes in the market
prices of the Fund's investments and there is no assurance that the Fund's
objective will be achieved. Except as otherwise indicated, the Fund's investment
objective and policies are not fundamental and may be changed without a vote of
shareholders. If there is a change in investment objective, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then current financial position and needs.
Investment Process
The Adviser applies a disciplined investment approach for selecting holdings for
the Fund. The first stage of this process involves analyzing a selected pool of
dividend-paying equity securities, to identify stocks that have high yields
relative to the yield of the Standard & Poor's 500 Composite Price Index ("S&P
500"), a commonly-accepted benchmark for the U.S. stock market. Also, the
Adviser screens for stocks that have yields at the upper end of their historical
yield range.
In the Adviser's opinion, this subset of higher-yielding stocks identified by
applying these criteria offers the potential for returns over time that are
greater than or equal to the S&P 500, at less risk than this market index. In
the Adviser's opinion, these favorable risk and return characteristics exist
because the higher dividends offered by these stocks may act as a "cushion" when
markets are volatile and because stocks with higher yields tend to sell at more
attractive valuations (e.g., lower price-to-earning ratios and lower
price-to-book ratios).
Once this subset of higher-yielding stocks is identified, the Adviser conducts a
fundamental analysis of each company's financial strength, profitability,
projected earnings, sustainability of dividends, competitive outlook, and
7
<PAGE>
ability of management. The Fund's portfolio may include stocks that are out of
favor in the market, but which, in the opinion of the Adviser, offer compelling
valuations and potential for long-term appreciation in price and dividends. In
order to diversify the Fund's portfolio among different industry sectors, the
Adviser evaluates how each sector reacts to broad economic factors such as
interest rates, inflation, Gross Domestic Product, and consumer spending. The
Fund's portfolio is constructed by attaining a proper balance of stocks in these
sectors based on the Adviser's economic forecasts.
The Adviser applies disciplined criteria for selling stocks in the Fund's
portfolio as well. When the Adviser determines that the relative yield of a
stock has declined excessively below the yield of the S&P 500, or that the yield
is at the lower end of the stock's historic range, the stock generally is sold
from the Fund's portfolio. Similarly, if the Adviser's fundamental analysis
determines that the payment of the stock's dividend is at risk, or that market
expectations for the stock are unreasonably high, the stock is generally
targeted for sale.
In summary, the Adviser applies disciplined buy and sell criteria, fundamental
company and industry analysis, and economic forecasts in managing the Fund to
pursue long-term price appreciation and income with a tendency for lower overall
volatility than the market, as measured by the S&P 500.
Special Risk Factors. The Fund's risks are determined by the nature of the
securities held and the portfolio management strategies used by the Adviser. The
following are descriptions of certain risks related to the investments and
techniques that the Fund may use from time to time. The Fund is designed for
long-term investors who can accept moderate stock market risk. In return for
accepting stock market risk, you may earn a greater return on your investment
than from lower risk alternatives such as a money market fund or an income fund,
but experience less risk than from a portfolio of more speculative equity
securities.
Securities Lending. The Fund may lend portfolio securities to registered
broker/dealers as a means of increasing its income. These loans may not exceed
331/3% of the Fund's total assets taken at market value. Loans of portfolio
securities will be secured continuously by collateral consisting of U.S.
Government securities or fixed-income obligations that are maintained at all
times in an amount at least equal to the current market value of the loaned
securities. The Fund will earn any interest or dividends paid on the loaned
securities and may share with the borrower some of the income received on the
collateral for the loan or will be paid a premium for the loan. The risks of
lending portfolio securities, as with other extensions of secured credit,
consist of possible delays in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially. Loans will be made to registered broker/dealers
deemed by the Adviser to be in good standing and will not be made unless, in the
judgment of the Adviser, the consideration to be earned from such loans would
justify the risk.
Repurchase Agreements. As a means of earning income for periods as short as
overnight, the Fund may enter into repurchase agreements with selected banks and
broker/dealers. Under a repurchase agreement, the Fund acquires securities,
subject to the seller's agreement to repurchase them at a specified time and
price. If the seller under a repurchase agreement becomes insolvent, the Fund's
right to dispose of the securities may be restricted, or the value of the
securities may decline before the Fund is able to dispose of them. In the event
of the commencement of bankruptcy or insolvency proceedings with respect to the
seller of the securities before repurchase of the securities under a repurchase
agreement, the Fund may encounter delay and incur costs, including a decline in
the value of the securities, before being able to sell the securities.
Convertible Securities. The Fund may invest in convertible securities which may
offer higher income than the common stocks into which they are convertible. The
convertible securities in which the Fund may invest include fixed-income or zero
coupon debt securities, which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. Prior to
their conversion, convertible securities may have characteristics similar to
both nonconvertible debt securities and equity securities. While convertible
securities generally offer lower yields than nonconvertible debt securities of
similar quality, their prices may reflect changes in the value of the underlying
common stock. Convertible securities entail less credit risk than the issuer's
common stock.
8
<PAGE>
Real Estate Investment Trusts. The Fund may purchase real estate investment
trusts ("REITs"), which pool investors' funds for investment primarily in
income-producing real estate or real estate-related loans or interests. REITs
can generally be classified as equity REITs, mortgage REITs and hybrid REITs.
Equity REITs, which invest the majority of their assets directly in real
property, derive their income primarily from rents. Equity REITs can also
realize capital gains by selling properties that have appreciated in value.
Mortgage REITs, which invest the majority of their assets in real estate
mortgages, derive their income primarily from interest payments on real estate
mortgages in which they are invested. Hybrid REITs combine the characteristics
of both equity REITs and mortgage REITs. Investment in REITs may subject the
Fund to risks similar to those associated with the direct ownership of real
estate (in addition to securities markets risks). REITs are sensitive to factors
such as changes in real estate values and property taxes, interest rates, cash
flow of underlying real estate assets, supply and demand, and the management
skill and creditworthiness of the issuer. REITs may also be affected by tax and
regulatory requirements.
Zero Coupon Securities. The Fund may invest in zero coupon securities, which pay
no cash income and are sold at substantial discounts from their maturity value.
When held to maturity, their entire income, which consists of accretion of
discount, comes from the difference between the issue price and their maturity
value. Zero coupon securities are subject to greater market value fluctuations
from changing interest rates than debt obligations of comparable maturities that
make current cash distributions of interest.
Illiquid Securities. The Fund may invest a portion of its assets in securities
for which there is not an active trading market, or which have resale
restrictions. Such securities may have been acquired through private placements
(transactions in which the securities acquired have not been registered with the
SEC). These illiquid securities generally offer a higher return than more
readily marketable securities, but carry the risk that the Fund may not be able
to dispose of them at an advantageous time or price. Some restricted securities
purchased by the Fund, however, may be considered liquid despite resale
restrictions. The absence of a trading market can make it difficult to ascertain
a market value for illiquid securities. Disposing of illiquid securities may
involve time-consuming negotiation and legal expenses, and it may be difficult
or impossible for the Fund to sell them promptly at an acceptable price.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, and broad or specific equity or
fixed-income market movements), to manage the effective maturity or duration of
fixed-income securities in the Fund's portfolio or to enhance potential gain.
These strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars (collectively,
all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets, to protect the
Fund's unrealized gains in the value of its portfolio securities, to facilitate
the sale of such securities for investment purposes, to manage the effective
maturity or duration of fixed-income securities in the Fund's portfolio, or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities.
Some Strategic Transactions may also be used to enhance potential gain although
no more than 5% of the Fund's assets will be committed to Strategic Transactions
entered into for non-hedging purposes. Any or all of these investment techniques
may be used at any time and in any combination, and there is no particular
strategy that dictates the use of one technique rather than another, as use of
any Strategic Transaction is a function of numerous variables including market
conditions. The ability of the Fund to utilize these Strategic Transactions
successfully
9
<PAGE>
will depend on the Adviser's ability to predict pertinent market movements,
which cannot be assured. The Fund will comply with applicable regulatory
requirements when implementing these strategies, techniques and instruments.
Strategic Transactions involving financial futures and options thereon will be
purchased, sold or entered into only for bona fide hedging, risk management or
portfolio management purposes and not to create leveraged exposure in the Fund.
Strategic Transactions, including derivative contracts, have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation the Fund can realize on its investments or
cause the Fund to hold a security it might otherwise sell. The use of options
and futures transactions entails certain other risks. In particular, the
variable degree of correlation between price movements of futures contracts and
price movements in the related portfolio position of the Fund creates the
possibility that losses on the hedging instrument may be greater than gains in
the value of the Fund's position. In addition, futures and options markets may
not be liquid in all circumstances and certain over-the-counter options may have
no markets. As a result, in certain markets, the Fund might not be able to close
out a transaction without incurring substantial losses, if at all. Although the
use of futures contracts and options transactions for hedging should tend to
minimize the risk of loss due to a decline in the value of the hedged position,
at the same time they tend to limit any potential gain which might result from
an increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's Statement of Additional Information. See
"Investment Policies and Techniques" in the Statement of Additional Information.
Additional Investment Information. It is anticipated that, under normal
circumstances, the portfolio turnover rate for the Fund will not exceed 100%.
Higher portfolio turnover involves correspondingly greater brokerage commissions
or other transaction costs. Higher portfolio turnover may result in the
realization of greater net short-term or long-term capital gains.
The Fund has adopted certain fundamental investment policies, which are
described in the Statement of Additional Information and which cannot be changed
without a vote of shareholders and which are designed to reduce the Fund's
investment risk. The investment objective and policies of the Fund that are not
incorporated into any of the fundamental investment restrictions and may be
changed by the Board of Trustees of the Trust without shareholder approval.
As a matter of fundamental policy, the Fund may not borrow money except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Fund may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes, although the Fund may engage up to 5% of
total assets in reverse repurchase agreements or dollar rolls.
As a matter of fundamental policy, the Fund may not make loans except through
the lending of portfolio securities, the purchase of debt securities or through
repurchase agreements.
A complete description of these and other policies and restrictions is contained
in "Investment Restrictions" in the Fund's Statement of Additional Information.
INVESTMENT MANAGER AND UNDERWRITER
Investment Manager. The Fund retains the investment management firm of Scudder
Kemper Investments, Inc. (the "Adviser"), a Delaware corporation, to manage the
Fund's daily investment and business affairs subject to the policies established
by the Trust's Board of Trustees and pursuant to an Investment Management
Agreement dated
10
<PAGE>
January 30, 1998. The Trustees have overall responsibility for the management of
the Fund under Massachusetts law.
Under the Investment Management Agreement with the Adviser, the Fund is
responsible for all of its expenses, including fees and expenses incurred in
connection with membership in investment company organizations; fees and
expenses of the Fund's accounting agent; brokers' commissions; legal, auditing
and accounting expenses; taxes and governmental fees; the fees and expenses of
the transfer agent; the expenses of and the fees for registering or qualifying
securities for sale; the fees and expenses of Trustees, officers and employees
of the Trust who are not affiliated with the Adviser; the cost of printing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians.
The Adviser receives an investment management fee for these services. The Fund
pays the Adviser an investment management fee, payable monthly, at the annual
rate of 0.60% for the first $250 million of average daily net assets, 0.57% of
such assets for the next $750 million, 0.55% of such assets for the next $1.5
billion and 0.53% of such assets in excess of $2.5 billion. The fee is graduated
so that increases in the Fund's net assets may result in a lower annual fee rate
and decreases in the Fund's net assets may result in a higher annual fee rate.
The fee is payable monthly, provided that the Fund will make such interim
payments as may be requested by the Adviser not to exceed 75% of the amount of
the fee then accrued on the books of the Fund and unpaid. All of the Fund's
expenses are paid out of gross investment income.
The Adviser is located at 345 Park Avenue, New York, New York.
Scudder Kemper Investments, Inc., an investment counsel firm, acts as investment
adviser to the Fund. This organization, which resulted from the combination of
the businesses of Scudder, Stevens & Clark, Inc. ("Scudder") and Zurich Kemper
Investments, Inc., ("Kemper"), is one of the largest and most experienced
investment counsel firms in the United States. Scudder was established as a
partnership in 1919 and reorganized into a corporation in 1985. Since launching
its first fund in 1948, Kemper had grown into one of the industry's leading
mutual fund companies. On December 31, 1997, Kemper's parent company, Zurich
Insurance Company ("Zurich"), acquired a majority interest in Scudder and
combined the businesses of the two organizations to create a single global
money-management firm, Scudder Kemper Investments, Inc., which has more than
$200 billion under management.
Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.
A Team Approach To Investing. The Fund is managed by a team of investment
professionals who each plays an important role in the Fund's investment process.
Team members work together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by the Adviser's large
staff of economists, research analysts, traders and other investment specialists
who work in the Adviser's offices across the United States and abroad. The
Adviser believes its team approach benefits Fund investors by bringing together
many disciplines and leveraging its extensive resources.
Lori J. Ensinger, Lead Portfolio Manager of the Fund and Senior Vice President
of Scudder Kemper Investments, Inc., is a member of the Global Equity Group. Ms.
Ensinger is responsible for the development of the Funds strategy and management
of the portfolio on a daily basis. Prior to joining the Adviser in 1993, Ms.
Ensinger was a Senior Portfolio Manager at an investment management firm where
she managed portfolios for institutions and individuals.
Robert T. Hoffman, Portfolio Manager of the Fund and Managing Director of
Scudder Kemper Investments, Inc., is a member of the Global Equity Group, where
his responsibilities focus on portfolio management and domestic equity research.
He joined the Adviser in 1990. Mr. Hoffman has over 13 years of experience in
the investment industry.
11
<PAGE>
Benjamin W. Thorndike, Portfolio Manger of the Fund and Managing Director of
Scudder Kemper Investments, Inc., joined the Adviser in 1983 as a portfolio
manager and has 18 years of investment experience. Mr. Thorndike will develop
portfolio strategy utilizing the research, analysis and guidance provided by
other members of the investment team.
Principal Underwriter. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with the Fund, Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, a subsidiary of the
Adviser, is the principal underwriter and distributor of the Fund's shares and
acts as agent of the Fund in the sale of its shares. KDI bears all of its
expenses of providing services pursuant to the distribution agreement, including
the payment of any commissions. KDI provides for the preparation of advertising
or sales literature and bears the cost of printing and mailing prospectuses to
persons other than shareholders. KDI bears the cost of registering or qualifying
and maintaining the qualification of Fund shares for sale and the Fund bears the
expense of registering its shares with the SEC. KDI may enter into related
selling group agreements with various broker-dealers, including affiliates of
KDI, that provide distribution services.
Class A Shares. KDI receives no compensation from the Fund as principal
underwriter for Class A shares and pays all expenses of distribution of the
Fund's Class A shares under the distribution agreement not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of Class A shares and
pays out a portion of this sales charge or allows concessions or discounts to
firms for the sale of Class A Fund shares.
Class B Shares. For its services under the Class B distribution plan, KDI
receives a fee from the Fund, payable monthly, at an annual rate of 0.75% of
average daily net assets of the Fund attributable to its Class B shares. This
fee is accrued daily as an expense of Class B shares. KDI also receives any
contingent deferred sales charges received on redemptions of Class B shares. See
"Redemption or Repurchase of Shares--Contingent Deferred Sales Charge--Class B
Shares." KDI currently compensates firms for sales of Class B shares at a
commission rate of 3.75%.
Class C Shares. For its services under the Class C distribution plan, KDI
receives a fee from the Fund, payable monthly, at an annual rate of 0.75% of
average daily net assets of the Fund attributable to its Class C shares. This
fee is accrued daily as an expense of Class C shares. KDI currently advances to
firms the first year distribution fee at a rate of 0.75% of the purchase price
of such shares. For periods after the first year, KDI currently intends to pay
firms for sales of Class C shares a distribution fee, payable quarterly, at an
annual rate of 0.75% of net assets attributable to Class C shares maintained and
serviced by the firm and the fee continues until terminated by KDI or the Fund.
KDI also receives any contingent deferred sales charges received on redemptions
of Class C shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class C Shares."
Rule 12b-1 Plans. Since the distribution agreement provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by KDI to
pay for distribution services for those classes, the agreement is approved and
reviewed separately for the Class B shares and the Class C shares, in accordance
with Rule 12b-1 under the 1940 Act, which regulates the manner in which an
investment company may, directly or indirectly, bear the expenses of
distributing its shares.
If the Rule 12b-1 Plan (the "Plan") for a class is terminated in accordance with
its terms, the obligation of the Fund to make payments to KDI pursuant to the
Plan will cease and the Fund will not be required to make any payments past the
termination date. Thus, there is no legal obligation for the Fund to pay any
expenses incurred by KDI in excess of its fees under the Plan, if for any reason
the Plan is terminated in accordance with its terms. Future fees under the Plan
may or may not be sufficient to reimburse KDI for its expenses incurred.
Administrative Services. KDI also provides information and administrative
services for Fund shareholders pursuant to an administrative services agreement
("administrative agreement"). KDI may enter into related arrangements with
various financial services firms, such as broker-dealer firms or banks ("firms")
that provide services and facilities for their customers or clients who are
shareholders in the Fund. Such administrative services
12
<PAGE>
and assistance may include, but are not limited to, establishing and maintaining
shareholder accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding the Fund and its special
features and such other administrative services as may be agreed upon from time
to time and permitted by applicable statute, rule or regulation. KDI bears all
of its expenses of providing services pursuant to the administrative agreement,
including the payment of any service fees. For services under the administrative
agreement, the Fund pays KDI a fee, payable monthly, at an annual rate of up to
0.25% of average daily net assets of Class A, B and C shares of the Fund. KDI
then pays each firm a service fee, normally payable quarterly, at an annual rate
of up to 0.25% of net assets attributable to Class A, B and C shares maintained
and serviced by the firm. Firms to which service fees may be paid include
affiliates of KDI.
Class A Shares. For Class A shares, a firm becomes eligible for the service fee
based upon assets in the accounts in the month following the month of purchase
and the fee continues until terminated by KDI or the Fund. The fees are
calculated monthly and normally paid quarterly.
Class B and Class C Shares. KDI currently advances to firms the first-year
service fee at a rate of up to 0.25% of the purchase price of Class B and Class
C shares. For periods after the first year, KDI currently intends to pay firms a
service fee at a rate of up to 0.25% (calculated monthly and paid quarterly) of
the net assets attributable to Class B and Class C shares maintained and
serviced by the firm during such period and the fee continues until terminated
by KDI or the Fund.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which there is a firm listed on the Fund's records and it is
intended that KDI will pay all of the administrative services fee that it
receives from the Fund to firms in the form of service fees. The effective
administrative services fee rate to be charged against all assets of the Fund
while this procedure is in effect will depend upon the proportion of Fund assets
that is in accounts for which a firm provides administrative services, as well
as, with respect to Class A shares, the date when shares representing such
assets were purchased. In addition, KDI may, from time to time, from its own
resources pay certain firms additional amounts for ongoing administrative
services and assistance provided to their customers and clients who are
shareholders of the Fund.
Custodian, Transfer Agent And Shareholder Service Agent. State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts, as custodian, has
custody of all securities and cash of the Fund. Pursuant to an agency agreement
with the Fund, Kemper Service Company (the "Shareholder Servicing Agent"), a
subsidiary of the Adviser, serves as transfer agent and dividend-paying agent.
For a description of the transfer agent and fees payable to Kemper Service
Company, see "Investment Manager and Underwriter" in the Statement of Additional
Information.
Fund Accounting Agent. Scudder Fund Accounting Corporation, Two International
Place, Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes
net asset value for the Fund. The Fund pays Scudder Fund Accounting Corporation
an annual fee.
Portfolio Transactions. The Adviser places all orders for purchases and sales of
the Fund's securities. Subject to seeking best execution of orders, it may
consider sales of shares of the Fund and other funds managed by the Adviser as a
factor in selecting broker-dealers. See "Portfolio Transactions" in the
Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends And Other Distributions. The Fund normally distributes quarterly
dividends of net investment income and any net realized short-term and long-term
capital gains at least annually. The Fund intends to distribute net realized
capital gains after utilization of capital loss carryforwards, if any, in
December to prevent application of a federal excise tax. An additional
distribution may be made at a later date, if necessary.
13
<PAGE>
Dividends paid by the Fund with respect to each class of its shares will be
calculated in the same manner, at the same time and on the same day. The level
of income dividends per share (as a percentage of net asset value) will be lower
for Class B and Class C shares than for Class A shares primarily as a result of
the distribution services fees applicable to each of Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same amount for each
class.
Income dividends and capital gains dividends, if any, of the Fund will be
credited to shareholder accounts in full and fractional Fund shares of the same
class at net asset value except that, upon written request to the Shareholder
Service Agent, a shareholder may select one of the following options:
(1) To receive income and short-term capital gains dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of the Fund that are reinvested normally will be reinvested in
Fund shares of the same class. However, upon written request to the Shareholder
Service Agent, a shareholder may elect to have dividends of the Fund invested
without sales charge in shares of the same class of another Kemper Fund at the
net asset value of such class of such other fund. See "Special Features--Class A
Shares--Combined Purchases" for a list of such other Kemper Funds. To use this
privilege of investing dividends of the Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account balance of $1,000 in the Fund
distributing the dividends. The Fund reinvests dividend checks (and future
dividends) in shares of that same class of the Fund if checks are returned as
undeliverable. Dividends and other distributions in the aggregate amount of $10
or less are automatically reinvested in shares of the Fund unless the
shareholder requests that such policy not be applied to the shareholder's
account.
Taxes. The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code ("Code") and, if so qualified,
generally will not be liable for federal income taxes to the extent its earnings
are distributed. To so qualify, the Fund must satisfy certain income, asset
diversification and distribution requirements annually. Dividends derived from
net investment income and net short-term capital gains are taxable to
shareholders as ordinary income and properly designated net long-term capital
gain dividends are taxable to shareholders as long-term capital gain regardless
of how long the shares have been held and whether received in cash or shares.
Long-term capital gain dividends received by individual shareholders are taxed
at a maximum rate of 20% on gains realized by the Fund from securities held more
than 18 months and at a maximum rate of 28% on gains realized by the Fund from
securities held more than 12 months but not more than 18 months. Dividends
declared in October, November or December to shareholders of record as of a date
in one of those months and paid during the following January are treated as paid
on December 31 of the calendar year declared. Dividends from domestic
corporations are expected to comprise a substantial part of the Fund's gross
income. To the extent that such dividends constitute a portion of the Fund's
gross income, a portion of the dividends paid by the Fund may qualify for the
dividends received deduction available to corporate shareholders.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, will be taxable to the shareholder. Thus, investors should
consider the implications of buying shares just prior to a dividend. The price
of shares purchased at that time includes the amount of the forthcoming
dividend, which nevertheless will be taxable to them.
A sale or exchange of shares is a taxable event that may result in gain or loss
that will be a capital gain or loss held by the shareholder as a capital asset,
and may qualify for reduced tax rates applicable to certain capital gains,
depending upon the shareholder's holding period for the shares. Further
information relating to tax consequences is contained in the Statement of
Additional Information. Shareholders of the Fund may be subject to state, local
and foreign taxes on Fund distributions and dispositions of Fund shares.
Shareholders should consult their own tax advisers regarding the particular tax
consequences of an investment in the Fund.
The Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social
14
<PAGE>
security number) and in certain other circumstances. Any amounts so withheld are
not an additional tax, and may be applied against the affected shareholder's
U.S. federal income tax liability. Trustees of qualified retirement plans and
403(b)7 accounts are required by law to withhold 20% of the taxable portion of
any distribution that is eligible to be "rolled over." The 20% withholding
requirement does not apply to distributions from Individual Retirement Accounts
("IRAs") or any part of a distribution that is transferred directly to another
qualified retirement plan, 403(b)(7) account, or IRA. Shareholders should
consult with their tax advisers regarding the 20% withholding requirement.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving reinvestment of dividends and periodic
investment and redemption programs. Information for income tax purposes will be
provided after the end of the calendar year. Shareholders are encouraged to
retain copies of their account confirmation statements or year-end statements
for tax reporting purposes. However, those who have incomplete records may
obtain historical account transaction information at a reasonable fee.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.
NET ASSET VALUE
The net asset value per share of the Fund is the value of one share and is
determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the Fund will generally be lower than that of the Class A shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of the Fund is computed as of the close of regular trading
on the New York Stock Exchange (the "Exchange") on each day the Exchange is open
for trading. The Exchange is scheduled to be closed on the following holidays:
New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas. Portfolio
securities for which market quotations are readily available are generally
valued at market value. All other securities may be valued at fair value as
determined in good faith by or under the direction of the Board of Trustees.
PURCHASE OF SHARES
Special Promotion. From February 2, 1998 to June 30, 1998 ("Special Offering
Period"), KDI, the principal underwriter for the Fund, intends to reallow the
full applicable sales charge with respect to Class A shares of the Fund
purchased during the Special Offering Period (not including shares acquired at
net asset value). KDI also intends to pay an additional commission of 0.50% with
respect to Class B shares of the Fund purchased during the Special Offering
Period, not including exchanges or other transactions for which commissions are
not paid.
Alternative Purchase Arrangements. Class A shares of the Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first and
second year following purchase, and do not convert into another class. When
placing purchase orders, investors must specify whether the order is for Class
A, Class B or Class C shares.
