<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1998.
1933 ACT REGISTRATION NO. 333-42335
1940 ACT REGISTRATION NO. 811-08393
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _ [ ]
Post-Effective Amendment No. 2 _ [X]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 3 _ [X]
</TABLE>
------------------
KEMPER SECURITIES TRUST
(Exact name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
222 South Riverside Plaza, Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (312) 537-7000
</TABLE>
Kathryn L. Quirk
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, NY 10154
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box)
____ immediately upon filing pursuant to paragraph (b)
X on May 6, 1998 pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(1)
____ on (date) pursuant to paragraph (a)(1)
____ 75 days after filing pursuant to paragraph (a)(2)
____ on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
================================================================================
<PAGE> 2
EXPLANATORY NOTE:
Registrant is filing this Post-Effective Amendment No. 2 to Registrant's
Registration Statement to add a new series (Kemper Small Cap Relative Value
Fund) and is amending part A and Part B to add the prospectus and statement of
additional information, respectively, and Part C to, among other things, add
additional exhibits. Part A and Part B of Pre-effective amendment No. 1 to
Registrant's Registration Statement, which related to the initial series of
Registrant and were filed on January 30, 1998 and effective January 30, 1998,
are incorporated herein by reference to such pre-effective amendment No. 1.
2
<PAGE> 3
KEMPER SECURITIES TRUST
KEMPER SMALL CAP RELATIVE VALUE FUND
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEMS REQUIRED
BY FORM N-1A LOCATION
<S> <C> <C>
PART A PROSPECTUS
Item 1. Cover Page.......................... Cover Page
Item 2. Synopsis............................ Summary; Summary of Expenses; Supplement to
Prospectus
Item 3. Condensed Financial Information..... Inapplicable
Item 4. General Description of Registrant... Cover Page; Summary; Investment Objectives, Policies
and Risk Factors; Capital Structure
Item 5. Management of the Fund.............. Summary; Investment Manager and Underwriter
Item 5A. Management's Discussion of Fund
Performance......................... Inapplicable
Item 6. Capital Stock and Other
Securities.......................... Summary; Investment Manager and Underwriter; Net
Asset Value; Purchase of Shares; Capital Structure
Item 7. Purchase of Securities Being
Offered............................. Summary; Purchase of Shares; Supplement to Prospectus
Item 8. Redemption or Repurchase............ Summary; Redemption or Repurchase of Shares;
Supplement to Prospectus
Item 9. Legal Proceedings................... Inapplicable
</TABLE>
<PAGE> 4
SUPPLEMENT TO PROSPECTUS
DATED MAY 6, 1998
CLASS I SHARES
KEMPER CONTRARIAN FUND
KEMPER-DREMAN HIGH RETURN EQUITY FUND
KEMPER SMALL CAP VALUE FUND
Kemper Contrarian Fund (the "Contrarian Fund"), Kemper-Dreman High Return Equity
Fund (the "High Return Equity Fund") and Kemper Small Cap Value Fund (the "Small
Cap Value Fund") (each a "Fund" and collectively, the "Funds") each currently
offers four classes of shares to provide investors with different purchasing
options. The Class A, Class B and Class C shares are described in the
prospectus; and Class I shares are described in the prospectus as supplemented
hereby.
Class I shares are available for purchase exclusively by the following
investors: (a) tax-exempt retirement plans of Scudder Kemper Investments, Inc.
("Scudder Kemper"), and its affiliates; and (b) the following investment
advisory clients of Scudder Kemper and its investment advisory affiliates that
invest at least $1 million in a Fund: (1) unaffiliated benefit plans, such as
qualified retirement plans (other than individual retirement accounts and
self-directed retirement plans); (2) unaffiliated banks and insurance companies
purchasing for their own accounts; and (3) endowment funds of unaffiliated
non-profit organizations. Class I shares currently are available for purchase
only from Kemper Distributors, Inc., principal underwriter for the Funds. Share
certificates are not available for Class I shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge schedules and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. Class I shares are offered at net asset value without an
initial sales charge and are not subject to a contingent deferred sales charge
or a Rule 12b-1 distribution fee. Also, there is no administrative services fee
charged to Class I shares. As a result of the relatively lower expenses for
Class I shares, the level of income dividends per share (as a percentage of net
asset value) and, therefore, the overall investment return, will typically be
higher for Class I shares than for Class A, Class B and Class C shares.