15
<PAGE>
The primary distinctions among the classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information
--------------------------------- ------------------------ ----------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of None Initial sales charge waived
5.75% of the public offering price or reduced for certain
purchases
Class B Maximum contingent deferred sales 0.75% Shares convert to Class A
charge of 4% of redemption shares six years after
proceeds, declines to zero after issuance
six years
Class C Contingent deferred sales charge 0.75% No conversion feature
of 1% of redemption proceeds for
redemptions made during first year
after purchase
</TABLE>
The minimum initial investment for each class of the Fund is $1,000 and the
minimum subsequent investment is $100. The minimum initial investment for an
Individual Retirement Account is $250 and the minimum subsequent investment is
$50. Under an automatic investment plan, such as Bank Direct Deposit, Payroll
Direct Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).
Initial Sales Charge Alternative--Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
Sales Charge
--------------------------------------------------------
Allowed to
Dealers as a
As a Percentage As a Percentage Percentage of
of Offering Price of Net Asset Value* Offering Price
----------------- ------------------- --------------
Amount of Purchase
------------------
<S> <C> <C> <C>
Less than $50,000.......................... 5.75% 6.10% 5.20%
$50,000 but less than $100,000............ 4.50 4.71 4.00
$100,000 but less than $250,000............ 3.50 3.63 3.00
$250,000 but less than $500,000............ 2.60 2.67 2.25
$500,000 but less than $1 million.......... 2.00 2.04 1.75
$1 million and over........................ 0.00** 0.00** ***
</TABLE>
- ----------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as
discussed below.
*** Commission is payable by KDI as discussed below.
The Fund receives the entire net asset value of all of its shares sold. KDI, the
Fund's principal underwriter, retains the sales charge on sales of Class A
shares from which it allows discounts from the applicable public offering price
to investment dealers, which discounts are uniform for all dealers in the United
States and its territories. The normal discount allowed to dealers is set forth
in the above table.
16
<PAGE>
Upon notice to all dealers with whom it has sales agreements, KDI may re-allow
up to the full applicable sales charge, as shown in the above table, during
periods and for transactions specified in such notice and such reallowances may
be based upon attainment of minimum sales levels. During periods when 90% or
more of the sales charge is reallowed, such dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
Class A shares of the Fund may be purchased at net asset value to the extent
that the amount invested represents the net proceeds from a redemption of shares
of a mutual fund for which the Adviser does not serve as investment manager and
KDI does not serve as Distributor ("non-Kemper Fund") provided that: (a) the
investor has previously paid either an initial sales charge in connection with
the purchase of the non-Kemper Fund shares redeemed or a contingent deferred
sales charge in connection with the redemption of the non-Kemper Fund shares,
and (b) the purchase of Fund shares is made within 90 days after the date of
such redemption. To make such a purchase at net asset value, the investor or the
investor's dealer must, at the time of purchase, submit a request that the
purchase be processed at net asset value pursuant to this privilege. The
redemption of the shares of the non-Kemper Fund is, for federal income tax
purposes, a sale upon which a gain or loss may be realized. KDI may in its
discretion compensate firms for sales of Class A shares under this privilege at
a commission rate of 0.50% of the amount of Class A shares purchased.
Class A shares of the Fund may be purchased at net asset value by: (a) any
purchaser, provided that the amount invested in the Fund or other Kemper Funds
listed under "Special Features--Class A Shares--Combined Purchases" totals at
least $1,000,000 including purchases of Class A shares pursuant to the "Combined
Purchases," "Letter of Intent" and "Cumulative Discount" features described
under "Special Features"; or (b) a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non- qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district provided in each case
that such plan has not less than 200 eligible employees (the "Large Order NAV
Purchase Privilege"). Redemption within two years of shares purchased under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred sales
charge. See "Redemption or Repurchase of Shares--Contingent Deferred Sales
Charge--Large Order NAV Purchase Privilege."
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of the Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
benefit plans using the subaccount record keeping system made available through
Kemper Service Company. For purposes of determining the appropriate commission
percentage to be applied to a particular sale under the foregoing schedules, KDI
will consider the cumulative amount invested by the purchaser in the Fund and
other Kemper Funds listed under "Special Features--Class A Shares--Combined
Purchases," including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features referred to above. The privilege of
purchasing Class A shares of the Fund at net asset value under the Large Order
NAV Purchase Privilege is not available if another net asset value purchase
privilege is also applicable.
Class A shares of the Fund or any other Kemper Fund listed under "Special
Features--Class A Shares--Combined Purchases" may be purchased at net asset
value in any amount by members of the plaintiff class in the proceeding known as
Howard and Audrey Tabankin, et al. v. Kemper Short-Term Global Income Fund, et
al., Case No. 93 C 5231 (N.D. IL). This privilege is generally non-transferable
and continues for the lifetime of individual class members and for a ten year
period for non-individual class members. To make a purchase at net asset value
under this privilege, the investor must, at the time of purchase, submit a
written request that the purchase be processed at net asset value pursuant to
this privilege specifically identifying the purchaser as a member of the
"Tabankin Class." Shares purchased under this privilege will be maintained in a
separate account that includes only shares purchased under this privilege. For
more details concerning this privilege, class members should refer to the Notice
of (1) Proposed Settlement with Defendants; and (2) Hearing to Determine
Fairness of Proposed Settlement, dated August 31, 1995, issued in connection
with the aforementioned court proceeding. For sales of Fund shares at
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net asset value pursuant to this privilege, KDI may at its discretion pay
investment dealers and other financial services firms a concession, payable
quarterly, at an annual rate of up to 0.25% of net assets attributable to such
shares maintained and serviced by the firm. A firm becomes eligible for the
concession based upon assets in accounts attributable to shares purchased under
this privilege in the month after the month of purchase and the concession
continues until terminated by KDI. The privilege of purchasing Class A shares of
the Fund at net asset value under this privilege is not available if another net
asset value purchase privilege also applies.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
the Fund, its investment manager, its principal underwriter or certain
affiliated companies, for themselves or members of their families: (b)
registered representatives and employees of broker-dealers having selling group
agreements with KDI and officers, directors and employees of service agents of
the Fund, for themselves or their spouses or dependent children; (c)
shareholders who owned shares of Kemper Value Fund, Inc. ("KVF") on September 8,
1995, and have continuously owned shares of KVF (or a Kemper Fund acquired by
exchange of KVF shares) since that date, for themselves or members of their
families, (d) any trust or pension, profit-sharing or other benefit plan for
only such persons; (e) persons who purchase such shares through bank trust
departments that process such trades through an automated, integrated mutual
fund clearing program provided by a third party clearing firm; (f) persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups. Class A shares may be sold at net
asset value in any amount to selected employees (including their spouses and
dependent children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Fund for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund Class A shares may purchase Fund Class A shares at net asset value
hereunder. Class A shares may be sold at net asset value in any amount to unit
investment trusts sponsored by Ranson & Associates, Inc. In addition,
unitholders of unit investment trusts sponsored by Ranson & Associates, Inc. or
its predecessors may purchase the Fund's Class A shares at net asset value
through reinvestment programs described in the prospectuses of such trusts that
have such programs. The Fund's Class A shares may be sold at net asset value
through certain investment advisers registered under the 1940 Act and other
financial services firms that adhere to certain standards established by KDI,
including a requirement that such shares be sold for the benefit of their
clients participating in an investment advisory program under which such clients
pay a fee to the investment adviser or other firm for portfolio management and
other services. Such shares are sold for investment purposes and on the
condition that they will not be resold except through redemption or repurchase
by the Fund. The Fund may also issue Class A shares at net asset value in
connection with the acquisition of the assets of or merger or consolidation with
another investment company, or to shareholders in connection with the investment
or reinvestment of income and capital gain dividends.
Class A shares of the Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
Deferred Sales Charge Alternative--Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will
18
<PAGE>
be invested in Class B shares for his or her account. A contingent deferred
sales charge may be imposed upon redemption of Class B shares. See "Redemption
or Repurchase of Shares--Contingent Deferred Sales Charge--Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of the Fund will automatically convert to Class A shares of the
Fund six years after issuance on the basis of the relative net asset value per
share of the Class B shares. Class B shareholders of the Fund who originally
acquired their shares as Initial Shares of Kemper Portfolios, formerly known as
Kemper Investment Portfolios ("KIP"), hold them subject to the same conversion
period schedule as that of their KIP Portfolio. Class B shares originally
representing Initial Shares of a KIP Portfolio will automatically convert to
Class A shares of the Fund six years after issuance of the Initial Shares for
shares issued on or after February 1, 1991 and seven years after issuance of the
Initial Shares for shares issued before February 1, 1991. The purpose of the
conversion feature is to relieve holders of Class B shares from the distribution
services fee when they have been outstanding long enough for KDI to have been
compensated for distribution related expenses. For purposes of conversion to
Class A shares, shares purchased through the reinvestment of dividends and other
distributions paid with respect to Class B shares in a shareholder's Fund
account will be converted to Class A shares on a pro rata basis.
Purchase Of Class C Shares. The public offering price of the Class C shares of
the Fund is the next determined net asset value. No initial sales charge is
imposed. Since Class C shares are sold without an initial sales charge, the full
amount of the investor's purchase payment will be invested in Class C shares for
his or her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares--Contingent Deferred Sales Charge--Class
C Shares." KDI currently advances to firms the first year distribution fee at a
rate of 0.75% of the purchase price of such shares. For periods after the first
year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
Which Arrangement Is Better For You? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in the Fund or other Kemper Funds listed
under "Special Features--Class A Shares--Combined Purchases" is in excess of $5
million including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features described under "Special Features."
For more information about the three sales arrangements, consult your financial
representative or the Shareholder Service Agent. Financial services firms may
receive different compensation depending upon which class of shares they sell.
General. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of the Fund for their clients, and KDI may pay them a transaction fee up
to the level of the discount or commission allowable or payable to dealers as
described above. Banks currently are prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund.
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KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of the Fund sold by the firm under the following conditions: (i) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over" of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
Kemper Service Company, (iii) the registered representative placing the trade is
a member of ProStar, a group of persons designated by KDI in acknowledgment of
their dedication to the employee benefit plan area and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of the Fund. Non-cash compensation includes luxury merchandise and trips to
luxury resorts. In some instances, such discounts, commissions or other
incentives will be offered only to certain firms that sell or are expected to
sell during specified time periods certain minimum amounts of shares of the Fund
or other funds underwritten by KDI.
Orders for the purchase or redemption of shares of the Fund will be confirmed at
a price based on the net asset value of the Fund next determined after receipt
in good order by KDI of the order accompanied by payment. However, orders
received by dealers or other firms prior to the determination of net asset value
(see "Net Asset Value") and received in good order by KDI prior to the close of
its business day will be confirmed at a price based on the net asset value
effective on that day ("trade date"). The Fund reserves the right to determine
the net asset value more frequently than once a day if deemed desirable. Dealers
and other financial services firms are obligated to transmit orders promptly.
Collection may take significantly longer for a check drawn on a foreign bank
than for a check drawn on a domestic bank. Therefore, if an order is accompanied
by a check drawn on a foreign bank, funds must normally be collected before
shares will be purchased. See "Purchase and Redemption of Shares" in the
Statement of Additional Information.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem Fund shares. Some may establish higher minimum
investment requirements than set forth above. Firms may arrange with their
clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
Fund shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Fund through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
The Fund reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders for any reason. Also, from time to
time, the Fund may temporarily suspend the offering of any class of its shares
to new investors. During the period of such suspension, persons who are already
shareholders of such class of the Fund normally are permitted to continue to
purchase additional shares of such class and to have dividends reinvested.
Tax Identification Number. Be sure to complete the Tax Identification Number
section of the Fund's application when you open an account. Federal tax law
requires the Fund to withhold 31% of taxable dividends, capital gains
distributions and redemption and exchange proceeds from accounts (other than
those of certain exempt payees) without a correct certified Social Security or
tax identification number and certain other certified information or upon
notification from the IRS or a broker that withholding is required. The Fund
reserves the right to reject new
20
<PAGE>
account applications without a correct certified Social Security or tax
identification number. The Fund also reserves the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary
redemption by providing the Fund with a tax identification number during the
30-day notice period.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
General. Any shareholder may require the Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Fund's transfer agent,
the shareholder may redeem such shares by sending a written request with
signatures guaranteed to Kemper Funds, Attention: Redemption Department, P.O.
Box 419557, Kansas City, Missouri 64141-6557. When certificates for shares have
been issued, they must be mailed to or deposited with the Shareholder Service
Agent, along with a duly endorsed stock power and accompanied by a written
request for redemption. Redemption requests and a stock power must be endorsed
by the account holder with signatures guaranteed by a commercial bank, trust
company, savings and loan association, federal savings bank, member firm of a
national securities exchange or other eligible financial institution. The
redemption request and stock power must be signed exactly as the account is
registered including any special capacity of the registered owner. Additional
documentation may be requested, and a signature guarantee is normally required,
from institutional and fiduciary account holders, such as corporations,
custodians (e.g., under the Uniform Transfers to Minors Act), executors,
administrators, trustees or guardians.
The redemption price for shares of a class of the Fund will be the net asset
value per share of that class of the Fund next determined following receipt by
the Shareholder Service Agent of a properly executed request with any required
documents as described above. Payment for shares redeemed will be made in cash
as promptly as practicable but in no event later than seven days after receipt
of a properly executed request accompanied by any outstanding share certificates
in proper form for transfer. When the Fund is asked to redeem shares for which
it may not have yet received good payment (i.e., purchases by check,
EXPRESS-Transfer or Bank Direct Deposit), it may delay transmittal of redemption
proceeds until it has determined that collected funds have been received for the
purchase of such shares, which will be up to 10 days from receipt by the Fund of
the purchase amount. The redemption within two years of Class A shares purchased
at net asset value under the Large Order NAV Purchase Privilege may be subject
to a contingent deferred sales charge (see "Purchase of Shares--Initial Sales
Charge Alternative--Class A Shares") and the redemption of Class B shares within
six years may be subject to a contingent deferred sales charge (see "Contingent
Deferred Sales Charge--Class B Shares" below), and the redemption of Class C
shares within the first year following purchase may be subject to a contingent
deferred sales charge (see "Contingent Deferred Sales Charge--Class C Shares"
below).
Because of the high cost of maintaining small accounts, the Fund may assess a
quarterly fee of $9 on any account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of any fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized transactions, so long
as reasonable
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<PAGE>
verification procedures are followed. Verification procedures include recording
instructions, requiring certain identifying information before acting upon
instructions and sending written confirmations.
Telephone Redemptions. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without a signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. The Fund reserves the right to terminate or modify
this privilege at any time.
Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value next determined after receipt of a request by KDI.
However, requests for repurchases received by dealers or other firms prior to
the determination of net asset value (see "Net Asset Value") and received by KDI
prior to the close of KDI's business day will be confirmed at the net asset
value effective on that day. The offer to repurchase may be suspended at any
time. Requirements as to stock powers, certificates, payments and delay of
payments are the same as for redemptions.
Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value effective on
that day and normally the proceeds will be sent to the designated account the
following business day. Delivery of the proceeds of a wire redemption request of
$250,000 or more may be delayed by the Fund for up to seven days if the Fund or
the Adviser deems it appropriate under then current market conditions. Once
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048 or in writing, subject to the limitations on
liability described under "General" above. The Fund is not responsible for the
efficiency of the federal wire system or the account holder's financial services
firm or bank. The Fund currently does not charge the account holder for wire
transfers. The account holder is responsible for any charges imposed by the
account holder's firm or bank. There is a $1,000 wire redemption minimum
(including any contingent deferred sales charge). To change the designated
account to receive wire redemption proceeds, send a written request to the
Shareholder Service Agent with signatures guaranteed as described above or
contact the firm through which shares of the Fund were purchased. Shares
purchased by check or through EXPRESS-Transfer or Bank Direct Deposit may not be
redeemed by wire transfer until such shares have been owned for at least 10
days. Account holders may not use this privilege to redeem shares held in
certificated form. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the expedited
wire transfer redemption privilege. The Fund reserves the right to terminate or
modify this privilege at any time.
Contingent Deferred Sales Charge--Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV
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Purchase Privilege as follows: 1% if they are redeemed within one year of
purchase and 0.50% if they are redeemed during the second year following
purchase. The charge will not be imposed upon redemption of reinvested dividends
or share appreciation. The charge is applied to the value of the shares
redeemed, excluding amounts not subject to the charge. The contingent deferred
sales charge will be waived in the event of: (a) redemptions by a
participant-directed qualified retirement plan described in Code Section 401(a)
or a participant-directed non-qualified deferred compensation plan described in
Code Section 457 or a participant- directed qualified retirement plan described
in Code Section 403(b)(7) which is not sponsored by a K-12 school district; (b)
redemptions by employer sponsored employee benefit plans using the subaccount
record keeping system made available through the Shareholder Service Agent; (c)
redemption of shares of a shareholder (including a registered joint owner) who
has died; (d) redemption of shares of a shareholder (including a registered
joint owner) who after purchase of the shares being redeemed becomes totally
disabled (as evidenced by a determination by the federal Social Security
Administration); (e) redemptions under the Fund's Systematic Withdrawal Plan at
a maximum of 10% per year of the net asset value of the account; and (f)
redemptions of shares whose dealer of record at the time of the investment
notifies KDI that the dealer waives the commission applicable to such Large
Order NAV Purchase.
Contingent Deferred Sales Charge--Class B Shares. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed, excluding amounts not subject to the charge.
Contingent
Deferred
Year of Redemption After Purchase Sales Charge
--------------------------------- ------------
First............................. 4%
Second............................ 3%
Third............................. 3%
Fourth............................ 2%
Fifth............................. 2%
Sixth............................. 1%
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts). The contingent deferred sales charge will
also be waived in connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent: (a) redemptions
to satisfy participant loan advances (note that loan repayments constitute new
purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested in the Fund), (c) redemptions in connection with distributions
qualifying under the hardship provisions of the Code and (d) redemptions
representing returns of excess contributions to such plans.
Contingent Deferred Sales Charge--Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed, excluding amounts not subject to the
charge. The contingent deferred sales charge will be waived: (a) in the event of
the total disability (as evidenced by a determination by the federal Social
Security Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
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redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special
Features--Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper Fund IRA accounts); (f) for any participant-directed
redemption of shares held by employer sponsored employee benefit plans
maintained on the subaccount record keeping system made available by the
Shareholder Service Agent; and (g) for redemption of shares by an employer
sponsored employee benefit plan that (i) offers funds in addition to Kemper
Funds (i.e., "multi-manager"), and (ii) whose dealer of record has waived the
advance of the first year administrative service and distribution fees
applicable to such shares and agrees to receive such fees quarterly.
Contingent Deferred Sales Charge--General. The following example will illustrate
the operation of the contingent deferred sales charge. Assume that an investor
makes a single purchase of $10,000 of the Fund's Class B shares and that 16
months later the value of the shares has grown by $1,000 through reinvested
dividends and by an additional $1,000 in appreciation to a total of $12,000. If
the investor were then to redeem the entire $12,000 in share value, the
contingent deferred sales charge would be payable only with respect to $10,000
because neither the $1,000 of reinvested dividends nor the $1,000 of share
appreciation is subject to the charge. The charge would be at the rate of 3%
($300) because it was in the second year after the purchase was made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
December, 1997 will be eligible for the second year's charge if redeemed on or
after December 1, 1998. In the event no specific order is requested, the
redemption will be made first from shares representing reinvested dividends and
then from the earliest purchase of shares. KDI receives any contingent deferred
sales charge directly.
Reinvestment Privilege. A shareholder who has redeemed Class A shares of the
Fund or any other Kemper Fund listed under "Special Features--Class A
Shares--Combined Purchases" (other than shares of Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
the Fund or of the other listed Kemper Funds. A shareholder of the Fund or any
other Kemper Fund who redeems Class A shares purchased under the Large Order NAV
Purchase Privilege (see "Purchase of Shares--Initial Sales Charge
Alternative--Class A Shares"), Class B shares or Class C shares and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value at the time of the reinvestment in the same class of shares of
the Fund or of other Kemper Funds. The amount of any contingent deferred sales
charge also will be reinvested. These reinvested shares will retain their
original cost and purchase date for purposes of the contingent deferred sales
charge schedule. Also, a holder of Class B shares who has redeemed shares may
reinvest up to the full amount redeemed, less any applicable contingent deferred
sales charge that may have been imposed upon the redemption of such shares, at
net asset value in Class A shares of the Fund or of the other Kemper Funds
listed under "Special Features--Class A Shares--Combined Purchases." Purchases
through the reinvestment privilege are subject to the minimum investment
requirements applicable to the shares being purchased and may only be made for
Kemper Funds available for sale in the shareholder's state of residence as
listed under "Special Features--Exchange Privilege." The reinvestment privilege
can be used only once as to any specific shares and reinvestment must be
effected within six months of the redemption. If a loss is realized on the
redemption of Fund shares, the reinvestment in shares of the Fund may be subject
to the "wash sale" rules if made within 30 days of the redemption, resulting in
a postponement of the recognition of such loss for federal income tax purposes.
The reinvestment privilege may be terminated or modified at any time.
Redemption In Kind. Although it is the Fund's present policy to redeem in cash,
if the Board of Trustees determines that a material adverse effect would be
experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the Securities and Exchange Commission, taking such
securities at the same value used to determine net asset value, and selecting
the securities in such manner as the Board of Trustees may deem fair and
equitable. If such a distribution occurred, shareholders receiving securities
and
24
<PAGE>
selling them could receive less than the redemption value of such securities and
in addition would incur certain transaction costs. Such a redemption would not
be as liquid as a redemption entirely in cash.
SPECIAL FEATURES
Class A Shares--Combined Purchases. The Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper U.S. Growth and Income Fund, Kemper Global Blue Chip
Fund, Kemper International Growth and Income Fund, Kemper Emerging Markets
Income Fund, Kemper Emerging Markets Growth Fund, Kemper Latin America Fund,
Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth Fund, Kemper
Small Capitalization Equity Fund, Kemper Income and Capital Preservation Fund,
Kemper Municipal Bond Fund, Kemper Diversified Income Fund, Kemper High Yield
Series, Kemper U.S. Government Securities Fund, Kemper International Fund,
Kemper State Tax-Free Income Series, Kemper Adjustable Rate U.S. Government
Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper Target Equity
Fund (series are subject to a limited offering period), Kemper Intermediate
Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S. Mortgage Fund,
Kemper Short-Intermediate Government Fund, Kemper Value Fund, Inc., Kemper
Value+Growth Fund, Kemper Quantitative Equity Fund, Kemper Horizon Fund, Kemper
Europe Fund, Kemper Asian Growth Fund and Kemper Aggressive Growth Fund ("Kemper
Funds"). Except as noted below, there is no combined purchase credit for direct
purchases of shares of Kemper Money Funds, Cash Equivalent Fund, Tax-Exempt
California Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund
or Investors Cash Trust ("Money Market Funds"), which are not considered "Kemper
Funds" for purposes hereof. For purposes of the Combined Purchases feature
described above as well as for the Letter of Intent and Cumulative Discount
features described below, employer sponsored employee benefit plans using the
subaccount record keeping system made available through the Shareholder Service
Agent may include: (a) Money Market Funds as "Kemper Funds," (b) all classes of
shares of any Kemper Fund and (c) the value of any other plan investments, such
as guaranteed investment contracts and employer stock, maintained on such
subaccount record keeping system.
Class A Shares--Letter Of Intent. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Funds listed above made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
KDI. The Letter, which imposes no obligation to purchase or sell additional
Class A shares, provides for a price adjustment depending upon the actual amount
purchased within such period. The Letter provides that the first purchase
following execution of the Letter must be at least 5% of the amount of the
intended purchase, and that 5% of the amount of the intended purchase normally
will be held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed shares are redeemed and the proceeds used
toward satisfaction of the obligation to pay the increased sales charge. The
Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Funds held of record as of the initial purchase date under the
Letter as an "accumulation credit" toward the completion of the Letter, but no
price adjustment will be made on such shares. Only investments in Class A shares
of the Fund are included for this privilege.
Class A Shares--Cumulative Discount. The Fund's Class A shares also may be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of Fund shares being purchased the value of all Class A shares of the
above mentioned Kemper Funds (computed at the maximum offering price at the time
of the purchase for which the discount is applicable) already owned by the
investor.
Class A Shares--Availability of Quantity Discounts. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
25
<PAGE>
Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Funds in accordance with the provisions below.
Class A Shares. Class A shares of the Kemper Funds and shares of the Money
Market Funds listed under "Special Features--Class A Shares--Combined Purchases"
above may be exchanged for each other at their relative net asset values. Shares
of Money Market Funds and Kemper Cash Reserves Fund that were acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange. Series of Kemper Target Equity Fund are
available on exchange only during the offering period for such series as
described in the applicable prospectus. Cash Equivalent Fund, Tax-Exempt
California Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund
and Investors Cash Trust are available on exchange but only through a financial
services firm having a services agreement with KDI.
Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another Kemper Fund or a Money
Market Fund under the exchange privilege described above without paying any
contingent deferred sales charge at the time of exchange. If the Class A shares
received on exchange are redeemed thereafter, a contingent deferred sales charge
may be imposed in accordance with the foregoing requirements provided that the
shares redeemed will retain their original cost and purchase date for purposes
of calculating the contingent deferred sales charge.
Class B Shares. Class B shares of the Fund and Class B shares of any other
Kemper Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class B
shares may be exchanged without any contingent deferred sales charge being
imposed at the time of exchange. For purposes of calculating the contingent
deferred sales charge that may be imposed upon the redemption of the Class B
shares received on exchange, retain the cost and purchase date of the shares
that were originally purchased and exchanged.
Class C Shares. Class C shares of the Fund and Class C shares of any other
Kemper Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class C
shares may be exchanged without a contingent deferred sales charge being imposed
at the time of exchange. For determining whether there is a contingent deferred
sales charge that may be imposed upon the redemption of the Class C shares
received by exchange, the cost and purchase date of the shares that were
originally purchased and exchanged.
General. Shares of a Kemper Fund with a value in excess of $1,000,000 (except
Kemper Cash Reserves Fund) acquired through exchange from another Kemper Fund,
or from a Money Market Fund, may not be exchanged thereafter until they have
been owned for 15 days (the "15 Day Hold Policy"). For purposes of determining
whether the 15 Day Hold Policy applies to a particular exchange, the value of
the shares to be exchanged shall be computed by aggregating the value of shares
being exchanged for all accounts under common control, direction or advice,
including without limitation, accounts administered by a financial services firm
offering market timing, asset allocation or similar services. The total value of
shares being exchanged must at least equal the minimum investment requirement of
the Kemper Fund into which they are being exchanged. Exchanges are made based on
relative dollar values of the shares involved in the exchange. There is no
service fee for an exchange; however, dealers or other firms may charge for
their services in effecting exchange transactions. Exchanges will be effected by
redemption of shares of the fund held and purchase of shares of the other fund.
For federal income tax purposes, any such exchange constitutes a sale upon which
a gain or loss may be realized, depending upon whether the value of the shares
being exchanged is more or less than the shareholder's adjusted cost basis of
such shares. Shareholders interested in exercising the exchange privilege may
obtain prospectuses of the other funds from dealers, other firms or KDI.
Exchanges may be accomplished by a written request to Kemper Service Company,
Attention: Exchange Department, P.O. Box 419557, Kansas City, Missouri
64141-6557, or by telephone if the shareholder has given authorization. Once the
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048, subject to the limitations on liability under
"Redemption or Repurchase of Shares--General." Any share certificates must be
deposited prior to any exchange of such shares. During periods when it is
difficult to contact the Shareholder Service Agent by telephone, it may be
difficult to implement the telephone
26
<PAGE>
exchange privilege. The exchange privilege is not a right and may be suspended,
terminated or modified at any time. Exchanges may only be made for Kemper Funds
that are eligible for sale in the shareholder's state of residence. Currently,
Tax-Exempt California Money Market Fund is available for sale only in California
and Investors Municipal Cash Fund is available for sale only in certain states.
Except as otherwise permitted by applicable regulations, 60 days' prior written
notice of any termination or material change will be provided.
Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a Kemper Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the other
Kemper Fund. Exchanges are subject to the terms and conditions described above
under "Exchange Privilege," except that the $1,000 minimum investment
requirement for the Kemper Fund acquired on exchange is not applicable. This
privilege may not be used for the exchange of shares held in certificated form.
Express-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares--General." Once enrolled in
EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048, Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to Kemper Service Company, P.O. Box 419415, Kansas City,
Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable amount of time to act upon the
request. EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
Bank Direct Deposit. A shareholder may purchase additional Fund shares through
an automatic investment program. With the Bank Direct Deposit Purchase Plan,
investments are made automatically (minimum $50, maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit, the shareholder
authorizes the Fund and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her Plan
by sending written notice to Kemper Service Company, P.O. Box 419415, Kansas
City, Missouri 64141-6415. Termination by a shareholder will become effective
within thirty days after the Shareholder Service Agent has received the request.
The Fund may immediately terminate a shareholder's Plan in the event that any
item is unpaid by the shareholder's financial institution. The Fund may
terminate or modify this privilege at any time.
Payroll Direct Deposit And Government Direct Deposit. A shareholder may invest
in the Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in their Fund account each payment period. A
shareholder may terminate participation in these programs by giving written
notice to the shareholder's employer or government agency, as appropriate. (A
reasonable time to act is required.) The Fund is not responsible for the
efficiency of the employer or government agency making the payment or any
financial institutions transmitting payments.
Systematic Withdrawal Plan. The owner of $5,000 or more of a class of the Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount up to $50,000 to be paid to the owner or
a designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to Individual Retirement Accounts. The
minimum periodic payment is $100. The maximum annual rate at which Class B
shares
27
<PAGE>
(and Class A shares purchased under the Large Order NAV Purchase Privilege and
Class C shares in the first year following the purchase) may be redeemed under a
systematic withdrawal plan is 10% of the net asset value of the account. Any
income and capital gain dividends will be automatically reinvested at net asset
value. A sufficient number of full and fractional shares will be redeemed to
make the designated payment. Depending upon the size of the payments requested
and fluctuations in the net asset value of the shares redeemed, redemptions for
the purpose of making such payments may reduce or even exhaust the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan ordinarily will be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may already have been
paid. Therefore, the Fund will not knowingly permit additional investments of
less than $2,000 if the investor is at the same time making systematic
withdrawals. KDI will waive the contingent deferred sales charge on redemption
of Class A shares purchased under the Large Order NAV Purchase Privilege, Class
B shares and Class C shares made pursuant to a systematic withdrawal plan. The
right is reserved to amend the systematic withdrawal plan on 30 days' notice.
The plan may be terminated at any time by the investor or the Fund.
Tax-Sheltered Retirement Plans. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
o Traditional, Roth and Education Individual Retirement Accounts ("IRAs").
This includes Savings Incentive Match Plan For Employees of Small
Employers ("SIMPLE") IRA accounts and Simplified Employee Pension Plan
("SEP") IRA accounts and prototype documents.
o 403(b)(7) Custodial Accounts. This type of plan is available to employees
of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be adopted
by employers. The maximum annual contribution per participant is the
lesser of 25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. Investors should consult with their own tax advisers before
establishing a retirement plan.
PERFORMANCE
The Fund may advertise several types of performance information for a class of
shares, including "average annual total return" and "total return." Performance
information will be computed separately for Class A, Class B and Class C shares.
Each of these figures is based upon historical results and is not representative
of the future performance of any class of the Fund. The Adviser has agreed to a
temporary reduction in its investment management fee payable by the Fund to the
extent specified under "Investment Manager and Underwriter." This fee reduction
will improve the performance results of the Fund.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a particular
class of the Fund's portfolio for the period referenced, assuming the
reinvestment of all dividends. Thus, these figures reflect the change in the
value of an investment in the Fund during a specified period. Average annual
total return will be quoted for at least the one, five and ten year periods
ending on a recent calendar quarter (or if any such period has not yet elapsed,
at the end of a shorter period corresponding to the life of the Fund for
performance purposes). Average annual total return figures represent the average
annual percentage change over the period in question. Total return figures
represent the aggregate percentage or dollar value change over the period in
question.
The Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged equity
28
<PAGE>
indices, including, but not limited to, the Dow Jones Industrial Average, Value
Line, and the Standard & Poor's 500 Composite Price Index. The performance of
the Fund may also be compared to the performance of other mutual funds or mutual
fund indices with similar objectives and policies as reported by independent
mutual fund reporting services such as Lipper Analytical Services, Inc.
("Lipper"). Lipper performance calculations are based upon changes in net asset
value with all dividends reinvested and do not include the effect of any sales
charges.
Information may be quoted from publications such as Morningstar, Inc., The Wall
Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago Tribune,
USA Today, Institutional Investor and Registered Representative. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including, but not limited
to, stocks, bonds, certificates of deposit, money market funds and U.S. Treasury
obligations. Bank product performance may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) or various certificate of deposit indexes.
Money market fund performance may be based upon, among other things, the
IBC/Financial Data, Inc.'s Money Fund Report(R) or Money Market Insight(R),
reporting services on money market funds. Performance of U.S. Treasury
obligations may be based upon, among other things, various U.S. Treasury bill
indexes. Certain of these alternative investments may offer fixed rates of
return and guaranteed principal and may be insured.
The Fund may depict the historical performance of the securities in which the
Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments,
performance indexes of those investments or economic indicators. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund.
The Fund's Class A shares are sold at net asset value plus a maximum sales
charge of 5.75% of the offering price. While the maximum sales charge is
normally reflected in a Fund's Class A performance figures, certain total return
calculations may not include such charge and those results would be reduced if
it were included. Class B shares and Class C shares are sold at net asset value.
Redemptions of Class B shares within the first six years after purchase may be
subject to a contingent deferred sales charge that ranges from 4% during the
first year to 0% after six years. Redemption of Class C shares within the first
year after purchase may be subject to a 1% contingent deferred sales charge.
Average annual total return figures do, and total return figures may, include
the effect of the contingent deferred sales charge for the Class B and Class C
shares that may be imposed at the end of the period in question. Performance
figures for the Class B shares and Class C shares not including the effect of
the applicable contingent deferred sales charge would be reduced if it were
included.
The Fund's returns and net asset value will fluctuate and shares of a class of
the Fund are redeemable by an investor at the class' then current net asset
value, which may be more or less than original cost. Redemption of Class B
shares and Class C shares may be subject to a contingent deferred sales charge
as described above. Additional information concerning the Fund's performance
appears in the Statement of Additional Information. Additional information about
the Fund's performance will also appear in its Annual Report to Shareholders,
which will be available without charge from the Fund.
FUND ORGANIZATION AND CAPITAL STRUCTURE
The Fund is a diversified series of Kemper Securities Trust (the "Trust"), an
open-end management investment company registered under the 1940 Act. The Trust
was organized as a business trust under the laws of Massachusetts on October 2,
1997.
The Trust may issue an unlimited number of shares of beneficial interest in one
or more series or "Portfolios," all having a par value of $0.01, which may be
divided by the Board of Trustees into classes of shares. While only shares of a
single Portfolio with three classes are presently being offered by the Trust,
the Board of Trustees of the Fund may authorize the issuance of additional
classes and additional Portfolios if deemed desirable, each with its own
investment objective, policies and restrictions. Since the Trust may offer
multiple Portfolios, it is known as a
29
<PAGE>
"series company." Currently, the Trust offers three classes of shares of a
single Portfolio. These are Class A, Class B and Class C shares. Shares of a
Portfolio have equal noncumulative voting rights except that Class B and Class C
shares have separate and exclusive voting rights with respect to each such
class' Rule 12b-1 Plan. Shares of each class also have equal rights with respect
to dividends, assets and liquidation of the Fund subject to any preferences
(such as resulting from different Rule 12b-1 distribution fees), rights or
privileges of any classes of shares of the Fund. Shares are fully paid and
nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights. If shares of more than one Portfolio are
outstanding, shareholders will vote by Portfolio and not in the aggregate or by
class except when voting in the aggregate is required under the 1940 Act, such
as for the election of trustees, or when voting by class is appropriate.
The Fund's activities are supervised by the Trust's Board of Trustees. The Trust
is not required to hold and has no current intention of holding annual
shareholder meetings, although special meetings may be called for purposes such
as electing or removing Trustees, changing fundamental investment policies or
approving an investment management contract. Subject to the Declaration of
Trust, shareholders may remove Trustees. Shareholders will be assisted in
communicating with other shareholders in connection with removing a Trustee as
if Section 16(c) of the 1940 Act were applicable.
30
<PAGE>
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606-5808
KEF-1 12/96 (Recycled Logo) printed on recycled paper
Kemper
U.S. Growth and Income Fund
January 30, 1998
[KEMPER FUNDS LOGO]
STATEMENT OF ADDITIONAL INFORMATION
January 30, 1998
KEMPER U.S. GROWTH AND INCOME FUND
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for Kemper U.S. Growth and Income Fund (the
"Fund"), a diversified series of Kemper Securities Trust (the "Trust"), an
open-end management investment company. It should be read in conjunction with
the prospectus of the Fund dated January 30, 1998 . The prospectus may be
obtained without charge from the Fund at the address or telephone number on this
cover or the firm from which this Statement of Additional Information was
received.
---------------
TABLE OF CONTENTS
Page
----
Investment Restrictions............. ____
Investment Policies and Techniques.. ____
Portfolio Transactions.............. ____
Investment Manager and Underwriter.. ____
Purchase and Redemption of Shares... ____
Net Asset Value..................... ____
Dividends, Distributions and Taxes.. ____
Performance......................... ____
Officers and Trustees............... ____
Shareholder Rights.................. ____
Scudder Kemper Investments, Inc. (the "Adviser") serves as the Fund's investment
manager.
KEUF-13 4/97 (RECYCLED LOGO) printed on recycled paper
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which cannot be
changed without approval of a "majority" of its outstanding voting shares. As
defined in the Investment Company Act of 1940, as amended (the "1940 Act"), this
means the lesser of (1) 67% of the Fund's shares present at a meeting where more
than 50% of the outstanding shares are present in person or by proxy; or (2)
more than 50% of the Fund's outstanding shares.
The Fund may not, as a fundamental policy:
(a) borrow money, except as permitted under the 1940 Act and as
interpreted or modified by regulatory authority having jurisdiction
from time to time;
(b) issue senior securities, except as permitted under the 1940 Act and
as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
(c) purchase physical commodities or contracts relating to physical
commodities;
(d) engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities;
(e) purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the Fund
reserves freedom of action to hold and to sell real estate acquired
as a result of the Fund's ownership of securities;
(f) make loans to other persons except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans; or;
(g) concentrate its investments in a particular industry, as that term
is used in the 1940 Act, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond that specified limit resulting from a
change in values or net assets will not be considered a violation.
The Fund may not, as a nonfundamental policy:
(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by engaging
in reverse repurchase agreements, dollar rolls, or other investments
or transactions described in the Fund's registration statement which
may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar rolls
in an amount greater than 5% of its total assets;
(3) purchase securities on margin or make short sales, except (i) short
sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with futures
contracts, options or other permitted investments, (iv) that
transactions in futures contracts and options shall not be deemed to
constitute selling securities short, and (v) that the Fund may
obtain such short-term credits as may be necessary for the clearance
of securities transactions;
(4) purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its total
assets; or sell put options, if as a result, the aggregate value of
the obligations underlying such put options would exceed 50% of its
total assets;
<PAGE>
(5) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect to such futures contracts entered into on behalf
of the Fund and the premiums paid for such options on futures
contracts does not exceed 5% of the fair market value of the Fund's
total assets; provided that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be
excluded in computing the 5% limit;
(6) purchase warrants if as a result, such securities, taken at the
lower of cost or market value, would represent more than 5% of the
value of the Fund's total assets (for this purpose, warrants
acquired in units or attached to securities will be deemed to have
no value); and
(7) lend portfolio securities in an amount greater than 33 1/3% of its
total assets.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL. The objectives of Kemper U.S. Growth and Income Fund are to provide
long-term growth of capital, current income and growth of income. The Fund
invests primarily in common stocks, preferred stocks and securities convertible
into common stocks of U.S. companies which offer the prospect for growth of
earnings while paying current dividends. See "Prospectus Summary" in the Fund's
prospectus, dated January 30, 1998 . The Fund may engage in futures, options and
other derivative transactions ("Strategic Transactions and Derivatives") in
accordance with its investment objective and policies. The Fund intends to
engage in such transactions if it appears to the Adviser to be advantageous for
the Fund to do so, in order to pursue its investment objectives, to hedge
against the effects of fluctuating interest rates and to stabilize the value of
its assets, and not for speculation. The use of futures and options, and
possible benefits and attendant risks, are discussed below, along with
information concerning certain other investment policies and techniques.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities; that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stocks. Investments in convertible securities may
provide income through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of such securities' conversion or exchange
features.
The convertible securities in which the Fund may invest include fixed-income or
zero coupon debt securities which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. The exchange
ratio for any particular convertible security may be adjusted from time to time
due to stock splits, dividends, spin-offs, other corporate distributions or
scheduled changes in the exchange ratio. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion or exchange features.
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Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Convertible securities may be issued as fixed-income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes (LYONS). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
LENDING OF PORTFOLIO SECURITIES. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers or other financial institutions and are required to be secured
continuously by collateral in cash and liquid assets maintained on a current
basis at an amount at least equal to the market value and accrued interest of
the securities loaned. The Fund has the right to call a loan and obtain the
securities loaned on five days' notice. During the existence of a loan, the Fund
will continue to receive the equivalent of any distributions paid by the issuer
on the securities loaned and will also receive compensation based on investment
of the collateral. The risks in lending securities, as with other extensions of
secured credit, consist of a possible delay in recovery or even a loss of rights
in the collateral should the borrower of the securities fail financially. Loans
will only be made to firms deemed by the Adviser to be in good standing, and
will not be made unless, in the judgment of the Adviser, the consideration to be
earned from such loans would justify the risk. The value of the securities
loaned will not exceed 33 1/3% of the value of a Fund's total assets at the time
any loan is made.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker/dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Adviser to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's Investor Services, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P").
A repurchase agreement provides a means for the Fund to earn income on funds for
periods as short as overnight. It is an arrangement under which the purchaser
(i.e., the Fund) acquires a debt security ("Obligation") and the seller agrees,
at the time of sale, to repurchase the Obligation at a specified time and price.
Securities subject to a repurchase agreement are held in a segregated account
and the value of such securities is kept at least equal to the repurchase price
on a daily basis. The repurchase price may be higher than the purchase price,
the difference being income to the Fund, or the purchase and repurchase prices
may be the same, with interest at a stated rate due to the Fund, together with
the repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the Obligation itself. Obligations will be
physically held by the Fund's custodian or in the Federal Reserve Book Entry
system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
the Fund to the seller of the Obligation, subject to the repurchase agreement,
and is, therefore, subject to the Fund's investment restrictions applicable to
loans. It is not clear whether a court would consider the Obligation purchased
by the Fund subject to a repurchase agreement as being owned by the Fund or as
being collateral for the loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the Obligation. If the court characterizes the transaction as a loan and the
Fund has not perfected a security interest in the Obligation, the Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation, in which case the Fund may incur a loss if the proceeds to the Fund
of the sale to a third party are less than the repurchase price. Apart from the
risk of bankruptcy or insolvency proceedings, there is also the risk that the
seller may fail to repurchase the security. However, if the market value of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Fund will direct the seller of the Obligation
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to deliver additional securities so that the market value of all securities
subject to the repurchase agreement will equal or exceed the repurchase price.
It is possible that the Fund will be unsuccessful in seeking to enforce the
seller's contractual obligation to deliver additional securities.
REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in REITs. REITs are sometimes
informally characterized as equity REITs, mortgage REITs and hybrid REITs.
Investment in REITs may subject the Fund to risks associated with the direct
ownership of real estate, such as decreases in real estate values, overbuilding,
increased competition and other risks related to local or general economic
conditions, increases in operating costs and property taxes, changes in zoning
laws, casualty or condemnation losses, possible environmental liabilities,
regulatory limitations on rent and fluctuations in rental income. Equity REITs
generally experience these risks directly through fee or leasehold interests,
whereas mortgage REITs generally experience these risks indirectly through
mortgage interests, unless the mortgage REIT forecloses on the underlying real
estate. Changes in interest rates may also affect the value of the Fund's
investment in REITs. For instance, during periods of declining interest rates,
certain mortgage REITs may hold mortgages that the mortgagors elect to prepay,
which prepayment may diminish the yield on securities issued by those REITs.
Certain REITs have relatively small market capitalization, which may tend to
increase the volatility of the market price of their securities. Furthermore,
REITs are dependent upon specialized management skills, have limited
diversification and are, therefore, subject to risks inherent in operating and
financing a limited number of projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended (the "Code") and to maintain exemption from the registration
requirements of the 1940 Act. By investing in REITs indirectly through the Fund,
a shareholder will bear not only his or her proportionate share of the expenses
of the Fund, but also, indirectly, similar expenses of the REITs. In addition,
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders.
ILLIQUID SECURITIES. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities," "not readily marketable," or
"illiquid" restricted securities, i.e., which cannot be sold to the public
without registration under the Securities Act of 1933 (the "1933 Act") or the
availability of an exemption from registration (such as Rules 144 or 144A) or
because they are subject to other legal or contractual delays in or restrictions
on resale.
The absence of a trading market can make it difficult to ascertain a market
value for illiquid securities. Disposing of illiquid securities may involve
time-consuming negotiation and legal expenses, and it may be difficult or
impossible for the Fund to sell them promptly at an acceptable price. The Fund
may have to bear the extra expense of registering such securities for resale and
the risk of substantial delay in effecting such registration. Also market
quotations are less readily available. The judgment of the Adviser may at times
play a greater role in valuing these securities than in the case of illiquid
securities.
Generally speaking, restricted securities may be sold in the U.S. only to
qualified institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have been held
for a specified period of time and other conditions are met pursuant to an
exemption from registration, or in a public offering for which a registration
statement is in effect under the 1933 Act. The Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public, and in such event the Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in the market value of such
securities closely follow the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
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Zero coupon securities include securities issued directly by the U.S. Treasury,
and U.S. Treasury bonds or notes and their unmatured interest coupons and
receipts for their underlying principal ("coupons") which have been separated by
their holder, typically a custodian bank or investment brokerage firm. A holder
will separate the interest coupons from the underlying principal (the "corpus")
of the U.S. Treasury security. A number of securities firms and banks have
stripped the interest coupons and receipts and then resold them in custodial
receipt programs with a number of different names, including "Treasury Income
Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
STRATEGIC TRANSACTIONS AND DERIVATIVES. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates and broad or specific equity or
fixed-income market movements), to manage the effective maturity or duration of
the fixed-income securities in the Fund's portfolio, or to enhance potential
gain. These strategies may be executed through the use of derivative contracts.
Such strategies are generally accepted as a part of modern portfolio management
and are regularly utilized by many mutual funds and other institutional
investors. Techniques and instruments may change over time as new instruments
and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars (collectively,
all the above are called "Strategic Transactions"). Strategic Transactions may
be used without limit to attempt to protect against possible changes in the
market value of securities held in or to be purchased for the Fund's portfolio
resulting from securities markets, to protect the Fund's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of
fixed-income securities in the Fund's portfolio or to establish a position in
the derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.
Strategic Transactions, including derivative contracts, have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation the Fund can realize on its
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investments or cause the Fund to hold a security it might otherwise sell. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, or other instrument at the exercise price. For instance, the
Fund's purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right
to sell such instrument at the option exercise price. A call option, upon
payment of a premium, gives the purchaser of the option the right to buy, and
the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security, although in the future cash
settlement may become available. Index options and Eurodollar instruments are
cash settled for the net amount, if any, by which the option is "in-the-money"
(i.e., where the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying instrument through the process of
exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller of an OCC
or exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. Among the possible reasons for the absence of a liquid
option market on an exchange are: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities including reaching daily
price limits; (iv) interruption of the normal operations of the OCC or an
exchange; (v) inadequacy of the facilities of an exchange or OCC to handle
current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and
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performance mechanics, all the terms of an OTC option, including such terms as
method of settlement, term, exercise price, premium, guarantees and security,
are set by negotiation of the parties. The Fund will only sell OTC options that
are subject to a buy-back provision permitting the Fund to require the
Counterparty to sell the option back to the Fund at a formula price within seven
days. The Fund expects generally to enter into OTC options that have cash
settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with U.S. government
securities dealers recognized by the Federal Reserve Bank of New York as
"primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO). The staff of the Securities and Exchange
Commission (the "SEC") currently takes the position that OTC options purchased
by the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income.
The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S. Treasury
and agency securities, mortgage-backed securities, corporate debt securities,
equity securities (including convertible securities) and Eurodollar instruments
(whether or not it holds the above securities in its portfolio), and on
securities, indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price above the market price.
GENERAL CHARACTERISTICS OF FUTURES. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, or equity market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The sale of a futures contract creates
a firm obligation by the Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right in return for the premium paid to assume a position in a
futures contract and obligates the seller to deliver such position.
The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into only for bona fide hedging, risk management (including duration management)
or other portfolio management purposes. Typically, maintaining a futures
contract or selling an option thereon requires the Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but
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may be higher in some circumstances). Additional cash or assets (variation
margin) may be required to be deposited thereafter on a daily basis as the mark
to market value of the contract fluctuates. The purchase of an option on
financial futures involves payment of a premium for the option without any
further obligation on the part of the Fund. If the Fund exercises an option on a
futures contract it will be obligated to post initial margin (and potential
subsequent variation margin) for the resulting futures position just as it would
for any position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price, nor that
delivery will occur.
The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, and multiple
interest rate transactions and any combination of futures, options, and interest
rate transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into which the
Fund may enter are interest rate and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being
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subject to its borrowing restrictions. The Fund will not enter into any swap,
cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument. In
general, either the full amount of any obligation by the Fund to pay or deliver
securities or assets must be covered at all times by the securities, instruments
required to be delivered, or, subject to any regulatory restrictions, an amount
of cash or liquid securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate cash or liquid assets sufficient to purchase and
deliver the securities if the call is exercised. A call option sold by the Fund
on an index will require the Fund to own portfolio securities which correlate
with the index or to segregate cash or liquid assets equal to the excess of the
index value over the exercise price on a current basis. A put option written by
the Fund requires the Fund to segregate cash or liquid assets equal to the
exercise price.