The following information supplements the indicated sections of the prospectus.
<PAGE> 5
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES (APPLICABLE TO EACH FUND)
<TABLE>
<CAPTION>
CLASS I
-------
<S> <C>
Maximum Sales Charge on Purchases (as a percentage of
offering price)........................................... None
Maximum Sales Charge on Reinvested Dividends................ None
Redemption Fees............................................. None
Exchange Fee................................................ None
Deferred Sales Charge (as a percentage of redemption
proceeds)................................................. None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CONTRARIAN HIGH RETURN SMALL CAP
FUND EQUITY FUND VALUE FUND
---------- ----------- ----------
<S> <C> <C> <C>
Management Fees..................... .75% .71% .73%
12b-1 Fees.......................... None None None
Other Expenses...................... .15% .12% .16%
---- ---- ----
Total Operating Expenses............ .90% .83% .89%
==== ==== ====
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
You would pay the following Contrarian $9 $29 $50 $111
expenses on a $1,000 High Return $9 $26 $46 $103
investment, assuming Small Cap Value $9 $28 $49 $110
(1) 5% annual return and
(2) redemption at the end of
each time period:
</TABLE>
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in Class I shares of a Fund will
bear directly or indirectly. See "Investment Manager and Underwriter" in the
prospectus for more information. Since no Class I shares had been issued for the
Contrarian Fund as of the fiscal year end, "Other Expenses" shown above are
estimates for that Fund.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Fund. The
Example should not be considered to be a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.
2
<PAGE> 6
FINANCIAL HIGHLIGHTS
HIGH RETURN EQUITY FUND
<TABLE>
<CAPTION>
JAN. 1 TO YEAR ENDED NOV. 1 TO
NOV. 30, 1997 DECEMBER 31, 1996 DEC. 31, 1995
------------- ----------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period $26.49 21.51 19.90
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .75 .54 .04
- -------------------------------------------------------------------------------------
Net realized and unrealized gain 6.81 5.70 2.03
- -------------------------------------------------------------------------------------
Total from investment operations 7.56 6.24 2.07
- -------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income .48 .53 .06
- -------------------------------------------------------------------------------------
Distribution from net realized
gain .06 .73 .40
- -------------------------------------------------------------------------------------
Total dividends .54 1.26 .46
- -------------------------------------------------------------------------------------
Net asset value, end of period $33.51 26.49 21.51
- -------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 28.71% 29.36 10.47
- -------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the Fund .83% .88 .47
- -------------------------------------------------------------------------------------
Net investment income 2.77% 2.45 1.99
- -------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses .83% .88 .85
- -------------------------------------------------------------------------------------
Net investment income 2.77% 2.45 1.61
- -------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 7
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
JAN. 1 TO YEAR ENDED NOV. 1
NOV. 30, 1997 DECEMBER 31, 1996 TO DEC. 31, 1995
------------- ----------------- ----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period $18.40 14.52 14.25
- -------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .13 .25 --
- -------------------------------------------------------------------------------------
Net realized and unrealized
gain 3.55 4.13 1.11
- -------------------------------------------------------------------------------------
Total from investment operations 3.68 4.38 1.11
- -------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income -- .07 --
- -------------------------------------------------------------------------------------
Distribution from net realized
gain -- .43 .84
- -------------------------------------------------------------------------------------
Total dividends -- .50 .84
- -------------------------------------------------------------------------------------
Net asset value, end of period $22.08 18.40 14.52
- -------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 20.00% 30.20 8.03
- -------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the Fund .89% .84 .47
- -------------------------------------------------------------------------------------
Net investment income .94% 1.34 .28
- -------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET
ASSETS (ANNUALIZED)
Expenses .89% .84 .90
- -------------------------------------------------------------------------------------
Net investment income (loss) .94% 1.34 (.15)
- -------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. The
investment manager waived its management fee and absorbed operating
expenses of the Funds through December 31, 1995. The "Other Ratios to
Average Net Assets" are computed without this expense waiver or
absorption.