OTC options entered into by the Fund, including those on securities, financial
instruments or indices and OCC issued and exchange listed index options, will
generally provide for cash settlement. As a result, when the Fund sells these
instruments it will only segregate an amount of assets equal to its accrued net
obligations, as there is no requirement for payment or delivery of amounts in
excess of the net amount. These amounts will equal 100% of the exercise price in
the case of a non cash-settled put, the same as an OCC guaranteed listed option
sold by the Fund, or the in-the-money amount plus any sell-back formula amount
in the case of a cash-settled put or call. In addition, when the Fund sells a
call option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is closed
out, cash or cash equivalents equal in value to such excess. OCC issued and
exchange listed options sold by the Fund other than those above generally settle
with physical delivery, or with an election of either physical delivery or cash
settlement and the Fund will segregate an amount of assets equal to the full
value of the option. OTC options settling with physical delivery, or with an
election of either physical delivery or cash settlement will be treated the same
as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction
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terminates at the time of or after the primary transaction no segregation is
required, but if it terminates prior to such time, assets equal to any remaining
obligation would need to be segregated.
The Fund may also invest in Standard and Poor's Depository Receipts ("SPDRs")
and DIAMONDS. SPDRs and DIAMONDS should typically trade like a share of common
stock and provide investment results that generally correspond to the price and
yield performance of the component common stocks of the S&P 500 Index and Dow
Jones Industrial Average, respectively. There can be no assurance, however, that
this can be accomplished as it may not be possible for the SPDRs or DIAMONDS, as
applicable, portfolio to replicate the composition and relative weightings of
the securities of the respective indices. SPDRs and DIAMONDS are subject to the
risks of an investment in a broadly based portfolio of large-capitalization
common stocks, including the risk that the general level of stock prices may
decline, thereby adversely affecting the value of such investment. SPDRs and
DIAMONDS are also subject to risks other than those associated with an
investment in such a broadly based portfolio in that the selection of the stocks
included in the SPDRs or DIAMONDS, as applicable, portfolio may affect trading
in SPDRs and DIAMONDS, as compared with trading in a broadly based portfolio of
common stocks. In addition, there can be no assurance that that SPDRs and
DIAMONDS will experience similar trading patterns nor that an active trading
market for DIAMONDS will develop.
PORTFOLIO TRANSACTIONS
Brokerage
Allocation of brokerage may be placed by the Adviser.
The primary objective of the Adviser in placing orders for the purchase and sale
of securities for the Fund's portfolio is to obtain the most favorable net
results taking into account such factors as price, commission where applicable,
size of order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through familiarity with
commissions charged on comparable transactions, as well as by comparing
commissions paid by the Fund to reported commissions paid by others. The Adviser
reviews on a routine basis commission rates, execution and settlement services
performed, making internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally placed
by the Adviser with primary market makers for these securities on a net basis,
without any brokerage commission being paid by the Fund. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is not authorized when placing portfolio transactions for the Fund
to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction solely on account of the receipt of
research, market or statistical information. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available elsewhere.
In selecting among firms believed to meet the criteria for handling a particular
transaction, the Adviser may give consideration to those firms that have sold or
are selling shares of a Fund managed by the Adviser.
To the maximum extent feasible, it is expected that the Adviser will place
orders for portfolio transactions through Scudder Investor Services, Inc.
("SIS"), a corporation registered as a broker-dealer and a subsidiary of the
Adviser. SIS will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. SIS will not receive any commission, fee or other
remuneration from the Fund for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other
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than the Fund and not all such information is used by the Adviser in connection
with the Fund. Conversely, such information provided to the Adviser by
broker/dealers through whom other clients of the Adviser effect securities
transactions may be useful to the Adviser in providing services to the Fund.
The Trustees of the Fund review from time to time whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
The Fund's average portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding all securities with maturities or expiration dates at
the time of acquisition of one year or less. A higher rate involves greater
brokerage transaction expenses to the Fund and may result in the realization of
net capital gains, which would be taxable to shareholders when distributed.
Purchases and sales are made for the Fund's portfolio whenever necessary, in
management's opinion, to meet the Fund's objective. Under normal investment
conditions, it is anticipated that the portfolio turnover rate in the Fund's
initial fiscal year will not exceed 100%.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. (the "Adviser"), an
investment counsel firm, 345 Park Avenue, New York, New York, is the Fund's
investment manager. This organization is one of the most experienced investment
management firms in the United States. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. The predecessor firm reorganized from a partnership to a
corporation on June 28, 1985. On June 26, 1997, Adviser's predecessor Scudder,
Stevens & Clark ("Scudder") entered into an agreement with Zurich Insurance
Company ("Zurich") pursuant to which the predecessor and Zurich agreed to form
an alliance.
On December 31, 1997, Zurich acquired a majority interest in Scudder and Zurich
made its subsidiary Zurich Kemper Investments, Inc., a part of the predecessor
organization. The predecessor's name has been changed to Scudder Kemper
Investments, Inc. Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
Pursuant to the investment management agreement, the Adviser acts as the Fund's
investment adviser, manages its investments, administers its business affairs,
furnishes office facilities and equipment, provides clerical, bookkeeping and
administrative services and permits any of its officers or employees to serve
without compensation as directors or officers of the Fund if elected to such
positions. The investment management agreement provides that the Fund shall pay
the charges and expenses of its operations, including the fees and expenses of
the trustees (except those who are affiliates of the Adviser), independent
auditors, counsel, custodian and transfer agent and the cost of share
certificates, reports and notices to shareholders, brokerage commissions or
transaction costs, costs of calculating net asset value and maintaining all
accounting records thereto, taxes and membership dues. The Fund bears the
expenses of registration of its shares with the SEC while Kemper Distributors,
Inc. ("KDI"), as principal underwriter, pays the cost of qualifying and
maintaining the qualification of the Fund's shares for sale under the securities
laws of the various states.
The Adviser maintains a large research department, which conducts ongoing
studies of the factors that affect the position of various industries, companies
and individual securities. In this work, the Adviser utilizes certain reports
and statistics from a wide variety of sources, including brokers and dealers who
may execute portfolio transactions for the Fund and for clients of the Adviser,
but conclusions are based primarily on investigations and critical analyses by
its own research specialists.
Certain investments may be appropriate for the Fund and also for other clients
advised by the Adviser. Investment decisions for the Fund and other clients are
made with a view toward achieving their respective investment objectives and
after consideration of such factors as their current holdings, availability of
cash for investment and the size of their investments generally. Frequently, a
particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same date. In
such event,
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such transactions will be allocated among the clients in a manner believed by
the Adviser to be equitable to each. In some cases, this procedure could have an
adverse effect on the price or amount of the securities purchased or sold by the
Fund. Purchase and sale orders for the Fund may be combined with those of other
clients of the Adviser in the interest of achieving the most favorable net
results to the Fund.
The Investment Management Agreement (the "Agreement") between the Trust, on
behalf of the Fund, and the Adviser was approved by the Trustees of the Trust on
January 21, 1998. The Agreement is dated January 30, 1998 and will continue in
effect until August 31, 1999 and from year to year thereafter only if its
continuance is approved annually by the vote of a majority of those Trustees who
are not parties to such Agreement or interested persons of the Adviser or the
Fund, cast in person at a meeting called for the purpose of voting on such
approval, and by a majority vote either of the Trust's Trustees or of the
outstanding voting securities of the Fund. The Agreement may be terminated at
any time without payment of penalty by either party on sixty days' written
notice, and automatically terminates in the event of its assignment.
Under the Agreement, the Adviser provides the Fund with continuing investment
management for the Fund's portfolio consistent with the Fund's investment
objectives, policies and restrictions and determines what securities shall be
purchased for the portfolio of the Fund, what portfolio securities shall be held
or sold by the Fund and what portion of the Fund's assets shall be held
uninvested, subject always to the provisions of the Trust's Declaration of Trust
and By-Laws, the 1940 Act and the Code and to the Fund's investment objectives,
policies and restrictions and subject, further, to such policies and
instructions as the Trustees of the Trust may from time to time establish. The
Adviser also advises and assists the officers of the Trust in taking such steps
as are necessary or appropriate to carry out the decisions of its Trustees and
the appropriate committees of the Trustees regarding the conduct of the business
of the Fund.
The Adviser also renders significant administrative services (not otherwise
provided by third parties) necessary for the Fund's operations as an open-end
investment company including, but not limited to, preparing reports and notices
to the Trustees and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Fund (such as the Fund's transfer agent, pricing agents, custodian, accountants
and others); preparing and making filings with the SEC and other regulatory
agencies; assisting in the preparation and filing of the Fund's federal, state
and local tax returns; preparing and filing the Fund's federal excise tax
returns; assisting with investor and public relations matters; monitoring the
valuation of securities and the calculation of net asset value; monitoring the
registration of shares of the Fund under applicable federal and state securities
laws; maintaining the Fund's books and records to the extent not otherwise
maintained by a third party; assisting in establishing accounting policies of
the Fund; assisting in the resolution of accounting and legal issues;
establishing and monitoring the Fund's operating budget; processing the payment
of the Fund's bills; assisting the Fund in, and otherwise arranging for, the
payment of distributions and dividends; and otherwise assisting the Fund in the
conduct of its business, subject to the direction and control of the Trustees.
The Adviser pays the compensation and expenses of all Trustees, officers and
executive employees of the Trust affiliated with the Adviser and makes
available, without expense to the Trust, the services of such Trustees, officers
and employees of the Adviser as may duly be elected officers or Trustees of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law, and provides the Trust's office space and facilities.
Under the Agreement the Fund is responsible for all of its other expenses
including organizational costs, fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions; legal,
auditing and accounting expenses; the calculation of net asset value; taxes and
governmental fees; the fees and expenses of the transfer agent; the cost of
preparing stock certificates and any other expenses including clerical expenses
of issue, redemption or repurchase of shares; the expenses of and the fees for
registering or qualifying securities for sale; the fees and expenses of
Trustees, officers and employees of the Trust who are not affiliated with the
Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians. The Fund may arrange
to have third parties assume all or part of the expenses of sale, underwriting
and distribution of shares of the Fund. The Fund is also responsible for its
expenses incurred in connection with litigation, proceedings and claims and the
legal obligation it may have to indemnify its officers and Trustees with respect
thereto.
The Agreement expressly provides that the Adviser shall not be required to pay a
pricing agent of the Fund for portfolio pricing services, if any.
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In reviewing the terms of the Agreement and in discussions with the Adviser
concerning such Agreement, the Trustees of the Trust who are not "interested
persons" of the Trust have been represented by Vedder, Price, Kaufman &
Kammholz, as independent counsel at the Fund's expense.
The Agreement provides that the Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have transactions
with various banks, including the Fund's custodian bank. It is the Adviser's
opinion that the terms and conditions of those transactions which have occurred
were not influenced by existing or potential custodial or other Fund
relationships.
None of the officers or Trustees of the Trust may have dealings with the Trust
as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Trust.
Employees of the Adviser and certain of its subsidiaries are permitted to make
personal securities transactions, subject to requirements and restrictions set
forth in the Adviser's Code of Ethics. The Code of Ethics contains provisions
and requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Kemper Distributors, Inc. ("KDI"), a
subsidiary of the Adviser, is the principal underwriter and distributor for the
shares of the Fund and acts as agent of the Fund in the continuous offering of
its shares. KDI bears all of its expenses of providing services pursuant to the
distribution agreement, including the payment of any commissions. The Fund pays
the cost for the prospectus and shareholder reports to be set in type and
printed for existing shareholders, and KDI pays for the printing and
distribution of copies thereof used in connection with the offering of shares to
prospective investors. KDI also pays for supplementary sales literature and
advertising costs.
The distribution agreement continues in effect from year to year so long as such
continuance is approved for each class at least annually by a vote of the Board
of Trustees of the Trust, including the Trustees who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
agreement. The distribution agreement automatically terminates in the event of
its assignment and may be terminated for a class at any time without penalty by
the Fund or by KDI upon 60 days' notice. Termination by the Fund with respect to
a class may be by vote of a majority of the Board of Trustees, or a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the distribution agreement, or a "majority of
the outstanding voting securities" of the class of the Fund, as defined under
the 1940 Act. The distribution agreement may not be amended for a class to
increase the fee to be paid by the Fund with respect to such class without
approval by a majority of the outstanding voting securities of such class of the
Fund and all material amendments must in any event be approved by the Board of
Trustees in the manner described above with respect to the continuation of the
distribution agreement. The provisions concerning the continuation, amendment
and termination of the distribution agreement are on a class by class basis.
ADMINISTRATIVE SERVICES. Administrative services are provided to the Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and the Fund, including the payment of service fees. For
the services under the administrative agreement, the Fund pays KDI an
administrative services fee, payable monthly, at an annual rate of up to 0.25%
of average daily net assets of each of the Class A, B and C shares of the Fund.
KDI enters into related arrangements with various broker-dealer firms and other
service or administrative firms ("firms") that provide services and facilities
for their customers or clients who are investors in the Fund. The firms provide
such office space and
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equipment, telephone facilities and personnel as is necessary or beneficial for
providing information and services to their clients. Such services and
assistance may include, but are not limited to, establishing and maintaining
accounts and records, processing purchase and redemption transactions, answering
routine inquiries regarding the Fund, assistance to clients in changing dividend
and investment options, account designations and addresses and such other
administrative services as may be agreed upon from time to time and permitted by
applicable statute, rule or regulation. With respect to Class A shares, KDI pays
each firm a service fee, payable quarterly, at an annual rate of up to 0.25% of
the net assets in Fund accounts that it maintains and services attributable to
Class A shares, commencing with the month after investment. With respect to
Class B and Class C shares, KDI currently advances to firms the first-year
service fee at a rate of up to 0.25% of the purchase price of such shares. For
periods after the first year, KDI currently intends to pay firms a service fee
at a rate of up to 0.25% (calculated monthly and paid quarterly) of the net
assets attributable to Class B and Class C shares maintained and serviced by the
firm. After the first year, a firm becomes eligible for the quarterly service
fee and the fee continues until terminated by KDI or the Fund. Firms to which
service fees may be paid may include affiliates of KDI.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services listed on the Fund's
records and it is intended that KDI will pay all the administrative services fee
that it receives from the Fund to firms in the form of service fees. The
effective administrative services fee rate to be charged against all assets of
the Fund while this procedure is in effect will depend upon the proportion of
Fund assets that is in accounts for which there is a firm of record. The Board
of Trustees of the Fund, in its discretion, may approve basing the fee to KDI on
all Fund assets in the future.
Certain trustees or officers of the Trust are also directors or officers of the
Adviser or KDI, as indicated under "Officers and Trustees."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts, as custodian, has
custody of all securities and cash of the Fund. It attends to the collection of
principal and income, and payment for and collection of proceeds of securities
bought and sold by the Fund. Pursuant to an agency agreement with the Fund,
Kemper Service Company, a subsidiary of the Adviser, serves as transfer agent
and dividend-paying agent. Kemper Service Company receives as transfer agent,
and pays annual account fees of $6 per account plus account set up, transaction
and maintenance charges, annual fees associated with the contingent deferred
sales charge (Class B shares only) and out-of-pocket expense reimbursement.
Kemper Service Company's fee is reduced by certain earnings credits in favor of
the Fund.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Fund's independent
auditors, Ernst & Young LLP, audit and report on the Fund's annual financial
statements, review certain regulatory reports and the Fund's federal income tax
return, and perform other professional accounting, auditing, tax and advisory
services when engaged to do so by the Fund. Shareholders will receive annual
audited financial statements and semi-annual unaudited financial statements.
PURCHASE AND REDEMPTION OF SHARES
As described in the prospectus, Fund shares are sold at their public offering
price, which is the net asset value next determined after an order is received
in proper form plus, with respect to Class A shares, an initial sales charge.
The minimum initial investment for each class is $1,000 and the minimum
subsequent investment is $100 but such minimum amounts may be changed at any
time. See the prospectus for certain exceptions to these minimums. The Fund may
waive the minimum for purchases by trustees, directors, officers or employees of
the Fund or the Adviser and its affiliates. An order for the purchase of shares
that is accompanied by a check drawn on a foreign bank (other than a check drawn
on a Canadian bank in U.S. Dollars) will not be considered in proper form and
will not be processed unless and until the Fund determines that it has received
payment of the proceeds of the check. The time required for such a determination
will vary and cannot be determined in advance.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of the Fund will be redeemed by the Fund at the applicable net asset
value per share of the Fund as described in the Fund's prospectus.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales
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charge for redemptions of Class B or Class C shares by certain classes of
persons or through certain types of transactions as described in the prospectus
are provided because of anticipated economies of scale in sales and
sales-related efforts.
The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange ("Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of the Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of its net assets, or (c) for such other periods as
the SEC may by order permit for the protection of the Fund's shareholders.
Although it is the Fund's present policy to redeem in cash, if the Board of
Trustees determines that a material adverse effect would be experienced by the
remaining shareholders if payment were made wholly in cash, the Fund will
satisfy the redemption request in whole or in part by a distribution of
portfolio securities in lieu of cash, in conformity with the applicable rules of
the SEC, taking such securities at the same value used to determine net asset
value, and selecting the securities in such manner as the Board of Trustees may
deem fair and equitable. If such a distribution occurred, shareholders receiving
securities and selling them could receive less than the redemption value of such
securities and in addition would incur certain transaction costs. Such a
redemption would not be so liquid as a redemption entirely in cash.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to the Fund to the effect that (a) the
assessment of the distribution services fee with respect to Class B shares and
not Class A shares does not result in the Fund's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of Class B shares to Class A shares does not constitute a taxable
event under the Internal Revenue Code. The conversion of Class B shares to Class
A shares may be suspended if such assurance is not available. In that event, no
further conversions of Class B shares would occur, and shares might continue to
be subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date as described in the prospectus.
NET ASSET VALUE
The net asset value per share of the Fund is the value of one share and is
determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the Fund will generally be lower than that of the Class A shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of the Fund is computed as of the close of regular trading
on the Exchange on each day the Exchange is open for trading. The Exchange is
scheduled to be closed on the following holidays: New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on The Nasdaq Stock Market
("Nasdaq") is valued at its most recent sale price. Lacking any sales, the
security is valued at the most recent bid quotation. The value of an equity
security not quoted on Nasdaq, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities are valued at prices supplied by the Fund's pricing agent(s)
which reflect broker/dealer supplied valuations and electronic data processing
techniques. Money market instruments purchased with an original maturity of
sixty days or less, maturing at par, shall be valued at amortized cost, which
the Board believes approximates market value. If it is not possible to value a
particular debt security pursuant to these valuation methods, the value of such
security is the most recent bid quotation supplied by a bona fide marketmaker.
If it is not possible to value a particular debt security pursuant to the above
methods, the Adviser may calculate the price of that debt security, subject to
limitations established by the Board.
An exchange-traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the
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options contract is valued at the most recent bid quotation in the case of a
purchased options contract, or the most recent asked quotation in the case of a
written options contract. An options contract on securities, currencies and
other financial instruments traded over-the-counter is valued at the most recent
bid quotation in the case of a purchased options contract and at the most recent
asked quotation in the case of a written options contract. Futures contracts are
valued at the most recent settlement price.
If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.
If, in the opinion of the Trust's Valuation Committee of the Trust's Board of
Trustee's, the value of a portfolio asset as determined in accordance with these
procedures does not represent the fair market value of the portfolio asset, the
value of the portfolio asset is taken to be an amount which, in the opinion of
the Valuation Committee, represents fair market value on the basis of all
available information. The value of other portfolio holdings owned by the Fund
is determined in a manner which, in the discretion of the Valuation Committee,
most fairly reflects the fair market value of the property on the valuation
date.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS. The Fund intends to follow the practice of distributing substantially
all of its investment company taxable income which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
The Fund may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, the Fund may retain all or part of such gain for reinvestment, after
paying the related federal taxes for which shareholders may then be able to
claim a credit against their federal tax liability. If the Fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Code, the Fund may be subject
to that excise tax. In certain circumstances, the Fund may determine that it is
in the interest of shareholders to distribute less than the required amount.
(See "TAXES.")
The 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 in December.
Additional distributions, including distributions of net short-term capital
gains in excess of net long-term capital losses, may be made, if necessary.
The level of income dividends per share (as a percentage of net asset value)
will be lower for Class B and Class C shares than for Class A shares primarily
as a result of the distribution services fee applicable to Class B and Class C
shares. Distributions of capital gains, if any, will be paid in the same amount
for each class.
Dividends will be reinvested in shares of the same class of the Fund unless
shareholders indicate in writing that they wish to receive them in cash or in
shares of other Kemper Funds as provided in the prospectus.
TAXES. The Fund intends to qualify as a regulated investment company under
Subchapter M of the Code and, if so qualified, generally will not be liable for
federal income taxes to the extent its earnings are distributed. To so qualify,
the Fund must satisfy certain income and asset diversification requirements, and
must distribute to its shareholders at least 90% of its investment company
taxable income (including net short-term capital gain). Distributions of
investment company taxable income are taxable to shareholders as ordinary
income.
The Fund is subject to a 4% nondeductible excise tax on amounts required
to be but not distributed under a prescribed formula. The formula requires
payment to shareholders during a calendar year of distributions representing at
least 98% of the Fund's ordinary income for the calendar year, at least 98% of
the excess of its capital gains over capital losses (adjusted for certain
ordinary losses) realized during the one-year period ending October 31 during
such year, and all ordinary income and capital gains for prior years that were
not previously distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund.
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If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as capital gains taxable
at a maximum 20% or 28% capital gains rate (depending on the Fund's holding
period for the assets giving rise to the gain), will be able to claim a relative
share of federal income taxes paid by the Fund on such gains as a credit against
personal federal income tax liability, and will be entitled to increase the
adjusted tax basis on Fund shares by the difference between a pro rata share of
such gains owned and the individual tax credit.
Dividends from domestic corporations are expected to comprise a
substantial part of the Fund's gross income. To the extent that such dividends
constitute a portion of the Fund's gross income, a portion of the income
distributions of the Fund may be eligible for the deduction for dividends
received by corporations. Shareholders will be informed of the portion of
dividends which so qualify. The dividends-received deduction is reduced to the
extent the shares of the Fund with respect to which the dividends are received
are treated as debt-financed under federal income tax law, and is eliminated if
either those shares or the shares of the Fund are deemed to have been held by
the Fund or the shareholder, as the case may be, for less than 46 days during
the 90-day period beginning 45 days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term capital
gain over net short-term capital loss, which the Fund designates as capital gain
dividends, are taxable to shareholders at a maximum 20% or 28% capital gains
rate (depending on the Fund's holding period for the assets giving rise to the
gain), regardless of the length of time the shares of the Fund have been held by
such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Kemper Fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
Distributions by the Fund result in a reduction in the net asset value of
the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Equity options (including covered call options on portfolio stock) written or
purchased by the Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by the Fund upon payment of a premium in
connection with the purchase of a put or call option. The character of any gain
or loss recognized (i.e., long-term or short-term) will generally depend, in the
case of a lapse or sale of the option, on the Fund's holding period for the
option and, in the case of an exercise of the option, on the Fund's holding
period for the underlying security. The purchase of a put option may constitute
a short sale for federal income tax purposes, causing an adjustment in the
holding period of the underlying security or substantially identical security in
the Fund's portfolio. If the Fund writes a call option, no gain is recognized
upon its receipt of a premium. If the option lapses or is closed out, any gain
or loss is treated as a short-term capital gain or loss. If a call option is
exercised, any resulting gain or loss is short-term or long-term capital gain or
loss depending on the holding period of the underlying security. The exercise of
a put option written by the Fund is not a taxable transaction for the Fund.
Many futures and forward contracts entered into by the Fund and all listed
nonequity options written or purchased by the Fund (including covered call
options written on debt securities and options purchased or written on futures
contracts) will be governed by
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Section 1256 of the Code. Absent a tax election to the contrary, gain or loss
attributable to the lapse, exercise or closing out of any such position will be
treated as 60% long-term and 40% short-term, and on the last trading day of the
Fund's fiscal year (and generally, on October 31 for purposes of the 4% excise
tax), all outstanding Section 1256 positions will be marked-to-market (i.e.,
treated as if such positions were closed out at their closing price on such
day), with any resulting gain or loss recognized as 60% long-term and 40%
short-term. Under certain circumstances, entry into a futures contract to sell a
security may constitute a short sale for federal income tax purposes, causing an
adjustment in the holding period of the underlying security or a substantially
identical security in the Fund's portfolio.
Positions of the Fund consisting of at least one stock and at least one stock
option or other position with respect to a related security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for any "qualified covered
call options" on stock written by the Fund.
Positions of the Fund consisting of at least one position not governed by
Section 1256 and at least one future, forward, or nonequity option contract
which is governed by Section 1256 which substantially diminishes the Fund's risk
of loss with respect to such other position will be treated as a "mixed
straddle." Although mixed straddles are subject to the straddle rules of Section
1092 of the Code, certain tax elections exist for them which reduce or eliminate
the operation of these rules. The Fund will monitor its transactions in options
and futures and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may require the
Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting material principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests, including options, futures and forward contracts and short sales, in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments.. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if the Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
If the Fund holds zero coupon securities or other securities which are issued at
a discount a portion of the difference between the issue price and the face
value of such securities ("original issue discount") will be treated as income
to the Fund each year, even though the Fund will not receive cash interest
payments from these securities. This original issue discount (imputed income)
will comprise a part of the investment company taxable income of the Fund which
must be distributed to shareholders in order to maintain the qualification of
the Fund as a regulated investment company and to avoid federal income tax at
the Fund level. If the Fund acquires a debt instrument at a market discount, a
portion of the gain recognized (if any) on disposition of such instrument may be
treated as ordinary income.
The Fund will be required to report to the Internal Revenue Service ("IRS") all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
A shareholder who redeems shares of the Fund that are held as a capital asset
will recognize capital gain or loss for federal income tax purposes measured by
the difference between the value of the shares redeemed and the adjusted cost
basis of the shares. Any loss recognized on the redemption of Fund shares held
six months or less will be treated as long-term capital loss to the extent that
the
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shareholder has received any long-term capital gain dividends on such shares. A
shareholder who has redeemed shares of the Fund or any other Kemper Mutual Fund
listed in the prospectus under "Special Features--Class A Shares--Combined
Purchases" (other than shares of Kemper Cash Reserves Fund not acquired by
exchange from another Kemper Mutual Fund) may reinvest the amount redeemed at
net asset value at the time of the reinvestment in shares of the Fund or in
shares of the other Kemper Mutual Funds within six months of the redemption as
described in the prospectus under "Redemption or Repurchase of
Shares--Reinvestment Privilege." If redeemed shares were held less than 91 days,
then the lesser of (a) the sales charge waived on the reinvested shares, or (b)
the sales charge incurred on the redeemed shares, is included in the basis of
the reinvested shares and is not included in the basis of the redeemed shares.
If a shareholder realizes a loss on the redemption or exchange of the Fund's
shares and reinvests in shares of the same Fund within 30 days before or after
the redemption or exchange, the transactions may be subject to the wash sale
rules resulting in a postponement of the recognition of such loss for federal
income tax purposes. An exchange of the Fund's shares for shares of another fund
is treated as a redemption and reinvestment for federal income tax purposes upon
which gain or loss may be recognized.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The Fund is organized as a Massachusetts business trust and is not liable for
any income or franchise tax in the Commonwealth of Massachusetts, provided that
the Fund continues to be treated as a regulated investment company under
Subchapter M of the Code.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary income received
by him or her, where such amounts are treated as income from U.S. sources under
the Code.
Shareholders should consult their tax advisers about the application of the
provisions of tax law in light of their particular tax situations.
PERFORMANCE
As described in the Prospectus, the Fund's historical performance or return for
a class of shares may be shown in the form of "average annual total return" and
"total return" figures. These measures of performance are described below.
Performance information will be computed separately for each class. The Adviser
has agreed to a reduction of its management fee for the Fund to the extent
specified in the prospectus. See "Investment Manager and Underwriter." This fee
reduction will improve the performance results of the Fund.
Average annual total return and total return measure both the net investment
income generated by, and the effect of any realized or unrealized appreciation
or depreciation of, the underlying investments in the Fund's portfolio. The
Fund's average annual total return quotation is computed in accordance with a
standardized method prescribed by rules of theSEC. The average annual total
return for each class of the Fund for a specific period is found by first taking
a hypothetical $1,000 investment ("initial investment") in the class' shares on
the first day of the period, adjusting to deduct the maximum sales charge (in
the case of Class A shares), and computing the "redeemable value" of that
investment at the end of the period. Average annual return quotations will be
determined to the nearest 1/100th of 1%. The redeemable value in the case of
Class B shares or Class C shares include the effect of the applicable contingent
deferred sales charge that may be imposed at the end of the period. The
redeemable value is then divided by the initial investment, and this quotient is
taken to the Nth root (N representing the number of years in the period) and 1
is subtracted from the result, which is then expressed as a percentage. Average
annual return calculated in accordance with this formula does not take into
account any required payments for federal of state income taxes. Such quotations
for Class B shares for periods over six years will reflect conversion of such
shares to Class A shares at the end of the sixth year. The calculation assumes
that all income and capital gains dividends paid by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Average annual total return may also be calculated in a manner not consistent
with the standard formula described above, without deducting the maximum sales
charge or contingent deferred sales charge.
Calculation of the Fund's total return is not subject to a standardized formula,
except when calculated for the Fund's "Financial
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Highlights" table in the Fund's financial statements and prospectus. Total
return performance for a specific period is calculated by first taking a
hypothetical investment ("initial investment") in the Fund's shares on the first
day of the period, either adjusting or not adjusting to deduct the maximum sales
charge (in the case of Class A shares), and computing the "ending value" of that
investment at the end of the period. The total return percentage is then
determined by subtracting the initial investment from the ending value and
dividing the remainder by the initial investment and expressing the result as a
percentage. The ending value in the case of Class B shares or Class C shares may
or may not include the effect of the applicable contingent deferred sales charge
that may be imposed at the end of the period. The calculation assumes that all
income and capital gains dividends paid by the Fund have been reinvested at net
asset value on the reinvestment dates during the period. Total return may also
be shown as the increased dollar value of the hypothetical investment over the
period. Total return calculations that do not include the effect of the sales
charge for Class A shares or the contingent deferred sales charge for Class B
and Class C shares would be reduced if such charges were included.
The Fund's performance figures are based upon historical results and are not
necessarily representative of future performance. The Fund's Class A shares are
sold at net asset value plus a maximum sales charge of 5.75% of the offering
price. Class B and Class C shares are sold at net asset value. Redemption of
Class B shares may be subject to a contingent deferred sales charge that is 4%
in the first year following the purchase, declines by a specified percentage
each year thereafter and becomes zero after six years. Redemption of Class C
shares may be subject to a 1% contingent deferred sales charge in the first year
following the purchase. Returns and net asset value will fluctuate. Factors
affecting the Fund's performance include general market conditions, operating
expenses and investment management. Any additional fees charged by a dealer or
other financial services firm would reduce returns described in this section.
Shares of the Fund are redeemable at the then current net asset value, which may
be more or less than original cost.
There are differences and similarities between the investments which the Fund
may purchase and the investments measured by the indices which are described
herein. The Consumer Price Index is generally considered to be a measure of
inflation. The Dow Jones Industrial Average and the Standard & Poor's 500 Stock
Index are indices of common stocks which are considered to be generally
representative of the U.S. stock market. The Financial Times/Standard & Poor's
Actuaries World Index-Europe(TM) is a managed index that is generally
representative of the equity securities of European markets. The foregoing
indices are unmanaged. The net asset value and returns of the Fund will
fluctuate.
Investors may want to compare the performance of the Fund to certificates of
deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution.
Information regarding bank products may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) for certificates of deposit, which is an
unmanaged index and is based on stated rates and the annual effective yields of
certificates of deposit in the ten largest banking markets in the United States,
or the CDA Investment Technologies, Inc. Certificate of Deposit Index, which is
an unmanaged index based on the average monthly yields of certificates of
deposit.
Investors also may want to compare the performance of the Fund to that of U.S.
Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, the Towers Data Systems U.S. Treasury Bill
index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.
Investors may want to compare the performance of the Fund to that of money
market funds. Money market funds seek to maintain a stable net asset value and
yield fluctuates. Information regarding the performance of money market funds
may be based upon, among other things, Financial Data Inc.'s Money Fund
Averages(R) (All Taxable). As reported by Financial Data Inc., all investment
results represent total return (annualized results for the period net of
management fees and expenses) and one year investment results are effective
annual yields assuming reinvestment of dividends.
OFFICERS AND TRUSTEES
The officers and trustees of the Trust, their birth dates, their principal
occupations and their affiliations, if any, with the Adviser, and
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KDI, the principal underwriter, are as follows (the number following each
person's title is the number of investment companies managed by the Adviser for
which he or she holds similar positions and the date following each person's
name is his or her date of birth):
*DANIEL PIERCE, (3/18/34) Chairman of the Board (65), Two International Place,
Boston, Massachusetts; Managing Director, Scudder Kemper Investments, Inc.
*MARK S. CASADY (9/21/60) President (14), Two International Place, Boston,
Massachusetts, Managing Director, Scudder Kemper Investments, Inc.
JAMES E. AKINS (10/15/26) Trustee (14), 2904 Garfield Terrace, N.W., Washington,
D.C.; Consultant on International, Political and Economic Affairs; formerly a
career United States Foreign Service Officer, Energy Adviser for the White House
and United States Ambassador to Saudi Arabia, 1973-76.
ARTHUR R. GOTTSCHALK (2/13/25) Trustee (14), 10642 Brookridge Drive, Frankfort,
Illinois, Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; Member, Illinois state Senator; Vice
President, The Reuben H.
Donnelly Corp.
FREDERICK T. KELSEY (4/25/27) Trustee (14), 4010 Arbor Lane, Unit 102,
Northfield, Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.;
formerly, President, Treasurer and Trustee of Institutional Liquid Assets and
its affiliated mutual funds; Trustee of the Benchmark Funds, formerly, Trustee
of the Pilot Fund.
FRED B. RENWICK (2/1/30) Trustee (14), 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director,
TIFF Industrial Program, Inc., Director, the Wartburg Home Foundation; Chairman
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly member of the Investment Committee
of Atlanta University Board of Trustees; formerly Director of Board of Pensions,
Evangelical Lutheran Church of America.
JOHN B. TINGLEFF (5/4/35) Trustee (14), 2015 South Lake Shore Drive, Harbor
Springs, Michigan; Retired; formerly, President, Tingleff & Associates
(management consulting firm); formerly, Senior Vice President, Continental
Illinois National Bank & Trust Company.
JOHN G. WEITHERS (8/8/33) Trustee (14), 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company, President of the
Members of the Corporation and Trustee, DePaul University.
*PHILIP J. COLLORA (11/15/45) Vice President, Treasurer and Secretary, 222 South
Riverside Plaza, Chicago, Illinois; Attorney, Scudder Kemper Investments, Inc.
*LORI J. ENSINGER (12/12/61) Vice President, 345 Park Avenue, New York, New
York; Senior Vice President, Scudder Kemper Investments, Inc.
*JERALD K. HARTMAN (3/1/33) Vice President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper Investments, Inc.
ROBERT T. HOFFMAN (12/7/58) Vice President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper Investments, Inc.
*ANN M. McCREARY (11/6/56) Vice President, 345 Park Avenue, New York, New York;
Senior Vice President, Scudder Kemper Investments, Inc.
*KATHRYN L. QUIRK (12/3/52) Vice President (64), 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper Investments, Inc.
23
<PAGE>
*BENJAMIN W. THORNDIKE (3/16/**) Vice President, 345 Park Avenue, New York, New
York; Managing Director; Scudder Kemper Investments, Inc.
*LINDA J. WONDRACK (9/12/64) Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.
*CAROLINE PEARSON (4/1/62) Assistant Secretary, Two International Place, Boston,
Massachusetts; Vice President, Scudder Kemper Investments, Inc.
*MAUREEN E. KANE (2/14/62) Assistant Secretary, Two International Place, Boston,
Massachusetts; Vice President, Scudder Kemper Investments, Inc.
*ELIZABETH C. WERTH (10/1/47) Assistant Secretary, 222 South Riverside Plaza,
Chicago, Illinois; Vice President, Scudder Kemper Investments, Inc., Vice
President, Kemper Distributors, Inc.
* Interested persons of the Trust as defined in the Investment Company Act of
1940.
Compensation of Officers and Trustees
The Trustees and Officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows amounts paid or
accrued to those Trustees who are not designated "interested persons". The
information in the last column is for calendar year 1997. The Trust has not yet
adopted a Trustees compensation schedule.
Total
Aggregate Compensation
Compensation From Kemper Fund
From Kemper Complex Paid to
Securities Trust Board Members (2)
Name of Board Members
James E. Akins..................... - $ 149,100
Arthur R. Gottschalk (1)........... - $ 161,200
Frederick T. Kelsey (1)............ - $ 106,800
Fred B. Renwick.................... - $ 94,300
John B. Tingleff................... - $ 94,300
John G. Weithers................... - $ 94,300
(1) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with certain Kemper funds. Deferred amounts accrue
interest monthly at a rate equal to the yield of Zurich Money Funds - Zurich
Money Market Fund.
(2) Includes compensation for service on the boards of 13 Kemper fund with 39
funds portfolios. Each board member currently serves as a board member of 14
Kemper Funds with 44 fund portfolios.
The Independent Trustees also serve in the same capacity for other funds managed
by the Adviser. These funds differ broadly in type and complexity and in some
cases have substantially different Trustee fee schedules.
The Trustees and Officers as a group owned less than 1% of the Fund's shares as
of the commencement of operations.
SHAREHOLDER RIGHTS
The Fund is a series of Kemper Securities Trust (formerly Kemper Growth and
Income Fund), a Massachusetts business trust established under an Agreement and
Declaration of Trust of the Trust ("Declaration of Trust"), dated October 1,
1997.
The Fund generally is not required to hold meetings of its shareholders. Under
the Declaration of Trust, however, shareholder
24
<PAGE>
meetings will be held in connection with the following matters: (a) the election
or removal of trustees if a meeting is called for such purpose; (b) the adoption
of any contract for which approval by shareholders is required by the 1940 Act;
(c) any termination of the Fund or a class to the extent and as provided in the
Declaration of Trust; (d) any amendment of the Declaration of Trust (other than
amendments changing the name of the Fund, supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision thereof); and (e) such additional matters as may be required by law,
the Declaration of Trust, the By-laws of the Fund, or any registration of the
Fund with the SEC or any state, or as the trustees may consider necessary or
desirable. The shareholders also would vote upon changes in fundamental policies
or restrictions.
Any matter shall be deemed to have been effectively acted upon with respect to
the Fund if acted upon as provided in Rule 18f-2 under the 1940 Act, or any
successor rule, and in the Trust's Declaration of Trust. As used in the
Prospectus and in this Statement of Additional Information, the term "majority",
when referring to the approvals to be obtained from shareholders in connection
with general matters affecting the Fund and all additional portfolios (e.g.,
election of directors), means the vote of the lesser of (i) 67% of the Trust's
shares represented at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Trust's outstanding shares. The term "majority", when referring to the
approvals to be obtained from shareholders in connection with matters affecting
a single Fund or any other single portfolio (e.g., annual approval of investment
management contracts), means the vote of the lesser of (i) 67% of the shares of
the portfolio represented at a meeting if the holders of more than 50% of the
outstanding shares of the portfolio are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the portfolio.
Each trustee serves 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, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Any of the Trustees may be removed (provided the aggregate number of Trustees
after such removal shall not be less than one) with cause, by the action of
two-thirds of the remaining Trustees. Any Trustee may be removed at any meeting
of shareholders by vote of two-thirds of the Outstanding Shares. The Trustees
shall promptly call a meeting of the shareholders for the purpose of voting upon
the question of removal of any such Trustee or Trustees when requested in
writing to do so by the holders of not less than ten percent of the Outstanding
Shares, and in that connection, the Trustees will assist shareholder
communications to the extent provided for in Section 16(c) under the 1940 Act. A
majority of the Trustees shall be present in person at any regular or special
meeting of the Trustees in order to constitute a quorum for the transaction of
business at such meeting and, except as otherwise required by law, the act of a
majority of the Trustees present at any such meetings, at which a quorum is
present, shall be the act of the Trustees.
The Trust's Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Fund or any class by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Fund or the Fund's trustees. Moreover, the Declaration of Trust provides for
indemnification out of Fund property for all losses and expenses of any
shareholder held personally liable for the obligations of the Fund and the Fund
will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by the Adviser remote and
not material, since it is limited to circumstances in which a disclaimer is
inoperative and the Fund itself is unable to meet its obligations.
The assets of the Trust received for the issue or sale of the shares of each
series and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can
25
<PAGE>
otherwise be fairly made. The officers of the Trust, subject to the general
supervision of the Trustees, have the power to determine which liabilities are
allocable to a given series, or which are general or allocable to two or more
series. In the event of the dissolution or liquidation of the Trust or any
series, the holders of the shares of any series are entitled to receive as a
class the underlying assets of such shares available for distribution to
shareholders.
MASTER/FEEDER STRUCTURE. The Board of Trustees may determine, without further
shareholder approval, in the future that the objectives of the Fund would be
achieved more effectively by investing in a master fund in a master/feeder fund
structure. A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests all
of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds in the master fund in an effort to achieve possible economies of
scale and efficiencies in portfolio management, while preserving separate
identities, management or distribution channels at the feeder fund level. An
existing investment company is able to convert to a feeder fund by selling all
of its investments, which involves brokerage and other transaction costs and the
realization of taxable gain or loss, or by contributing its assets to the master
fund and avoiding transaction costs and the realization of taxable gain or loss.
ADDITIONAL INFORMATION
Other Information
The CUSIP number of the Class A shares of the Fund is 487915 10 0.
The CUSIP number of the Class B shares of the Fund is 487915 20 9.
The CUSIP number of the Class C shares of the Fund is 487915 30 8.
The Fund has a fiscal year ending September 30.
Many of the investment changes in the Fund will be made at prices different from
those prevailing at the time they may be reflected in a regular report to
shareholders of the Fund. These transactions will reflect investment decisions
made by the Adviser in light of the Fund's investment objectives and policies,
its other portfolio holdings and tax considerations, and should not be construed
as recommendations for similar action by other investors.
Costs of $11,000 incurred by the Fund, in conjunction with its organization, are
amortized over the five year period beginning February 1, 1998.
Portfolio securities of the Fund are held separately pursuant to a custodian
agreement, by the Fund's custodian, State Street Bank and Trust Company.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
The name "Kemper Securities Trust" is the designation of the Trust for the time
being under a Declaration of Trust dated October 1, 1997, as amended from time
to time, and all persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Trustees, officers, agents, shareholders nor other series of the Trust assume
any personal liability for obligations entered into on behalf of the Fund. No
other series of the Trust assumes any liabilities for obligations entered into
on behalf of the Fund. Upon the initial purchase of shares, the shareholder
agrees to be bound by the Trust's Declaration of Trust, as amended from time to
time. The Declaration of Trust is on file at the Massachusetts Secretary of
State's Office in Boston, Massachusetts.
The Fund's prospectus and this Statement of Additional Information omit certain
information contained in the Registration Statement and its amendments which the
Fund has filed with the SEC under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to the Fund and the securities offered hereby. The Registration Statement and
its amendments, are available for inspection by the public at the SEC in
Washington, D.C.
FINANCIAL STATEMENTS
The Statement of Assets and Liabilities as of January 26, 1998 and the Report of
Independent Auditors is filed herein.
26
<PAGE>
KEMPER U. S. GROWTH AND INCOME FUND
STATEMENT OF NET ASSETS
JANUARY 26, 1998
ASSETS
Cash $100,000
Organization costs 11,000
--------
Total Assets 111,000
LIABILITIES
Organization cost payable 11,000
--------
NET ASSETS $100,000
========
NET ASSETS REPRESENTS:
Shares of beneficial interest
(unlimited number of shares authorized,
$.01 par value) outstanding as follows:
Class A 3,508.772
Class B 3,508.772
Class C 3,508.772 $105
Capital in excess of par value 99,895
--------
$100,000
========
THE PRICING OF SHARES
Net asset value and redemption price per share
Class A ($33,333.33 / 3,508.772 shares outstanding $9.50
Class B* ($33,333.33 / 3,508.772 shares outstanding $9.50
Class C* ($33,333.34 / 3,508.772 shares outstanding $9.50
Maximum offering price per share:
Class A (net asset value, plus 6.10% of net asset
value or 5.75% of offering price) $10.08
Class B (net asset value) $9.50
Class C (net asset value) $9.50
*Subject to contingent deferred sales charge.
Notes:
1. Kemper U. S. Growth and Income Fund (the "Fund") is a diversified series
of Kemper Securities Trust (the Trust) an open-end management investment
company registered under the Investment Company Act of 1940. The Trust was
organized as a business trust under the laws of Massachusetts on October
1, 1997. All Class A, Class B and Class C shares of beneficial interest of
the Fund were issued to Scudder Kemper Investments, Inc., the investment
manager, on January 26, 1998.
2. Costs of $11,000 incurred by the Fund in conjunction with its
organization, are amortized over the five year period beginning February
1, 1998. If any of the shares of the Fund purchased by Scudder Kemper
Investments, Inc. redeemed prior to the end of the amortization period,
the redemption proceeds will be reduced by the pro rata share of the
unamortized costs as of the date of redemption.
<PAGE>
KEMPER SECURITIES TRUST
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
<S> <C> <C>
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights to be filed by amendment.
Included in Part B of this Registration Statement:
Statements, schedules and historical information
other than those listed above have been omitted since
they are either not applicable or are not required.
b. Exhibits:
1. (a) Declaration of Trust dated October 1, 1997 is incorporated by
reference to the initial Registration Statement.
(b) Written Consent of Amendment to the Declaration of Trust dated
January 8, 1998 is filed herein.
2. By-Laws are filed herein.
3. Inapplicable.
4. Specimen Share Certificate to be filed by Amendment.
5. Form of Investment Management Agreement dated January 30,
1998, between the Registrant on behalf of Kemper U.S. Growth
and Income Fund and Scudder Kemper Investments, Inc., is
filed herein.
6. Form of Underwriting Agreement and Distribution Services
Agreement dated January 30, 1998, between the Registrant on
behalf of Kemper U.S. Growth and Income Fund and Kemper
Distributors, Inc., is filed herein.
7. Inapplicable.
8. (a) Custodian Agreement to be filed by Amendment..
(b) Fee schedule for Exhibit 8(a) to be filed by Amendment.
9. (a)(1) Form of Agency Agreement dated January 30, 1998,
between the Registrant on behalf of Kemper U.S. Growth and
Income Fund and Kemper Service Company, is filed herein.
(a)(2) Fee schedule for Exhibit 9(a)(1) is filed herein.
(b) Shareholder Services Agreement to be filed by Amendment.
<PAGE>
(c) Form of Fund Accounting Services Agreement dated January 30,
1998, between the Registrant on behalf of Kemper U.S. Growth
and Income Fund and Scudder Fund Accounting Corp., is filed
herein.
(d) Form of Administrative Services Agreement dated January 30,
1998, between the Registrant on behalf of Kemper U.S. Growth
and Income Fund, and Kemper Distributors, Inc., is filed
herein.
10. Consent of Outside Counsel is filed herein.
11. Consent of Independent Accountants is filed herein.
12. Inapplicable.
13. Inapplicable.
14. Inapplicable.
15. Inapplicable.
16. Inapplicable.
17. Inapplicable.
18. Inapplicable.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant
- -------- -------------------------------------------------------------
None
Item 26. Number of Holders of Securities (as of September 30, 1997).
- -------- -----------------------------------------------------------
(1) (2)
Title of Class Number of Shareholders
-------------- ----------------------
Shares of beneficial interest
($.01 par value)
Kemper U.S. Growth and Income Fund 0
Item 27. Indemnification.
- -------- ----------------
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
2
<PAGE>
legal and other expenses reasonably incurred by him in connection with
any such claim or liability, provided that any such expenses shall be
paid solely out of the funds and property of the series of the Trust
with respect to which such Shareholders Shares are issued. The rights
accruing to a Shareholder under this Section 4.1 shall not exclude 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, agent
or service provider thereof for any action or failure to act by him (or
her) or any other such Trustee, officer, employee, agent or service
provider (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. The term
"service provider" as used in this Section 4.2, shall include any
investment adviser, principal underwriter or other person with whom the
Trust has an agreement for provision of services.
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 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 other 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
3
<PAGE>
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 appropriate security provided by the recipient, or the Trust shall
be insured against losses arising out of any such advances: or
(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 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 28. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such
have corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 28.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ---------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx
Steven Gluckstern Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Zurich Holding Company of America^o
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America^o
Director, ZKI Holding Corporation xx
4
<PAGE>
Kathryn L. Quirk Director, Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation^oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Markus Rohrbasser Director, Scudder Kemper Investments, Inc.**
Member Corporate Executive Board, Zurich Insurance Company of Switzerland##
President, Director, Chairman of the Board, ZKI Holding Corporation xx
Cornelia M. Small Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporationoo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman, British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
</TABLE>
5
<PAGE>
Item 29. Principal Underwriters.
- -------- -----------------------
(a) Kemper Distributors, Inc. acts as principal underwriter of
the Registrant's shares and acts as principal underwriter of
the Kemper Funds, Investors Fund Series and Kemper
International Bond Fund.
(b) Information on the officers and directors of Kemper
Distributors, Inc., principal underwriter for the Registrant
is set forth below. The principal business address is 222
South Riverside Plaza, Chicago, Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Underwriter Offices with Registrant
---------------- ----------- -----------------------
<S> <C> <C>
James L. Greenawalt Director, President None
Patrick H. Dudasik Financial Principal, Treasurer and Chief None
Financial officer
Michael E. Harrington Executive Vice President None
Philip D. Hausken Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Marc L. Hecht Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
(c) Not Applicable
</TABLE>
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder will be maintained by Scudder Kemper
Investments, Inc., 345 Park Avenue, New York, NY 10154.
Records relating to the duties of the Registrant's custodian
are maintained by _____________________________ .
Item 31. Management Services.
- -------- --------------------
Inapplicable.
Item 32. Undertakings.
- -------- -------------
The Registrant hereby undertakes to file post-effective
amendments, using reasonably current financial statements of
Kemper U.S. Growth and Income Fund, within four to six months
from the effectiveness date of the Registrant's Registration
Statement under the 1933 Act.
The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of a Fund's latest
annual report to shareholders upon request and without change.
The Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting on the question of
removal of a Trustee or Trustees when requested to do so by
the holders of at least 10% of the Registrant's outstanding
shares and in connection with such meeting to comply with the
6
<PAGE>
provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
The Registrant hereby undertakes, insofar as indemnification
for liability arising under the Securities Act of 1933 may be
permitted to trustees, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
trustee, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in
connection with the securities being registered, the
registrant will submit unless in the opinion of its counsel
the matter has been settled by controlling precedent, to a
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the financial adjudication of
such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement under the Securities Act of 1933 and has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 29th day of January, 1998.