For the Small Cap Value Fund, per share data for 1996 were determined
based on average shares outstanding.
No financial information is presented for Class I shares of the Contrarian Fund
since no Class I shares have been issued as of such Fund's fiscal year end. Each
Fund's fiscal year end has been changed from December 31 to November 30.
SPECIAL FEATURES
Shareholders of a Fund's Class I shares may exchange their shares for (i) shares
of Zurich Money Funds--Zurich Money Market Fund if the shareholders of Class I
shares have purchased shares because they are participants in tax-exempt
retirement plans of Scudder Kemper and its affiliates and (ii) Class I shares of
any other "Kemper Mutual Fund" listed under "Special Features--Class A
Shares--Combined Purchases" in the prospectus. Conversely, shareholders of
Zurich Money Funds--Zurich Money Market Fund who have purchased shares because
they are participants in tax-exempt retirement plans of Scudder Kemper and its
affiliates may exchange their shares for Class I shares of "Kemper Mutual Funds"
to the extent that they are available through their plan. Exchanges will be made
at the relative net asset values of the shares. Exchanges are subject to the
limitations set forth in the prospectus under "Special Features--Exchange
Privilege--General."
May 6, 1998
DRE-1I (5/98)
4
<PAGE> 8
[KEMPER FUNDS LOGO]
KEMPER EQUITY
FUNDS/VALUE STYLE
PROSPECTUS MAY 6, 1998
KEMPER EQUITY FUNDS/VALUE STYLE
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This prospectus describes a choice of four portfolios managed by Scudder Kemper
Investments, Inc.
KEMPER CONTRARIAN FUND
KEMPER-DREMAN HIGH RETURN EQUITY FUND
KEMPER SMALL CAP VALUE FUND
KEMPER SMALL CAP RELATIVE VALUE FUND
KEMPER CONTRARIAN FUND, KEMPER-DREMAN HIGH RETURN EQUITY FUND AND KEMPER SMALL
CAP VALUE FUND ARE EACH A SERIES OF KEMPER VALUE SERIES, INC. KEMPER SMALL CAP
RELATIVE VALUE FUND IS A SERIES OF KEMPER SECURITIES TRUST.
This prospectus contains information about each of the Funds that you should
know before investing and should be retained for future reference. A Statement
of Additional Information dated May 6, 1998, has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated herein by reference. It is
available upon request without charge from the Funds at the address or telephone
number on this cover or the firm from which this prospectus was obtained. It is
also available along with other related materials on the SEC's Internet Web Site
(http://www.sec.gov).
THE FUNDS' 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 A
FUND'S SHARES INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
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.
<PAGE> 9
KEMPER EQUITY FUNDS/VALUE STYLE
KEMPER CONTRARIAN FUND
KEMPER-DREMAN HIGH RETURN EQUITY FUND
KEMPER SMALL CAP VALUE FUND
KEMPER SMALL CAP RELATIVE VALUE FUND
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606, TELEPHONE 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES. Each Fund is a portfolio of an open-end, diversified
management investment company. The four portfolios (each a "Fund" and
collectively the "Funds") covered in this prospectus are as follows:
Kemper Contrarian Fund (the "Contrarian Fund") seeks long-term capital
appreciation with current income as its secondary objective.
Kemper-Dreman High Return Equity Fund (the "High Return Equity Fund") seeks to
achieve a high rate of total return.