KEMPER SECURITIES TRUST
By/s/Mark S. Casady
--------------------------
Mark S. Casady, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
/s/Daniel Pierce
- -----------------------
Daniel Pierce* Trustee, Chairman of January 29, 1998
the Board
/s/James E. Akins
- -----------------------
James E. Akins* Trustee January 29, 1998
/s/Mark S. Casady
- -----------------------
Mark S. Casady Trustee and President January 29, 1998
/s/Arthur R. Gottschalk
- -----------------------
Arthur R. Gottschalk* Trustee January 29, 1998
/s/Federick T. Kelsey
- -----------------------
Federick T. Kelsey*
Trustee January 29, 1998
/s/Kathryn L. Quirk
- -----------------------
Kathryn L. Quirk*
Trustee January 29, 1998
/s/Fred B. Renwick
- -----------------------
Fred B. Renwick *
Trustee January 29, 1998
<PAGE>
SIGNATURE TITLE DATE
/s/John B. Tingleff
- -----------------------
John B. Tingleff*
Trustee January 29, 1998
/s/John G. Weithers
- -----------------------
John G. Weithers*
Trustee January 29, 1998
/s/Philip J. Collora
- -----------------------
Philip J. Collora
Secretary and January 29, 1998
Treasurer (Principal
Financial and
Accounting Officer)
*By:/s/Mark S. Casady
-----------------------
Mark S. Casady
Attorney-in-Fact pursuant to
powers of attorney contained
herein.
<PAGE>
File No. 333-42335
File No. 811-08393
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
INITIAL REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
INITIAL REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER GROWTH AND INCOME FUND
<PAGE>
KEMPER GROWTH AND INCOME FUND
Exhibit Index
Exhibit 1(b)
Exhibit 2
Exhibit 5
Exhibit 6
Exhibit 9(a)(1)
Exhibit 9(a)(2)
Exhibit (9)(c)
Exhibit 9(d)
Exhibit 10
Exhibit 11
BY-LAWS
OF
KEMPER GROWTH AND INCOME FUND
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - DEFINITIONS 1
ARTICLE II - OFFICES 1
Section 1. Principal Office 1
Section 2. Other Offices 1
ARTICLE III - SHAREHOLDERS 2
Section 1. Meetings 2
Section 2. Notice of Meetings 2
Section 3. Record Date for Meetings and Other
Purposes2
Section 4. Proxies 3
Section 5. Action Without Meeting 4
ARTICLE IV - TRUSTEES 4
Section 1. Meetings of the Trustees 4
Section 2. Quorum and Manner of Acting 5
ARTICLE IV.A - HONORARY TRUSTEES 6
Section 1. Number; Qualification; Term: 6
Section 2. Duties; Remuneration: 6
ARTICLE V - COMMITTEES 7
Section 1. Executive and Other Committees 7
Section 2. Meetings, Quorum and Manner of Acting 8
ARTICLE VI - OFFICERS 8
Section 1. General Provisions 8
Section 2. Term of Office and Qualifications 9
Section 3. Removal 9
Section 4. Chairperson of the Board 10
Section 5. Vice-Chairperson of the Board 10
Section 6. Powers and Duties of the President 10
Section 7. Powers and Duties of Executive Vice
Presidents and Vice Presidents 11
Section 8. Powers and Duties of the Treasurer 12
Section 9. Powers and Duties of the Secretary 12
Section 10. Powers and Duties of Assistant Treasurers 12
Section 11. Powers and Duties of Assistant
Secretaries 13
Section 12. Compensation of Officers and Trustees and
Members of the Advisory Board 13
<PAGE>
TABLE OF CONTENTS (continued)
Page
----
ARTICLE VII - FISCAL YEAR 14
ARTICLE VIII - SEAL 14
ARTICLE IX - WAIVERS OF NOTICE 14
ARTICLE X - CUSTODY OF SECURITIES 15
Section 1. Employment of a Custodian 15
Section 2. Action Upon Termination of Custodian
Agreement 15
Section 3. Central Certificate System 15
Section 4. Acceptance of Receipts in Lieu of
Certificates 16
ARTICLE XI - AMENDMENTS 16
ARTICLE XII - INSPECTION OF BOOKS 17
<PAGE>
BY-LAWS
OF
KEMPER GROWTH AND INCOME FUND
ARTICLE I
DEFINITIONS
The terms "Commission", "Custodian", "Declaration", "Distributor",
"Investment Adviser", "Municipal Bonds", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property", "Trustees", and "vote of a majority
of the Shares outstanding and entitled to vote", have the respective meanings
given them in the Declaration of Trust of Kemper Growth and Income Fund dated
October 1, 1997, as amended from time to time.
ARTICLE II
OFFICES
Section 1. Principal Office. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be
in the City of Boston, County of Suffolk.
Section 2. Other Offices. The Trust may have offices in such other
places without as well as within the Commonwealth as the Trustees from time
to time may determine.
<PAGE>
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders shall be held as
provided in the Declaration at such place within or without the Commonwealth of
Massachusetts as the Trustees shall designate. The holders of a one-third of
outstanding Shares present in person or by proxy shall constitute a quorum at
any meeting of the Shareholders.
Section 2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder at his/her address as recorded on the
register of the Trust mailed at least ten (10) days and not more than ninety
(90) days before the meeting. Only the business stated in the notice of the
meeting shall be considered at such meeting. Any adjourned meeting may be held
as adjourned without further notice. No notice need be given to any Shareholder
who should have failed to inform the Trust of his/her current address, if notice
is not required by the Declaration, or if a written waiver of notice, executed
before or after the meeting by the Shareholder or his/her attorney thereunto
authorized, is filed with the records of the meeting.
Section 3. Record Date for Meetings and Other Purposes. For the purpose of
determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
2
<PAGE>
period, not exceeding thirty (30) days, as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date not more than
ninety (90) days prior to the date of any meeting of Shareholders or
distribution or other action as a record date for the determinations of the
persons to be treated as Shareholders of record for such purposes, except for
dividend payments which shall be governed by the Declaration.
Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Shareholders of record shall be entitled to
vote. Each whole share shall be entitled to one vote as to any matter on which
it is entitled by the Declaration to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. When any Share is held jointly by
several persons, any one of them may vote at any meeting in person or by proxy
in respect of such Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in respect
of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise,
3
<PAGE>
and the burden of proving invalidity shall rest on the challenger. If the holder
of any such share is a minor or a person of unsound mind, and subject to
guardianship or the legal control of any other person as regards the charge or
management of such Share, he/she may vote by his/her guardian or such other
person appointed or having such control, and such vote may be given in person or
by proxy.
Section 5. Action Without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consents shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the Chairperson, or by any
one of the Trustees, at the time being in office. Notice of the time and place
of each meeting other than regular or stated meetings shall be given by the
Secretary or an Assistant
4
<PAGE>
Secretary or by the officer or Trustee calling the meeting and shall be mailed
to each Trustee at least two days before the meeting, or shall be telegraphed,
cabled, sent by facsimile or electronic mail or other communication leaving a
visual record to each Trustee at his/her business address, or personally
delivered to him/her at least one day before the meeting. Such notice may,
however, be waived by any Trustee. Notice of a meeting need not be given to any
Trustee if a written waiver of notice, executed by him/her before or after the
meeting, is filed with the records of the meeting, or to any Trustee who attends
the meeting without protesting prior thereto or at its commencement the lack of
notice to him/her. A notice or waiver of notice need not specify the purpose of
any meeting. Meetings can be held in conjunction with investment companies
having the same investment adviser or an affiliated investment adviser. The
Trustees may meet by means of a telephone conference circuit or similar
communications equipment by means of which all persons participating in the
meeting shall be deemed to have been present at a place designated by the
Trustees at the meeting. Any action required or permitted to be taken at any
meeting of the Trustees may be taken by the Trustees without a meeting if all
the Trustees consent to the action in writing and the written consents are filed
with the records of the Trustees' meetings. Such consents shall be treated as a
vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees shall
be present in person at any regular or special meeting of the Trustees in order
to constitute a quorum for the
5
<PAGE>
transaction of business at such meeting and (except as otherwise required by
law, the Declaration or these By-Laws) the act of a majority of the Trustees
present at any such meeting, at which a quorum is present, shall be the act of
the Trustees. In the absence of a quorum, a majority of the Trustees present may
adjourn the meeting from time to time until a quorum shall be present. Notice of
an adjourned meeting need not be given.
ARTICLE IV.A
HONORARY TRUSTEES
Section 1. Number; Qualification; Term: The Trustees may from time to time
designate and appoint one or more qualified persons to the position of "honorary
trustee." Each honorary trustee shall serve for such term as shall be specified
in the resolution of the Trustees appointing him or her until his or her earlier
resignation or removal. An honorary trustee may be removed from such position
with or without cause by the vote of a majority of the Trustees given at any
regular meeting or special meeting of the Board.
Section 2. Duties; Remuneration: An honorary trustee shall be invited to
attend all meetings of the Trustees but shall not be present at any portion of a
meeting from which the honorary trustee shall have been excluded by vote of the
Trustees. An honorary trustee shall not be a "Trustee" or "officer" within the
meaning of the Trust's Declaration of Trust or of these By-Laws, shall not be
deemed to be a member of an "advisory board" within the meaning of the
Investment Company Act of 1940, as amended
6
<PAGE>
from time to time, shall not hold himself or herself out as any of the
foregoing, and shall not be liable to any person for any act of the Trust.
Notice of special meetings may be given to an honorary trustee but the failure
to give such notice shall not affect the validity of any meeting or the action
taken thereat. An honorary trustee shall not have the powers of a Trustee, may
not vote at meetings of the Trustees and shall not take part in the operation or
governance of the Trust. An honorary trustee shall not receive any compensation
but may, in the discretion of the Trustees, be reimbursed for expenses incurred
in attending meetings of the Trustees or otherwise.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) to hold office at the pleasure
of the Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers which by law, the Declaration or these By-Laws they are prohibited from
delegating. The Trustees may also elect from their own number other Committees
from time to time, the number composing such
7
<PAGE>
Committees, the powers conferred upon the same (subject to the same limitations
as with respect to the Executive Committee) and the term of membership on such
Committees to be determined by the Trustees. The Trustees may designate a
Chairperson of any such Committee. In the absence of such designation, the
Committee may elect its own Chairperson.
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, and (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting. Unless otherwise specified by the Trustees, the members of a
Committee may meet by means of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the Office of the Trust.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such
8
<PAGE>
other officers or agents as the business of the Trust may require, including one
or more Executive Vice Presidents, one or more Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers. The Trustees may
delegate to any officer or Committee the power to appoint any subordinate
officers or agents. The Trustees by vote of a majority of all the Trustees may
elect, but shall not be required to elect, from their own number a Chairperson
and Vice-Chairperson of the Trustees.
Section 2. Term of Office and Qualifications. Except as otherwise provided
by law, the Declaration or these By-Laws, the President, the Treasurer and the
Secretary shall each hold office until his/her successor shall have been duly
elected and qualified, and all other officers shall hold office at the pleasure
of the Trustees. The Secretary and Treasurer may be the same person. An
Executive Vice President or Vice President and the Treasurer or Assistant
Treasurer or an Executive Vice President or a Vice President and the Secretary
or Assistant Secretary may be the same person, but the offices of Executive Vice
President or Vice President and Secretary and Treasurer shall not be held by the
same person. The President shall hold no other office. Except as above provided,
any two offices may be held by the same person. Any officer may be, but none
need be, a Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer without cause, by a vote of a majority of the
Trustees then in office.
9
<PAGE>
Any officer or agent appointed by an officer or Committee may be removed with or
without cause by such appointing officer or Committee.
Section 4. Chairperson of the Board. The Chairperson of the Board, if
there be such an officer, shall be the senior officer of the Trust, preside at
all shareholders' meetings and at all meetings of the Board of Trustees, and
shall be ex officio a member of all committees of the Board of Trustees. The
Chairperson of the Board shall also call meetings of the Trustees and of any
committee thereof when he/she deems it necessary. He/She shall have such other
powers and perform such other duties as may be assigned to him/her from time to
time by the Board of Trustees.
Section 5. Vice-Chairperson of the Board. The Vice-Chairperson of the
Board, if there be such an officer, shall, in the absence of the Chairperson,
preside at all shareholders' meetings and at all meetings of the Board of
Trustees and shall have such powers and perform such other duties as may be
assigned to him/her from time to time by the Board of Trustees.
Section 6. Powers and Duties of the President. The President, in the
absence of the Chairperson and Vice Chairperson, if any, may call meetings of
the Trustees and of any Committee thereof when he/she deems it necessary and, in
the absence of the Chairperson and Vice-Chairperson, if any, may preside at all
meetings of the Shareholders and at all meetings of the Trustees. Subject to the
control of the Trustees and to the control of any Committees of the Trustees,
within their
10
<PAGE>
respective spheres, as provided by the Trustees, he/she shall at all times
exercise a general supervision and direction over the affairs of the Trust.
He/She shall have the power to employ attorneys and counsel for the Trust and to
employ such subordinate officers, agents, clerks and employees as he/she may
find necessary to transact the business of the Trust. He/She shall also have the
power to grant, issue, execute or sign such powers of attorney, proxies or other
documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The President shall have such other powers and duties,
as from time to time may be conferred upon or assigned to him/her by the
Trustees.
Section 7. Powers and Duties of Executive Vice Presidents and Vice
Presidents. In the absence or disability of the President, the Executive Vice
President or, if there be more than one Executive Vice President, any Executive
Vice President designated by the Trustees shall perform all the duties and may
exercise any of the powers of the President, subject to the control of the
Trustees. In the event no Executive Vice President is able so to serve, the Vice
President or, if there be more than one Vice President, any Vice President
designated by the Trustees shall perform all the duties and may exercise any of
the powers of the President, subject to the control of the Trustees. Each
Executive Vice President and Vice President shall perform such duties as may be
assigned to him/her from time to time by the Trustees and the President.
11
<PAGE>
Section 8. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. He/She shall deliver
all funds of the Trust which may come into his/her hands to such Custodian as
the Trustees may employ pursuant to Article X of these By-Laws. He/She shall
render a statement of condition of the finances of the Trust to the Trustees as
often as they shall require the same and he/she shall in general perform all the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him/her by the Trustees. The Treasurer shall give a bond
for the faithful discharge of his/her duties, if required so to do by the
Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
Section 9. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Trustees and of the Shareholders in proper
books provided for that purpose; he/she shall have custody of the seal of the
Trust; he/she shall have charge of the Share transfer books, lists and records
unless the same are in the charge of the Transfer Agent. He/She shall attend to
the giving and serving of all notices by the Trust in accordance with the
provisions of these By-Laws and as required by law; and subject to these
By-Laws, he/she shall in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him/her
by the Trustees.
Section 10. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant
12
<PAGE>
Treasurer designated by the Trustees shall perform all the duties, and may
exercise any of the powers, of the Treasurer. Each Assistant Treasurer shall
perform such other duties as from time to time may be assigned to him/her by the
Trustees. Each Assistant Treasurer shall give a bond for the faithful discharge
of his/her duties, if required so to do by the Trustees, in such sum and with
such surety or sureties as the Trustees shall require.
Section 11. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him/her by the Trustees.
Section 12. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of any Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he/she is also a Trustee.
13
<PAGE>
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall be as specified from time to time by
the Trustees.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration of these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been telegraphed, cabled or sent by facsimile or other communication leaving a
visual record for the purposes of these By-Laws when it has been delivered to a
representative of any telegraph, cable or facsimile or other such communications
company with instructions that it be telegraphed, cabled, sent by facsimile or
electronic mail or other communication leaving a visual record.
14
<PAGE>
ARTICLE X
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all funds, securities and similar investments included in the
Trust Property. The Custodian (and any sub-custodian) shall be a bank meeting
the requirements of a custodian of assets of a registered investment company
prescribed in the 1940 Act and the rules and orders thereunder, and shall be
appointed from time to time by the Trustees, who shall fix its remuneration. .
Upon termination of a Custodian Agreement or inability of the Custodian to
continue to serve, the Trustees shall promptly appoint a successor custodian,
but in the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special meeting of the Shareholders to determine whether the Trusts
shall function without a custodian or shall be liquidated.
Section 3. Central Certificate System. Subject to such rules, regulations
and orders as the Commission may adopt, the Trustees may direct the Custodian or
a sub-custodian to deposit all or any part of the securities owned by the Trust
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with
Commission under the Securities Exchange Act of
15
<PAGE>
1934, or such other person as may be permitted by the Commission, or otherwise
in accordance with the 1940 Act and the rules and orders thereunder, pursuant to
which system all securities of any particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such securities,
provided that all such deposits shall be subject to withdrawal only upon the
order of the Trust or its Custodian.
Section 4. Acceptance of Receipts in Lieu of Certificates. Subject to such
rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or new
By-Laws may be adopted by (a) vote of a majority of the Shares outstanding and
entitled to vote or (b) the Trustees, provided, however, that no By-Law may be
amended, adopted or repealed by the Trustees if such amendment, adoption or
repeal requires, pursuant to law, the Declaration or these By-Laws, a vote of
the Shareholders.
16
<PAGE>
ARTICLE XII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what extent,
and at what time and places, and under what conditions and regulations the
accounts and books of the Trust or any of them shall be open to the inspection
of the Shareholders; and no Shareholder shall have any right of inspecting any
account or book or document of the Trust except as conferred by laws or
authorized by the Trustees or by resolution of the Shareholders.
17
INVESTMENT MANAGEMENT AGREEMENT
Kemper Securities Trust
Two International Place
Boston, Massachusetts 02110
January 30, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Kemper U.S. Growth and Income Fund
Ladies and Gentlemen:
Kemper Securities Trust (the "Trust") has been established as a Massachusetts
business Trust to engage in the business of an investment company. Pursuant to
the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees is authorized to issue the Trust's shares
of beneficial interest, par value $0.01 per share, (the "Shares") in separate
series, or funds. The Board of Trustees has authorized Kemper U.S. Growth and
Income Fund (the "Fund"). Series may be abolished and dissolved, and additional
series established, from time to time by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the investment
manager of the Fund and to provide certain other services, as more fully set
forth below, and you have indicated that you are willing to act as such
investment manager and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Trust on behalf of the Fund agrees with
you as follows:
1. Delivery of Documents. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
(a) The Declaration dated October 2, 1997, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders of the
Fund selecting you as investment manager and approving the form of this
Agreement.
(d) Establishment and Designation of Series of Shares of Beneficial Interest
dated January 21, 1998 relating to the Fund.
The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies
<PAGE>
and restrictions set forth in the Prospectus and SAI; the applicable provisions
of the 1940 Act and the Internal Revenue Code of 1986, as amended, (the "Code")
relating to regulated investment companies and all rules and regulations
thereunder; and all other applicable federal and state laws and regulations of
which you have knowledge; subject always to policies and instructions adopted by
the Trust's Board of Trustees. In connection therewith, you shall use reasonable
efforts to manage the Fund so that it will qualify as a regulated investment
company under Subchapter M of the Code and regulations issued thereunder. The
Fund shall have the benefit of the investment analysis and research, the review
of current economic conditions and trends and the consideration of long-range
investment policy generally available to your investment advisory clients. In
managing the Fund in accordance with the requirements set forth in this section
2, you shall be entitled to receive and act upon advice of counsel to the Trust.
You shall also make available to the Trust promptly upon request all of the
Fund's investment records and ledgers as are necessary to assist the Trust in
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith; establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining
2
<PAGE>
the amount of dividends and distributions available to be paid by the Fund to
its shareholders, preparing and arranging for the printing of dividend notices
to shareholders, and providing the transfer and dividend paying agent, the
custodian, and the accounting agent with such information as is required for
such parties to effect the payment of dividends and distributions; and otherwise
assisting the Trust as it may reasonably request in the conduct of the Fund's
business, subject to the direction and control of the Trust's Board of Trustees.
Nothing in this Agreement shall be deemed to shift to you or to diminish the
obligations of any agent of the Fund or any other person not a party to this
Agreement which is obligated to provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
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<PAGE>
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Fund shall pay you in United States Dollars on the last day of
each month the unpaid balance of a fee equal to the excess of 1/12 of 0.60 of 1
percent of the average daily net assets as defined below of the Fund for such
month; provided that, for any calendar month during which the average of such
values exceeds $250 million, the fee payable for that month based on the portion
of the average of such values in excess of $250 million up to and including $1
billion shall be 1/12 of 0.57 of 1 percent of such portion; provided further
that, for any calendar month during which the average of such values exceeds $1
billion, the fee payable for that month based on the portion of the average of
such values in excess of $1 billion up to and including $2.5 billion shall be
1/12 of 0.55 of 1 percent of such portion; and provided that, for any calendar
month during which the average of such values exceeds $2.5 billion, the fee
payable for that month based on the portion of the average of such values in
excess of $2.5 billion shall be 1/12 of 0.53 of 1 percent of such portion over
the lowest applicable expense fully described below or over any compensation
waived by you from time to time (as more fully described below). You shall be
entitled to receive during any month such interim payments of your fee hereunder
as you shall request, provided that no such payment shall exceed 75 percent of
the amount of your fee then accrued on the books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 5, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
4
<PAGE>
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, the Fund
or its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
8. Duration and Termination of This Agreement. This Agreement shall remain in
force until August 31, 1999, and continue in force from year to year thereafter,
but only so long as such continuance is specifically approved at least annually
(a) by the vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
Trustees of the Trust, or by the vote of a majority of the outstanding voting
securities of the Fund. The aforesaid requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations thereunder and
any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time, without
the payment of any penalty, by the vote of a majority of the outstanding voting
securities of the Fund or by the Trust's Board of Trustees on 60 days' written
notice to you, or by you on 60 days' written notice to the Trust. This Agreement
shall terminate automatically in the event of its assignment.
This Agreement may be terminated with respect to the Fund at any time without
the payment of any penalty by the Board of Trustees or by vote of a majority of
the outstanding voting securities of the Fund in the event that it shall have
been established by a court of competent jurisdiction that you or any of your
officers or directors has taken any action which results in a breach of your
covenants set forth herein.
9. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
10. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Kemper Securities
Trust" refers to the Trustees under the Declaration collectively as Trustees and
not as individuals or personally, and that no shareholder of the Fund, or
Trustee, officer, employee or agent of the Trust, shall be subject to claims
against or obligations of the Trust or of the Fund to any extent whatsoever, but
that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or any other
series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5
<PAGE>
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
Kemper Securities Trust, on behalf of
Kemper U.S. Growth and Income Fund
By: ___________________________
Mark S. Casady
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: ___________________________
Stephen R. Beckwith
Treasurer
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 30th day of January, 1998 between KEMPER SECURITIES TRUST, a
Massachusetts business trust (the "Fund"), and KEMPER DISTRIBUTORS, INC., a
Delaware corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to act as agent for the distribution of shares
of beneficial interest (hereinafter called "shares") of the Fund in
jurisdictions wherein shares of the Fund may legally be offered for sale;
provided, however, that the Fund in its absolute discretion may (a) issue or
sell shares directly to holders of shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; or (b) issue or
sell shares at net asset value to the shareholders of any other investment
company, for which KDI shall act as exclusive distributor, who wish to exchange
all or a portion of their investment in shares of such other investment company
for shares of the Fund. KDI shall appoint various financial service firms
("Firms") to provide distribution services to investors. The Firms shall provide
such office space and equipment, telephone facilities, personnel, literature
distribution, advertising and promotion as is necessary or beneficial for
providing information and distribution services to existing and potential
clients of the Firms. KDI may also provide some of the above services for the
Fund.
KDI accepts such appointment as distributor and principal underwriter and agrees
to render such services and to assume the obligations herein set forth for the
compensation herein provided. KDI shall for all purposes herein provided be
deemed to be an independent contractor and, unless expressly provided herein or
otherwise authorized, shall have no authority to act for or represent the Fund
in any way. KDI, by separate agreement with the Fund, may also serve the Fund in
other capacities. The services of KDI to the Fund under this Agreement are not
to be deemed exclusive, and KDI shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.
In carrying out its duties and responsibilities hereunder, KDI will, pursuant to
separate written contracts, appoint various Firms to provide advertising,
promotion and other distribution services contemplated hereunder directly to or
for the benefit of
<PAGE>
existing and potential shareholders who may be clients of such Firms. Such Firms
shall at all times be deemed to be independent contractors retained by KDI and
not the Fund.
KDI shall use its best efforts with reasonable promptness to sell such part of
the authorized shares of the Fund remaining unissued as from time to time shall
be effectively registered under the Securities Act of 1933 ("Securities Act"),
at prices determined as hereinafter provided and on terms hereinafter set forth,
all subject to applicable federal and state laws and regulations and to the
Articles of Incorporation of the Fund.
2. KDI shall sell shares of the Fund to or through qualified Firms in such
manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without the
prior consent of the Fund. In addition to sales made by it as agent of the Fund,
KDI may, in its discretion, also sell shares of the Fund as principal to persons
with whom it does not have selling group agreements.
Shares of any class of any series of the Fund offered for sale or sold by KDI
shall be so offered or sold at a price per share determined in accordance with
the then current prospectus. The price the Fund shall receive for all shares
purchased from it shall be the net asset value used in determining the public
offering price applicable to the sale of such shares. Any excess of the sales
price over the net asset value of the shares of the Fund sold by KDI as agent
shall be retained by KDI as a commission for its services hereunder. KDI may
compensate Firms for sales of shares at the commission levels provided in the
Fund's prospectus from time to time. KDI may pay other commissions, fees or
concessions to Firms, and may pay them to others in its discretion, in such
amounts as KDI shall determine from time to time. KDI shall be entitled to
receive and retain any applicable contingent deferred sales charge as described
in the Fund's prospectus. KDI shall also receive any distribution services fee
payable by the Fund as provided in Section 8 hereof.
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively registered under the
Securities Act for sale as herein
2
<PAGE>
contemplated such shares as KDI shall reasonably request and as the Securities
and Exchange Commission shall permit to be so registered. Notwithstanding any
other provision hereof, the Fund may terminate, suspend or withdraw the offering
of shares whenever, in its sole discretion, it deems such action to be
desirable.
4. The Fund will execute any and all documents and furnish any and all
information that may be reasonably necessary in connection with the
qualification of its shares for sale (including the qualification of the Fund as
a dealer where necessary or advisable) in such states as KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use in
connection with the sale of shares of the Fund.
5. KDI shall issue and deliver or shall arrange for various Firms to issue and
deliver on behalf of the Fund such confirmations of sales made by it pursuant to
this agreement as may be required. At or prior to the time of issuance of
shares, KDI will pay or cause to be paid to the Fund the amount due the Fund for
the sale of such shares. Certificates shall be issued or shares registered on
the transfer books of the Fund in such names and denominations as KDI may
specify.
6. KDI shall order shares of the Fund from the Fund only to the extent that it
shall have received purchase orders therefor. KDI will not make, or authorize
Firms or others to make (a) any short sales of shares of the Fund; or (b) any
sales of such shares to any Director or officer of the Fund or to any officer or
director of KDI or of any corporation or association furnishing investment
advisory, managerial or supervisory services to the Fund, or to any corporation
or association, unless such sales are made in accordance with the then current
prospectus relating to the sale of such shares. KDI, as agent of and for the
account of the Fund, may repurchase the shares of the Fund at such prices and
upon such terms and conditions as shall be specified in the current prospectus
of the Fund. In selling or reacquiring shares of the Fund for the account of the
Fund, KDI will in all respects conform to the requirements of all state and
federal laws and the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., relating to such sale or reacquisition, as the case
may be, and will indemnify and save harmless the Fund from any damage or expense
on account of any wrongful act by KDI or any employee, representative or agent
of KDI. KDI will observe and be bound by all the provisions of the Articles of
Incorporation of the Fund (and of any fundamental policies
3
<PAGE>
adopted by the Fund pursuant to the Investment Company Act of 1940, notice of
which shall have been given to KDI) which at the time in any way require, limit,
restrict, prohibit or otherwise regulate any action on the part of KDI
hereunder.
7. The Fund shall assume and pay all charges and expenses of its operations not
specifically assumed or otherwise to be provided by KDI under this Agreement.
The Fund will pay or cause to be paid expenses (including the fees and
disbursements of its own counsel) of any registration of the Fund and its shares
under the United States securities laws and expenses incident to the issuance of
shares of beneficial interest, such as the cost of share certificates, issue
taxes, and fees of the transfer agent. KDI will pay all expenses (other than
expenses which one or more Firms may bear pursuant to any agreement with KDI)
incident to the sale and distribution of the shares issued or sold hereunder,
including, without limiting the generality of the foregoing, all (a) expenses of
printing and distributing any prospectus and of preparing, printing and
distributing or disseminating any other literature, advertising and selling aids
in connection with the offering of the shares for sale (except that such
expenses need not include expenses incurred by the Fund in connection with the
preparation, typesetting, printing and distribution of any registration
statement or prospectus, report or other communication to shareholders in their
capacity as such), (b) expenses of advertising in connection with such offering
and (c) expenses (other than the Fund's auditing expenses) of qualifying or
continuing the qualification of the shares for sale and, in connection
therewith, of qualifying or continuing the qualification of the Fund as a dealer
or broker under the laws of such states as may be designated by KDI under the
conditions herein specified. No transfer taxes, if any, which may be payable in
connection with the issue or delivery of shares sold as herein contemplated or
of the certificates for such shares shall be borne by the Fund, and KDI will
indemnify and hold harmless the Fund against liability for all such transfer
taxes.
8. For the services and facilities described herein in connection with Class B
shares and Class C shares of each series of the Fund, the Fund will pay to KDI
at the end of each calendar month a distribution services fee computed at the
annual rate of .75% of average daily net assets attributable to the Class B
shares and Class C shares of each such series. For the month and year in which
this Agreement becomes effective or terminates, there shall be an appropriate
proration on the basis of the number of days that the Agreement is in effect
during the month and year, respectively. The foregoing fee shall be in addition
to and shall not be reduced or offset by the amount of any contingent deferred
sales charge received by KDI under Section 2 hereof.
4
<PAGE>
The net asset value shall be calculated in accordance with the provisions of the
Fund's current prospectus. On each day when net asset value is not calculated,
the net asset value of a share of any class of any series of the Fund shall be
deemed to be the net asset value of such a share as of the close of business on
the last previous day on which such calculation was made. The distribution
services fee for any class of a series of the Fund shall be based upon average
daily net assets of the series attributable to the class and such fee shall be
charged only to such class.
9. KDI shall prepare reports for the Board of Trustees of the Fund on a
quarterly basis in connection with the Fund's distribution plan for Class B
shares and Class C shares showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board of Trustees.
10. To the extent applicable, this Agreement constitutes the plan for the Class
B shares and Class C shares of each series of the Fund pursuant to Rule 12b-1
under the Investment Company Act of 1940; and this Agreement and plan shall be
approved and renewed in accordance with Rule 12b-1 for such Class B shares and
Class C shares separately.
This Agreement shall become effective on the date hereof and shall continue
until , 1999; and shall continue from year to year thereafter only so long as
such continuance is approved in the manner required by the Investment Company
Act of 1940.
This Agreement shall automatically terminate in the event of its assignment and
may be terminated at any time without the payment of any penalty by the Fund or
by KDI on sixty (60) days written notice to the other party. The Fund may effect
termination with respect to any class of any series of the Fund by a vote of (i)
a majority of the Board of Trustees, (ii) a majority of the Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in this Agreement or in any agreement related to this Agreement, or
(iii) a majority of the outstanding voting securities of the class. Without
prejudice to any other remedies of the Fund, the Fund may terminate this
Agreement at any time immediately upon KDI's failure to fulfill any of its
obligations hereunder.
This Agreement may not be amended to increase the amount to be paid to KDI by
the Fund for services hereunder with respect to a class of any series of the
Fund without the vote of a majority of the outstanding voting securities of such
class. All material
5
<PAGE>
amendments to this Agreement must in any event be approved by a vote of the
Board of Trustees of the Fund including the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in
this Agreement or in any agreement related to this Agreement, cast in person at
a meeting called for such purpose.
The terms "assignment", "interested" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the Investment Company
Act of 1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of KDI to receive
payments on any unpaid balance of the compensation described in Section 8 earned
prior to such termination.
11. KDI will not use or distribute, or authorize the use, distribution or
dissemination by Firms or others in connection with the sale of Fund shares any
statements other than those contained in the Fund's current prospectus, except
such supplemental literature or advertising as shall be lawful under federal and
state securities laws and regulations. KDI will furnish the Fund with copies of
all such material.
12. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
13. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
14. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust, and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and Trustee liability contained therein. this Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the Trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund. With
respect to any claim by KDI for recovery of any liability of the Find arising
hereunder allocated to a particular series of class, whether in accordance with
the express terms hereof or otherwise, KDI shall have recourse solely against
the assets of that series or class to satisfy such claim and shall have no
recourse against the assets of any other series or class for such purpose.
6
<PAGE>
15. This Agreement shall be construed in accordance with applicable federal law
and (except as to Section 14 hereof which shall be construed in accordance with
the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
16. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed
as of the day and year first above written.
KEMPER SECURITIES TRUST, on behalf of
Kemper U.S. Growth and Income Fund ATTEST:
By:________________________________ _______________________________
Mark S. Casady Title:
President
KEMPER DISTRIBUTORS, INC. ATTEST:
By:________________________________ _______________________________
Title:
TITLE:_____________________________
7
AGENCY AGREEMENT
AGREEMENT dated the 30th day of January, 1998, by and between KEMPER SECURITIES
TRUST, a Massachusetts business trust ("Fund"), and KEMPER SERVICE COMPANY, a
Delaware corporation ("Service Company").
WHEREAS, Fund wants to appoint Service Company as Transfer Agent and
Dividend Disbursing Agent, and Service Company wants to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Documents to be Filed with Appointment.
In connection with the appointment of Service Company as Transfer
Agent and Dividend Disbursing Agent for Fund, there will be filed
with Service Company the following documents:
A. A certified copy of the resolutions of the Board of Trustees
of Fund appointing Service Company as Transfer Agent and
Dividend Disbursing Agent, approving the form of this
Agreement, and designating certain persons to give written
instructions and requests on behalf of Fund.
B. A certified copy of the Agreement and Declaration of Trust
of Fund and any amendments thereto.
C. A certified copy of the Bylaws of Fund.
D. Copies of Registration Statements filed with the Securities
and Exchange Commission.
E. Specimens of all forms of outstanding share certificates as
approved by the Board of Trustees of Fund, with a
certificate of the Secretary of Fund as to such approval.
F. Specimens of the signatures of the officers of the Fund
authorized to sign share certificates and individuals
authorized to sign written instructions and requests on
behalf of the Fund.
G. An opinion of counsel for Fund:
(1) With respect to Fund's organization and existence under
the laws of The Commonwealth
<PAGE>
of Massachusetts.
(2) With respect to the status of all shares of Fund covered
by this appointment under the Securities Act of 1933,
and any other applicable federal or state statute.
(3) To the effect that all issued shares are, and all
unissued shares will be when issued, validly issued,
fully paid and non-assessable.
2. Certain Representations and Warranties of Service Company.
Service Company represents and warrants to Fund that:
A. It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
B. It is duly qualified to carry on its business in the State
of Missouri.
C. It is empowered under applicable laws and by its
Certificate of Incorporation and Bylaws to enter into and
perform the services contemplated in this Agreement.
D. All requisite corporate action has been taken to authorize
it to enter into and perform this Agreement.
E. It has and will continue to have and maintain the necessary
facilities, equipment and personnel to perform its duties
and obligations under this Agreement.
F. It is, and will continue to be, registered as a transfer
agent under the Securities Exchange Act of 1934.
3. Certain Representations and Warranties of Fund.
Fund represents and warrants to Service Company that:
A. It is a business trust duly organized and existing and in
good standing under the laws of The Commonwealth of
Massachusetts.
B. It is an investment company registered under the Investment
Company Act of 1940.
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<PAGE>
C. A registration statement under the Securities Act of 1933 has
been filed and will be effective with respect to all shares of
Fund being offered for sale at any time and from time to time.
D. All requisite steps have been or will be taken to register
Fund's shares for sale in all applicable states, including
the District of Columbia.
E. Fund and its Trustees are empowered under applicable laws
and by the Fund's Agreement and Declaration of Trust and
Bylaws to enter into and perform this Agreement.
4. Scope of Appointment.
A. Subject to the conditions set forth in this Agreement, Fund
hereby employs and appoints Service Company as Transfer Agent
and Dividend Disbursing Agent effective the date hereof.
B. Service Company hereby accepts such employment and appointment
and agrees that it will act as Fund's Transfer Agent and
Dividend Disbursing Agent. Service Company agrees that it will
also act as agent in connection with Fund's periodic
withdrawal payment accounts and other open-account or similar
plans for shareholders, if any.
C. Service Company agrees to provide the necessary facilities,
equipment and personnel to perform its duties and
obligations hereunder in accordance with industry practice.
D. Fund agrees to use all reasonable efforts to deliver to
Service Company in Kansas City, Missouri, as soon as they
are available, all its shareholder account records.
E. Subject to the provisions of Sections 20 and 21 hereof,
Service Company agrees that it will perform all the usual
and ordinary services of Transfer Agent and Dividend
Disbursing Agent and as agent for the various shareholder
accounts, including, without limitation, the following:
issuing, transferring and cancelling share certificates,
maintaining all shareholder accounts, preparing shareholder
meeting lists, mailing proxies, receiving and tabulating
proxies,
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<PAGE>
mailing shareholder reports and prospectuses, withholding
federal income taxes, preparing and mailing checks for
disbursement of income and capital gains dividends, preparing
and filing all required U.S. Treasury Department information
returns for all shareholders, preparing and mailing
confirmation forms to shareholders and dealers with respect to
all purchases and liquidations of Fund shares and other
transactions in shareholder accounts for which confirmations
are required, recording reinvestments of dividends and
distributions in Fund shares, recording redemptions of Fund
shares and preparing and mailing checks for payments upon
redemption and for disbursements to systematic withdrawal plan
shareholders.
5. Compensation and Expenses.
A. In consideration for the services provided hereunder by
Service Company as Transfer Agent and Dividend Disbursing
Agent, Fund will pay to Service Company from time to time
compensation as agreed upon for all services rendered as
Agent, and also, all its reasonable out-of-pocket expenses
and other disbursements incurred in connection with the
agency. Such compensation will be set forth in a separate
schedule to be agreed to by Fund and Service Company. The
initial agreement regarding compensation is attached as
Exhibit A.
B. Fund agrees to promptly reimburse Service Company for all
reasonable out-of-pocket expenses or advances incurred by
Service Company in connection with the performance of
services under this Agreement including, but not limited
to, postage (and first class mail insurance in connection
with mailing share certificates), envelopes, check forms,
continuous forms, forms for reports and statements,
stationery, and other similar items, telephone and
telegraph charges incurred in answering inquiries from
dealers or shareholders, microfilm used each year to record
the previous year's transactions in shareholder accounts
and computer tapes used for permanent storage of records
and cost of insertion of materials in mailing envelopes by
outside firms. Service Company may, at its option, arrange
to have various service providers submit invoices directly
4
<PAGE>
to the Fund for payment of out-of-pocket expenses reimbursable
hereunder.
6. Efficient Operation of Service Company System.
A. In connection with the performance of its services under this
Agreement, Service Company is responsible for the accurate and
efficient functioning of its system at all times, including:
(1) The accuracy of the entries in Service Company's records
reflecting purchase and redemption orders and other
instructions received by Service Company from dealers,
shareholders, Fund or its principal underwriter.
(2) The timely availability and the accuracy of shareholder
lists, shareholder account verifications, confirmations
and other shareholder account information to be produced
from Service Company's records or data.
(3) The accurate and timely issuance of dividend and
distribution checks in accordance with instructions
received from Fund.
(4) The accuracy of redemption transactions and payments in
accordance with redemption instructions received from
dealers, shareholders or Fund or other authorized
persons.
(5) The deposit daily in Fund's appropriate special bank
account of all checks and payments received from dealers
or shareholders for investment in shares.
(6) The requiring of proper forms of instructions,
signatures and signature guarantees and any necessary
documents supporting the rightfulness of transfers,
redemptions and other shareholder account transactions,
all in conformance with Service Company's present
procedures with such changes as may be deemed reasonably
appropriate by Service Company or as may be reasonably
approved by or on behalf of Fund.
5
<PAGE>
(7) The maintenance of a current duplicate set of Fund's
essential or required records, as agreed upon from time
to time by Fund and Service Company, at a secure distant
location, in form available and usable forthwith in the
event of any breakdown or disaster disrupting its main
operation.
7. Indemnification.
A. Fund shall indemnify and hold Service Company harmless from
and against any and all claims, actions, suits, losses,
damages, costs, charges, counsel fees, payments, expenses
and liabilities arising out of or attributable to any
action or omission by Service Company pursuant to this
Agreement or in connection with the agency relationship
created by this Agreement, provided that Service Company
has acted in good faith, without negligence and without
willful misconduct.
B. Service Company shall indemnify and hold Fund harmless from
and against any and all claims, actions, suits, losses,
damages, costs, charges, counsel fees, payments, expenses
and liabilities arising out of or attributable to any
action or omission by Service Company pursuant to this
Agreement or in connection with the agency relationship
created by this Agreement, provided that Service Company
has not acted in good faith, without negligence and without
willful misconduct.
C. In order that the indemnification provisions contained in
this Section 7 shall apply, upon the assertion of a claim
for which either party (the "Indemnifying Party") may be
required to provide indemnification hereunder, the party
seeking indemnification (the "Indemnitee") shall promptly
notify the Indemnifying Party of such assertion, and shall
keep such party advised with respect to all developments
concerning such claim. The Indemnifying Party shall be
entitled to assume control of the defense and the
negotiations, if any, regarding settlement of the claim.
If the Indemnifying Party assumes control, the Indemnitee
shall have the option to participate in the defense and
negotiations of such claim at its own expense. The
Indemnitee shall in no event confess, admit to, compromise,
or settle any claim for which the Indemnifying Party may be
required
6
<PAGE>
to indemnify it except with the prior written consent of the
Indemnifying Party, which shall not be unreasonably withheld.
8. Certain Covenants of Service Company and Fund.
A. All requisite steps will be taken by Fund from time to time
when and as necessary to register the Fund's shares for
sale in all states in which Fund's shares shall at the time
be offered for sale and require registration. If at any
time Fund receives notice of any stop order or other
proceeding in any such state affecting such registration or
the sale of Fund's shares, or of any stop order or other
proceeding under the Federal securities laws affecting the
sale of Fund's shares, Fund will give prompt notice thereof
to Service Company.
B. Service Company hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to Fund for
safekeeping of share certificates, check forms, and
facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such
certificates, forms and devices. Further, Service Company
agrees to carry insurance, as specified in Exhibit B
hereto, with insurers reasonably acceptable to Fund and in
minimum amounts that are reasonably acceptable to Fund,
which will not be changed without the consent of Fund,
which consent shall not be unreasonably withheld, and which
will be expanded in coverage or increased in amounts from
time to time if and when reasonably requested by Fund. If
Service Company determines that it is unable to obtain any
such insurance upon commercially reasonable terms, it shall
promptly so advise Fund in writing. In such event, Fund
shall have the right to terminate this Agreement upon 30
days notice.
C. To the extent required by Section 31 of the Investment Company
Act of 1940 and Rules thereunder, Service Company agrees that
all records maintained by Service Company relating to the
services to be performed by Service Company under this
Agreement are the property of Fund and will be preserved and
will be surrendered promptly to Fund on request.
7
<PAGE>
D. Service Company agrees to furnish Fund semi-annual reports of
its financial condition, consisting of a balance sheet,
earnings statement and any other reasonably available
financial information reasonably requested by Fund. The annual
financial statements will be certified by Service Company's
certified public accountants.
E. Service Company represents and agrees that it will use all
reasonable efforts to keep current on the trends of the
investment company industry relating to shareholder services
and will use all reasonable efforts to continue to modernize
and improve its system without additional cost to Fund.
F. Service Company will permit Fund and its authorized
representatives to make periodic inspections of its
operations at reasonable times during business hours.
G. If Service Company is prevented from complying, either
totally or in part, with any of the terms or provisions of
this Agreement, by reason of fire, flood, storm, strike,
lockout or other labor trouble, riot, war, rebellion,
accidents, acts of God, equipment, utility or transmission
failure or damage, and/or any other cause or casualty
beyond the reasonable control of Service Company, whether
similar to the foregoing matters or not, then upon written
notice to Fund, the requirements of this Agreement that are
affected by such disability, to the extent so affected,
shall be suspended during the period of such disability;
provided, however, that Service Company shall make
reasonable effort to remove such disability as soon as
possible. During such period, Fund may seek alternate
sources of service without liability hereunder; and Service
Company will use all reasonable efforts to assist Fund to
obtain alternate sources of service. Service Company shall
have no liability to Fund for nonperformance because of the
reasons set forth in this Section 8.G; but if a disability
that, in Fund's reasonable belief, materially affects
Service Company's ability to perform its obligations under
this Agreement continues for a period of 30 days, then Fund
shall have the right to terminate this Agreement upon 10
days written notice to Service Company.
8
<PAGE>
9. Adjustment.
In case of any recapitalization, readjustment or other change in the
structure of Fund requiring a change in the form of share
certificates, Service Company will issue or register certificates in
the new form in exchange for, or in transfer of, the outstanding
certificates in the old form, upon receiving the following:
A. Written instructions from an officer of Fund.
B. Certified copy of any amendment to the Agreement and
Declaration of Trust or other document effecting the change.
C. Certified copy of any order or consent of each governmental or
regulatory authority required by law for the issuance of the
shares in the new form, and an opinion of counsel that no
order or consent of any other government or regulatory
authority is required.
D. Specimens of the new certificates in the form approved by
the Board of Trustees of Fund, with a certificate of the
Secretary of Fund as to such approval.
E. Opinion of counsel for Fund:
(1) With respect to the status of the shares of Fund in the
new form under the Securities Act of 1933, and any other
applicable federal or state laws.
(2) To the effect that the issued shares in the new form
are, and all unissued shares will be when issued,
validly issued, fully paid and non-assessable.
10. Share Certificates.
Fund will furnish Service Company with a sufficient supply of blank
share certificates and from time to time will renew such supply upon
the request of Service Company. Such certificates will be signed
manually or by facsimile signatures of the officers of Fund
authorized by law and Fund's Bylaws to sign share certificates and,
if required, will bear the trust seal or facsimile thereof.
9
<PAGE>
11. Death, Resignation or Removal of Signing Officer.
Fund will file promptly with Service Company written notice of any
change in the officers authorized to sign share certificates,
written instructions or requests, together with two signature cards
bearing the specimen signature of each newly authorized officer, all
as certified by an appropriate officer of the Fund. In case any
officer of Fund who will have signed manually or whose facsimile
signature will have been affixed to blank share certificates will
die, resign, or be removed prior to the issuance of such
certificates, Service Company may issue or register such share
certificates as the share certificates of Fund notwithstanding such
death, resignation, or removal, until specifically directed to the
contrary by Fund in writing. In the absence of such direction, Fund
will file promptly with Service Company such approval, adoption, or
ratification as may be required by law.
12. Future Amendments of Agreement and Declaration of Trust and
Bylaws.
Fund will promptly file with Service Company copies of all material
amendments to its Agreement and Declaration of Trust and Bylaws and
Registration Statement made after the date of this Agreement.
13. Instructions, Opinion of Counsel and Signatures.
At any time Service Company may apply to any officer of Fund for
instructions, and may consult with legal counsel for Fund at the
expense of Fund, or with its own legal counsel at its own expense,
with respect to any matter arising in connection with the agency;
and it will not be liable for any action taken or omitted by it in
good faith in reliance upon such instructions or upon the opinion of
such counsel. Service Company is authorized to act on the orders,
directions or instructions of such persons as the Board of Trustees
of Fund shall from time to time designate by resolution. Service
Company will be protected in acting upon any paper or document,
including any orders, directions or instructions, reasonably
believed by it to be genuine and to have been signed by the proper
person or persons; and Service Company will not be held to have
notice of any change of authority of any person so authorized by
Fund until receipt of written notice thereof from Fund. Service
Company will also be protected in recognizing share certificates
10
<PAGE>
that it reasonably believes to bear the proper manual or facsimile
signatures of the officers of Fund, and the proper countersignature
of any former Transfer Agent or Registrar, or of a Co-Transfer Agent
or Co-Registrar.
14. Papers Subject to Approval of Counsel.
The acceptance by Service Company of its appointment as Transfer
Agent and Dividend Disbursing Agent, and all documents filed in
connection with such appointment and thereafter in connection with
the agencies, will be subject to the approval of legal counsel for
Service Company, which approval will not be unreasonably withheld.
15. Certification of Documents.
The required copy of the Agreement and Declaration of Trust of Fund
and copies of all amendments thereto will be certified by the
appropriate official of The Commonwealth of Massachusetts; and if
such Agreement and Declaration of Trust and amendments are required
by law to be also filed with a county, city or other officer or
official body, a certificate of such filing will appear on the
certified copy submitted to Service Company. A copy of the order or
consent of each governmental or regulatory authority required by law
for the issuance of Fund shares will be certified by the Secretary
or Clerk of such governmental or regulatory authority, under proper
seal of such authority. The copy of the Bylaws and copies of all
amendments thereto and copies of resolutions of the Board of
Trustees of Fund will be certified by the Secretary or an Assistant
Secretary of Fund.
16. Records.
Service Company will maintain customary records in connection with
its agency, and particularly will maintain those records required to
be maintained pursuant to sub-paragraph (2)(iv) of paragraph (b) of
Rule 31a-1 under the Investment Company Act of 1940, if any.
17. Disposition of Books, Records and Cancelled Certificates.
Service Company will send periodically to Fund, or to where
designated by the Secretary or an Assistant
11
<PAGE>
Secretary of Fund, all books, documents, and all records no longer
deemed needed for current purposes and share certificates which have
been cancelled in transfer or in exchange, upon the understanding
that such books, documents, records, and share certificates will not
be destroyed by Fund without the consent of Service Company (which
consent will not be unreasonably withheld), but will be safely
stored for possible future reference.
18. Provisions Relating to Service Company as Transfer Agent.
A. Service Company will make original issues of share
certificates upon written request of an officer of Fund and
upon being furnished with a certified copy of a resolution
of the Board of Trustees authorizing such original issue,
an opinion of counsel as outlined in Section 1.G or 9.E of
this Agreement, the certificates required by Section 10 of
this Agreement and any other documents required by Section
1 or 9 of this Agreement.