Kemper Small Cap Value Fund (the "Small Cap Value Fund") seeks long-term capital
appreciation.
Kemper Small Cap Relative Value Fund (the "Small Cap Relative Value Fund") seeks
long-term capital appreciation.
RISK FACTORS. There is no assurance that the investment objective of any Fund
will be achieved and investment in each Fund includes risks that vary in kind
and degree depending upon the investment policies of that Fund. The returns and
net asset value of each Fund will fluctuate. The Funds will invest principally
in securities that, in the judgment of the investment manager, are undervalued.
Investment by the Small Cap Value Fund and the Small Cap Relative Value Fund
primarily in smaller companies involves greater risk than investment in larger,
more established companies. The High Return Equity Fund may invest a significant
percentage of its total assets in one or more market sectors, in which case,
financial, economic, business and other developments affecting issuers in that
sector may have a greater effect on the Fund than if it had not concentrated its
assets in that sector. The Funds are authorized to invest in stock index futures
and options to buy and sell such futures. In these investments, the Funds assume
the risk that, if the investment manager's judgment regarding the direction of
the securities markets is incorrect, their investment performance might have
been better if they had not acquired futures contracts. The Funds are authorized
to write covered call options on securities. The High Return Equity Fund, Small
Cap Value Fund and Small Cap Relative Value Fund may write put options. If the
market price of stock subject to a call option rises above the exercise price of
the option, the Funds will lose the opportunity for further appreciation of that
security. In selling a
1
<PAGE> 10
put option, the High Return Equity Fund, Small Cap Value Fund, and Small Cap
Relative Value Fund assume the risk that they might be obligated to acquire the
optioned stock at a price above the current market price. The Small Cap Relative
Value Fund may also purchase options. See "Investment Objectives, Policies and
Risk Factors."
PURCHASES AND REDEMPTIONS. Each Fund provides investors with the option of
purchasing shares in the following ways:
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 .50% contingent deferred
sales change if redeemed during 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 that
declines from 4% to zero on certain
redemptions made within six years of
purchase. Class B shares automatically
convert into Class A shares (which have
lower ongoing expenses) six years after
purchase.
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%
contingent deferred sales charge on
redemptions made within one year of
purchase. Class C shares do not convert
into another class.
Each class of shares represents interests in the same portfolio of investments
of a Fund. The minimum initial investment 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. ("Scudder
Kemper") serves as investment manager for each Fund. Scudder Kemper is paid a
monthly investment management fee by each Fund based upon average daily net
assets of that Fund at an annual rate ranging from .75% to .62%. Dreman Value
Management, L.L.C. ("DVM") is a sub-adviser
2
<PAGE> 11
for the High Return Equity Fund and is paid by Scudder Kemper a fee based upon
average daily net assets of the Fund at an annual rate ranging from .24% to
.198%. Kemper Distributors, Inc. ("KDI"), an affiliate of Scudder Kemper, is
principal underwriter and administrator for each Fund. For Class B shares and
Class C shares, KDI receives a Rule 12b-1 distribution fee at an annual rate of
.75% of average daily net assets. 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. Each Fund pays an administrative services fee at an annual rate of up to
.25% of average daily net assets of Class A, B and C shares of the Fund, which
KDI pays to various broker-dealer firms and other service or administrative
firms. See "Investment Manager and Underwriter."
DIVIDENDS. The Contrarian and High Return Equity Funds normally distribute
quarterly dividends of net investment income, and the Small Cap Value Fund and
the Small Cap Relative Value Fund normally distribute annual dividends of net
investment income. Each Fund distributes any net realized capital gains at least
annually. Income and capital gain dividends of a Fund are automatically
reinvested in additional shares of the same class of shares of that Fund,
without a sales charge, unless the shareholder makes a different election. See
"Dividends and Taxes."
GENERAL. In the opinion of the staff of the Securities and Exchange Commission,
the use of this combined prospectus may make each Fund liable for any
misstatement or omission in this prospectus regardless of the particular Fund to
which it pertains. However, KDI has agreed to indemnify the funds for any
liability caused solely by reason of using this combined prospectus.