B. Before making any original issue of certificates, Fund will
furnish Service Company with sufficient funds to pay any
taxes required on the original issue of the shares. Fund
will furnish Service Company such evidence as may be
required by Service Company to show the actual value of the
shares. If no taxes are payable, Service Company will upon
request be furnished with an opinion of outside counsel to
that effect.
C. Shares will be transferred and new certificates issued in
transfer, or shares accepted for redemption and funds
remitted therefor, upon surrender of the old certificates
in form deemed by Service Company properly endorsed for
transfer or redemption accompanied by such documents as
Service Company may deem necessary to evidence the
authority of the person making the transfer or redemption,
and bearing satisfactory evidence of the payment of any
applicable share transfer taxes. Service Company reserves
the right to refuse to transfer or redeem shares until it
is satisfied that the endorsement or signature on the
certificate or any other document is valid and genuine, and
for that purpose it may require a guarantee of signature by
such persons as may from time to time be specified in the
prospectus
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<PAGE>
related to such shares or otherwise authorized by Fund.
Service Company also reserves the right to refuse to transfer
or redeem shares until it is satisfied that the requested
transfer or redemption is legally authorized, and it will
incur no liability for the refusal in good faith to make
transfers or redemptions which, in its judgment, are improper,
unauthorized, or otherwise not rightful. Service Company may,
in effecting transfers or redemptions, rely upon
Simplification Acts or other statutes which protect it and
Fund in not requiring complete fiduciary documentation.
D. When mail is used for delivery of share certificates, Service
Company will forward share certificates in "nonnegotiable"
form as provided by Fund by first class mail, all such mail
deliveries to be covered while in transit to the addressee by
insurance arranged for by Service Company.
E. Service Company will issue and mail subscription warrants and
certificates provided by Fund and representing share
dividends, exchanges or split-ups, or act as Conversion Agent
upon receiving written instructions from any officer of Fund
and such other documents as Service Company deems necessary.
F. Service Company will issue, transfer, and split-up
certificates upon receiving written instructions from an
officer of Fund and such other documents as Service Company
may deem necessary.
G. Service Company may issue new certificates in place of
certificates represented to have been lost, destroyed,
stolen or otherwise wrongfully taken, upon receiving
indemnity satisfactory to Service Company, and may issue
new certificates in exchange for, and upon surrender of,
mutilated certificates. Any such issuance shall be in
accordance with the provisions of law governing such matter
and any procedures adopted by the Board of Trustees of the
Fund of which Service Company has notice.
H. Service Company will supply a shareholder's list to Fund
properly certified by an officer of Service Company for any
shareholder meeting upon receiving a request from an officer
of Fund. It
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<PAGE>
will also supply lists at such other times as may be
reasonably requested by an officer of Fund.
I. Upon receipt of written instructions of an officer of Fund,
Service Company will address and mail notices to
shareholders.
J. In case of any request or demand for the inspection of the
share books of Fund or any other books of Fund in the
possession of Service Company, Service Company will
endeavor to notify Fund and to secure instructions as to
permitting or refusing such inspection. Service Company
reserves the right, however, to exhibit the share books or
other books to any person in case it is advised by its
counsel that it may be held responsible for the failure to
exhibit the share books or other books to such person.
19. Provisions Relating to Dividend Disbursing Agency.
A. Service Company will, at the expense of Fund, provide a
special form of check containing the imprint of any device or
other matter desired by Fund. Said checks must, however, be of
a form and size convenient for use by Service Company.
B. If Fund wants to include additional printed matter, financial
statements, etc., with the dividend checks, the same will be
furnished to Service Company within a reasonable time prior to
the date of mailing of the dividend checks, at the expense of
Fund.
C. If Fund wants its distributions mailed in any special form
of envelopes, sufficient supply of the same will be
furnished to Service Company but the size and form of said
envelopes will be subject to the approval of Service
Company. If stamped envelopes are used, they must be
furnished by Fund; or, if postage stamps are to be affixed
to the envelopes, the stamps or the cash necessary for such
stamps must be furnished by Fund.
D. Service Company will maintain one or more deposit accounts as
Agent for Fund, into which the funds for payment of dividends,
distributions, redemptions or other disbursements provided for
hereunder will be deposited, and against which checks will be
drawn.
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<PAGE>
20. Termination of Agreement.
A. This Agreement may be terminated by either party upon sixty
(60) days prior written notice to the other party.
B. Fund, in addition to any other rights and remedies, shall have
the right to terminate this Agreement forthwith upon the
occurrence at any time of any of the following events:
(1) Any interruption or cessation of operations by Service
Company or its assigns which materially interferes with
the business operation of Fund.
(2) The bankruptcy of Service Company or its assigns or the
appointment of a receiver for Service Company or its
assigns.
(3) Any merger, consolidation or sale of substantially all
the assets of Service Company or its assigns.
(4) The acquisition of a controlling interest in Service
Company or its assigns, by any broker, dealer,
investment adviser or investment company except as may
presently exist.
(5) Failure by Service Company or its assigns to perform its
duties in accordance with this Agreement, which failure
materially adversely affects the business operations of
Fund and which failure continues for thirty (30) days
after written notice from Fund.
(6) The registration of Service Company or its assigns as a
transfer agent under the Securities Exchange Act of 1934
is revoked, terminated or suspended for any reason.
C. In the event of termination, Fund will promptly pay Service
Company all amounts due to Service Company hereunder. Upon
termination of this Agreement, Service Company shall deliver
all shareholder and account records pertaining to Fund either
to Fund or as directed in writing by Fund.
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21. Assignment.
A. Neither this Agreement nor any rights or obligations hereunder
may be assigned by Service Company without the written consent
of Fund; provided, however, no assignment will relieve Service
Company of any of its obligations hereunder.
B. This Agreement including, without limitation, the provisions
of Section 7 will inure to the benefit of and be binding upon
the parties and their respective successors and assigns.
C. Service Company is authorized by Fund to use the system
services of DST Systems, Inc. and the system and other
services, including data entry, of Administrative
Management Group, Inc.
22. Confidentiality.
A. Except as provided in the last sentence of Section 18.J
hereof, or as otherwise required by law, Service Company will
keep confidential all records of and information in its
possession relating to Fund or its shareholders or shareholder
accounts and will not disclose the same to any person except
at the request or with the consent of Fund.
B. Except as otherwise required by law, Fund will keep
confidential all financial statements and other financial
records (other than statements and records relating solely
to Fund's business dealings with Service Company) and all
manuals, systems and other technical information and data,
not publicly disclosed, relating to Service Company's
operations and programs furnished to it by Service Company
pursuant to this Agreement and will not disclose the same
to any person except at the request or with the consent of
Service Company. Notwithstanding anything to the contrary
in this Section 22.B, if an attempt is made pursuant to
subpoena or other legal process to require Fund to disclose
or produce any of the aforementioned manuals, systems or
other technical information and data, Fund shall give
Service Company prompt notice thereof prior to disclosure
or production so that Service Company may, at its expense,
resist such attempt.
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23. Survival of Representations and Warranties.
All representations and warranties by either party herein contained
will survive the execution and delivery of this Agreement.
24. Miscellaneous.
A. This Agreement is executed and delivered in the State of
Illinois and shall be governed by the laws of said state
(except as to Section 24.G hereof which shall be governed by
the laws of The Commonwealth of Massachusetts).
B. No provisions of this Agreement may be amended or modified
in any manner except by a written agreement properly
authorized and executed by both parties hereto.
C. The captions in this Agreement are included for convenience of
reference only, and in no way define or limit any of the
provisions hereof or otherwise affect their construction or
effect.
D. This Agreement shall become effective as of the date hereof.
E. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same
instrument.
F. If any part, term or provision of this Agreement is held by
the courts to be illegal, in conflict with any law or
otherwise invalid, the remaining portion or portions shall be
considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as
if the Agreement did not contain the particular part, term or
provision held to be illegal or invalid.
G. All parties hereto are expressly put on notice of Fund's
Agreement and Declaration of Trust which is on file with the
Secretary of The Commonwealth of Massachusetts, and the
limitation of shareholder and trustee liability contained
therein. This Agreement has been executed by and on behalf of
Fund by its representatives as such representatives and not
individually, and the
17
<PAGE>
obligations of Fund hereunder are not binding upon any of the
Trustees, officers or shareholders of the Fund individually
but are binding upon only the assets and property of Fund.
With respect to any claim by Service Company for recovery of
that portion of the compensation and expenses (or any other
liability of Fund arising hereunder) allocated to a particular
Portfolio, whether in accordance with the express terms hereof
or otherwise, Service Company shall have recourse solely
against the assets of that Portfolio to satisfy such claim and
shall have no recourse against the assets of any other
Portfolio for such purpose.
H. This Agreement, together with the Fee Schedule, is the entire
contract between the parties relating to the subject matter
hereof and supersedes all prior agreements between the
parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officer as of the day and year first set
forth above.
KEMPER SECURITIES TRUST, on behalf of
Kemper U.S. Growth and Income Fund ATTEST:
By: ------------------------ ------------------------
Mark S. Casady Title:
President
KEMPER SERVICE COMPANY ATTEST:
By: ----------------------- -------------------------
Title:
TITLE:
18
EXHIBIT A
TRANSFER AGENCY FEE SCHEDULE
KEMPER SERVICE COMPANY
A & C SHARES B SHARES
------------ --------
Annual Open Account Fees:
Non-Daily Dividend Fund $6.00 $6.00
CDSC Account Fee N/A 2.25
Non-monetary Transaction Fee 2.00 2.00
Annual Closed Account Fee 6.00 6.00
New Account Fee 4.00 4.00
Transaction Based Fees
(per transaction):
Purchase or Redemption of
Shares Transaction Fee 1.25 1.25
Automated Transaction Fee 0.50 0.50
Dividend Transaction Fee 0.40 0.40
Audio Response 0.15 0.15
<PAGE>
EXHIBIT B
INSURANCE COVERAGE
DESCRIPTION OF POLICY:
Brokers Blanket Bond, Standard Form 14
Covering losses caused by dishonesty of employees, physical loss of securities
on or outside of premises while in possession of authorized person, loss caused
by forgery or alteration of checks or similar instruments.
Errors and Omissions Insurance
Covering replacement of destroyed records and computer errors and omissions.
Special Forgery Bond
Covering losses through forgery or alteration of checks or drafts of customers
processed by insured but drawn on or against them.
Mail Insurance (applies to all full service operations)
Provides indemnity for the following types of securities lost in the mails:
o Non-negotiable securities mailed to domestic locations via registered mail.
o Non-negotiable securities mailed to domestic locations via first-class or
certified mail.
o Non-negotiable securities mailed to foreign locations via registered mail.
o Negotiable securities mailed to all locations via registered mail.
20
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 30th day of January, 1998 between Kemper
Securities Trust (the "Fund"), on behalf of Kemper U.S. Growth and Income Fund
(hereinafter called the "Portfolio"), a registered open-end management
investment company with its principal place of business in New York, New York,
and Scudder Fund Accounting Corporation, with its principal place of business in
Boston, Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need to determine its net asset value which service
FUND ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement to
calculate the net asset value of the Portfolio as provided in the
prospectus of the Portfolio and in connection therewith shall:
a. Maintain and preserve all accounts, books, financial records and
other documents as are required of the Fund under Section 31 of
the Investment Company Act of 1940 (the "1940 Act") and Rules
31a-1, 31a-2 and 31a-3 thereunder, applicable federal and state
laws and any other law or administrative rules or procedures
which may be applicable to the Fund on behalf of the Portfolio,
other than those accounts, books and financial records required
to be maintained by the Fund's investment adviser, custodian or
transfer agent and/or books and records maintained by all other
service providers necessary for the Fund to conduct its business
as a registered open-end management investment company. All such
books and records shall be the property of the Fund and shall at
all times during regular business hours be open for inspection
by, and shall be surrendered promptly upon request of, duly
authorized officers of the Fund. All such books and records
shall at all times during regular business hours be open for
inspection, upon request of duly authorized officers of the Fund,
by employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission.
b. Record the current day's trading activity and such other proper
bookkeeping entries as are necessary for determining that day's net
asset value and net income.
c. Render statements or copies of records as from time to time are
reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by the Fund
or by any regulatory body with jurisdiction over the Fund.
e. Compute the Portfolio's public offering price and/or its daily
dividend rates and money market yields, if applicable, in accordance
with Section 3 of the Agreement and notify the Fund and such other
persons as the Fund may reasonably request of
<PAGE>
the net asset value per share, the public offering price and/or its
daily dividend rates and money market yields.
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's Registration
Statement, as amended or supplemented from time to time (hereinafter
referred to as the "Registration Statement"); (b) the resolutions of the
Board of Trustees of the Fund at the time in force and applicable, as they
may from time to time be delivered to FUND ACCOUNTING, and (c) Proper
Instructions from such officers of the Fund or other persons as are from
time to time authorized by the Board of Trustees of the Fund to give
instructions with respect to computation and determination of the net
asset value. FUND ACCOUNTING may use one or more external pricing
services, including broker-dealers, provided that an appropriate officer
of the Fund shall have approved such use in advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily
Dividend Rates
and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value, including
net income, in a manner consistent with the specific provisions of the
Registration Statement. Such computation shall be made as of the time or
times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in the
Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the necessary
computations FUND ACCOUNTING shall be entitled to receive, and may rely
upon, information furnished it by means of Proper Instructions, including
but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public offering
price and such other computations as may be necessary;
e. Transactions in portfolio securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a
2
<PAGE>
certificate, letter or other instrument signed by an authorized officer of
the Fund or any other person authorized by the Fund's Board of Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel for the Fund at the reasonable expense of the Portfolio and shall
be without liability for any action taken or thing done in good faith in
reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND ACCOUNTING
to be genuine and to have been properly made or signed by any authorized
officer of the Fund or person certified to FUND ACCOUNTING as being
authorized by the Board of Trustees. The Fund, on behalf of the Portfolio,
shall cause oral instructions to be confirmed in writing. Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices as from time to time agreed to by
an authorized officer of the Fund and FUND ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the appropriate
person(s) within FUND ACCOUNTING a copy of the Registration Statement as
in effect from time to time. FUND ACCOUNTING may conclusively rely on the
Fund's most recently delivered Registration Statement for all purposes
under this Agreement and shall not be liable to the Portfolio or the Fund
in acting in reliance thereon.
Section 6. Standard of Care
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND ACCOUNTING
shall not be liable under this Agreement for any error of judgment or
mistake of law made in good faith and consistent with the foregoing
standard of care, provided that nothing in this Agreement shall be deemed
to protect or purport to protect FUND ACCOUNTING against any liability to
the Fund, the Portfolio or its shareholders to which FUND ACCOUNTING would
otherwise be subject by reason of willful misfeasance, bad faith or
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties hereunder.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon
in writing by the two parties. FUND ACCOUNTING shall be entitled, if
agreed to by the Fund on behalf of the Portfolio, to recover its
reasonable telephone, courier or delivery service, and all
3
<PAGE>
other reasonable out-of-pocket, expenses as incurred, including, without
limitation, reasonable attorneys' fees and reasonable fees for pricing
services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual agreement of
the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take effect
not sooner than sixty (60) days after the date of delivery or mailing of
such notice of termination. Any termination date is to be no earlier than
four months from the effective date hereof. Upon termination, FUND
ACCOUNTING will turn over to the Fund or its designee and cease to retain
in FUND ACCOUNTING files, records of the calculations of net asset value
and all other records pertaining to its services hereunder; provided,
however, FUND ACCOUNTING in its discretion may make and retain copies of
any and all such records and documents which it determines appropriate or
for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be deemed
to be exclusive, and it is understood that FUND ACCOUNTING may perform
fund accounting services for others. In acting under this Agreement, FUND
ACCOUNTING shall be an independent contractor and not an agent of the Fund
or the Portfolio.
Section 10. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such other
person or at such other address as such party may from time to time
specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn.: Vice President
If to the Fund - Portfolio: Kemper U.S. Growth and Income Fund
345 Park Avenue
New York, New York 10154
Attn.: President, Secretary or Treasurer
Section 11. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the consent
of the Fund as authorized or approved by resolution of its Board of
Trustees.
4
<PAGE>
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive of
or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive or
additional provisions shall be in writing, signed by both parties and
annexed hereto, but no such provisions shall be deemed to be an amendment
of this Agreement.
This Agreement shall be governed and construed in accordance with the laws
of The Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
written above.
KEMPER SECURITIES TRUST, on behalf of
Kemper U.S. Growth and Income Fund
By: ______________________________________
Mark S. Casady
President
SCUDDER FUND ACCOUNTING CORPORATION
By: ______________________________________
John R. Hebble
Vice President
5
<PAGE>
FUND ACCOUNTING FEE SCHEDULE
SCUDDER FUND ACCOUNTING CORPORATION
Fund Accounting Services - Maintain and preserve accounts, books, records and
other documents as are required of the Fund under Section 31 of the Investment
Company Act of 1940 and Rules 31 a-1 and 31 a-2. Record the current day's
trading activity and such other proper bookkeeping entries as are necessary for
determining that day's net asset value. Calculate net asset value.
I. Annual Fees
Domestic Equity Funds
Fund Net Assets Annual
Fee
----------------------------- ----------------------------
First $150 Million 2.50 Basis Points
Next $850 Million 0.75 Basis Points
Excess - Over $1 billion 0.45 Basis Points
A minimum monthly fee of $3,125 will be applied.
II. Multiple Class Portfolios
For any class in excess of one, each portfolio will incur a 33% surcharge
on the annual fee.
III. Holdings Charge
For each issue maintained - - monthly charge $7.50
IV. Porffolio Trades
Money Market Instruments $5.00
Domestic Fixed Income Securities $12.50
Domestic Equity Securities $12.50
Options, Futures and Forward Contracts $25.00
Foreign Equity and Fixed Income Securities $25.00
Foreign Currency Options and Futures Contracts $35.00
Foreign Options and Futures Contracts $35.00
<PAGE>
V. Out-of-Pocket Expenses
A billing for the recovery of applicable out-of-pocket expenses will be made at
the end of each month. Out-of-pocket expenses include, telephone, courier or
delivery service, legal fees, fees for pricing services and all other reasonable
out-of-pocket expenses.
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT dated this 30th day of January, 1998 by and between KEMPER U.S. GROWTH
AND INCOME FUND, a series of Kemper Securities Trust, a Massachusetts business
trust (the "Fund"), and KEMPER DISTRIBUTORS, INC., a Delaware corporation
("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to provide information and administrative
services for the benefit of the Fund and its shareholders. In this regard, KDI
shall appoint various broker-dealer firms and other service or administrative
firms ("Firms") to provide related services and facilities for persons who are
investors in the Fund ("investors"). The Firms shall provide such office space
and equipment, telephone facilities, personnel or other services as may be
necessary or beneficial for providing information and services to investors in
the Fund. Such services and assistance may include, but are not limited to,
establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund and its
special features, assistance to investors in changing dividend and investment
options, account designations and addresses, and such other administrative
services as the Fund or KDI may reasonably request. Firms may include affiliates
of KDI. KDI may also provide some of the above services for the Fund directly.
KDI accepts such appointment and agrees during such period to render such
services and to assume the obligations herein set forth for the compensation
herein provided. KDI shall for all purposes herein provided be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. In carrying out its duties and
responsibilities hereunder, KDI will appoint various Firms to provide
administrative and other services described herein directly to or for the
benefit of investors in the Fund. Such Firms shall at all times be deemed to be
independent contractors retained by KDI and not the Fund. KDI and not the Fund
will be responsible for the payment of compensation to such Firms for such
services.
2. For the administrative services and facilities described in Section 1, the
Fund will pay to KDI at the end of each calendar month an administrative service
fee computed at an annual rate of up to 0.25 of 1% of the average daily net
assets of the Fund (except assets attributable to Class I Shares). The current
fee
<PAGE>
schedule is set forth as Appendix I hereto. The administrative service fee will
be calculated separately for each class of each series of the Fund as an expense
of each such class; provided, however, no administrative service fee shall be
payable with respect to Class I Shares. For the month and year in which this
Agreement becomes effective or terminates, there shall be an appropriate
proration on the basis of the number of days that the Agreement is in effect
during such month and year, respectively. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others.
The net asset value for each share of the Fund shall be calculated in accordance
with the provisions of the Fund's current prospectus. On each day when net asset
value is not calculated, the net asset value of a share of the Fund shall be
deemed to be the net asset value of such a share as of the close of business on
the last day on which such calculation was made for the purpose of the foregoing
computations.
3. The Fund shall assume and pay all charges and expenses of its operations not
specifically assumed or otherwise to be provided by KDI under this Agreement.
4. This Agreement may be terminated at any time without the payment of any
penalty by the Fund or by KDI on sixty (60) days written notice to the other
party. Termination of this Agreement shall not affect the right of KDI to
receive payments on any unpaid balance of the compensation described in Section
2 hereof earned prior to such termination. This Agreement may not be amended for
any class of any series of the Fund to increase the amount to be paid to KDI for
services hereunder above .25 of 1% of the average daily net assets of such class
without the vote of a majority of the outstanding voting securities of such
class. All material amendments to this Agreement must in any event be approved
by vote of the Board of the Fund.
5. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
6. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
7. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
2
<PAGE>
representatives and not individually, and the obligations o the Fund thereunder
are not binding upon any of the trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund.
8. This Agreement shall be construed in accordance with applicable federal law
and (except as to Section 7 hereof which shall be construed in accordance with
the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed
as of the day and year first above written.
KEMPER SECURITIES TRUST, on behalf of
Kemper U.S. Growth and Income Fund
By:_________________________________
Mark S. Casady
President
KEMPER DISTRIBUTORS,INC.
By:_________________________________
TITLE:______________________________
3
<PAGE>
APPENDIX I
KEMPER SECURITIES TRUST
FEE SCHEDULE FOR ADMINISTRATIVE
SERVICES AGREEMENT
Pursuant to Section 2 of the Administrative Services Agreement to which this
Appendix is attached, the Fund and KDI agree that the administrative service fee
will be computed at an annual rate of .25 of 1% (the "Fee Rate") based upon
assets with respect to which a Firm provides administrative services.
KEMPER SECURITIES TRUST, on behalf of
Kemper U.S. Growth and Income Fund
By:________________________________
Mark S. Casady
President
KEMPER DISTRIBUTORS,INC.
By:________________________________
TITLE:_____________________________
Dated: January 30, 1998
4
LAW OFFICES OF
DECHERT PRICE & RHOADS
TEN POST OFFICE SQUARE
BOSTON, MA 02109-4603
January 29, 1998
Kemper Securities Trust in respect of
Kemper U.S. Growth and Income Fund
222 South Riverside Plaza
Chicago, Illinois 60606
Re: Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-1A (File No. 333-42335) (the "Registration Statement")
Gentlemen:
Kemper Securities Trust (the "Trust"), formerly Kemper Growth and Income
Fund, is a trust created under a written Declaration of Trust dated October 1,
1997, as amended, and executed and delivered in Boston, Massachusetts (the
"Declaration of Trust"). The beneficial interest thereunder is represented by
transferable shares with a par value of $.01 per share (the "Shares"). The
Trustees have the powers set forth in the Declaration of Trust, subject to the
terms, provisions and conditions therein provided.
We are of the opinion that all legal requirements have been complied with
in the creation of the Trust and that said Declaration of Trust is legal and
valid.
Under Article V, Section 5.4 of the Declaration of Trust, the Trustees are
empowered, in their discretion, from time to time, to issue Shares for such
amount and type of consideration, at such time or times and on such terms as the
Trustees may deem best. Under Article V, Section 5.1, it is provided that the
number of Shares of beneficial interest authorized to be issued under the
Declaration of Trust is unlimited. Under Article V, Section 5.11, the Trustees
may authorize the division of shares into two or more series. By written
instrument dated October 1, 1997, the Trustees established the initial series of
the Trust designated as Kemper U.S. Growth and Income Fund (the "Fund").
<PAGE>
Scudder Securities Trust
January 29, 1998
Page 2
By vote adopted on January 21, 1998, the Trustees of the Trust authorized
the President, any Vice President, the Secretary and the Treasurer, from time to
time, to cause to be registered with the Securities and Exchange Commission an
indefinite number of Shares and to cause such Shares to be offered and sold to
the public.
We understand that you are about to register under the Securities Act of
1933, an unlimited number of Shares of the Fund by Pre-Effective Amendment No. 1
to the Registration Statement.
We are of the opinion that all necessary Trust action precedent to the
issue of said Shares, comprising the Shares covered by Pre-Effective Amendment
No. 1 to the Registration Statement, has been duly taken, and that all such
Shares may be legally and validly issued for cash, and when sold will be fully
paid and non-assessable by the Trust upon receipt by the Trust or its agent of
consideration for such Shares in accordance with the terms in the Registration
Statement, subject to compliance with the Securities Act of 1933, as amended,
the Investment Company Act of 1940, as amended, and applicable state laws
regulating the sale of securities.
We consent to your filing this opinion with the Securities and Exchange
Commission as an Exhibit to Pre-Effective Amendment No. 1 to the Registration
Statement.
Very truly yours,
/s/Dechert Price & Rhoads
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Kemper U. S. Growth and Income Fund
We have audited the accompanying statement of net assets of Kemper U.S. Growth
and Income Fund as of January 26, 1998. This statement of net assets is the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement of net assets
presentation. We believe that our audit of the statement of net assets provides
a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of Kemper U.S. Growth and
Income Fund at January 26, 1998 in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Chicago, Illinois
January 26, 1998