3
<PAGE> 12
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(APPLICABLE TO ALL FUNDS)(1) ------- ------- -------
<S> <C> <C> <C>
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
Deferred Sales Charge (as a percentage of redemption
proceeds)................................................. None(3) 4%(4) 1%(5)
</TABLE>
- ---------------
(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 .50% 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> 13
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets after management fee waiver)
<TABLE>
<CAPTION>
SMALL CAP
CONTRARIAN HIGH RETURN SMALL CAP RELATIVE
FUND EQUITY FUND VALUE FUND VALUE FUND
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
CLASS A SHARES
Management Fees............................................. .75% .71% .73% .50%
12b-1 Fees.................................................. None None None None
Other Expenses.............................................. .60% .51% .59% 1.02%
----- ----- ----- -----
Total Operating Expenses.................................... 1.35% 1.22% 1.32% 1.52%
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP
CONTRARIAN HIGH RETURN SMALL CAP RELATIVE
FUND EQUITY FUND VALUE FUND VALUE FUND
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
CLASS B SHARES
Management Fees............................................. .75% .71% .73% .50%
12b-1 Fees(5)............................................... .75% .75% .75% .75%
Other Expenses.............................................. .76% .66% .86% 1.15%
----- ----- ----- -----
Total Operating Expenses.................................... 2.26% 2.12% 2.34% 2.40%
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP
CONTRARIAN HIGH RETURN SMALL CAP RELATIVE
FUND EQUITY FUND VALUE FUND VALUE FUND
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
CLASS C SHARES
Management Fees............................................. .75% .71% .73% .50%
12b-1 Fees(6)............................................... .75% .75% .75% .75%
Other Expenses.............................................. .97% .64% .76% 1.12%
----- ----- ----- -----
Total Operating Expenses.................................... 2.47% 2.10% 2.24% 2.37%
===== ===== ===== =====
</TABLE>
5
<PAGE> 14
- ---------------
(5) As a result of 12b-1 fees, long-term shareholders may pay more than the
economic equivalent of the maximum initial sales charges permitted by the
National Association of Securities Dealers, although KDI believes that it is
unlikely because of the automatic conversion feature described under
"Purchase of Shares--Deferred Sales Charge Alternative--Class B Shares."
(6) As a result of the accrual of 12b-1 fees, long-term shareholders may pay
more than the economic equivalent of the maximum initial sales charges
permitted by the National Association of Securities Dealers.
EXAMPLE
The following example assumes reinvestment of all dividends and distributions
and that the percentage amounts under "Total Operating Expenses" remain the same
each year.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
You would pay the following Contrarian Fund $70 $ 98 $127 $211
expenses on a $1,000 High Return Equity Fund $69 $ 94 $121 $197
investment, assuming (1) 5% Small Cap Value Fund $70 $ 97 $126 $207
annual return and (2) Small Cap Relative Value Fund $72 $103 -- --
redemption at the end of
each time period:
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES(7)
You would pay the following Contrarian Fund $63 $101 $141 $216
expenses on a $1,000 High Return Equity Fund $62 $ 96 $134 $201
investment, assuming (1) 5% Small Cap Value Fund $64 $103 $145 $219
annual return and (2) Small Cap Relative Value Fund $64 $105 -- --
redemption at the end of
each time period:
You would pay the following Contrarian Fund $23 $ 71 $121 $216
expenses on the same High Return Equity Fund $22 $ 66 $114 $201
investment, assuming no Small Cap Value Fund $23 $ 73 $125 $219
redemption: Small Cap Relative Value Fund $24 $ 75 -- --
</TABLE>
6
<PAGE> 15
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS C SHARES(8)
You would pay the following Contrarian Fund $35 $ 77 $132 $281
expenses on a $1,000 High Return Equity Fund $31 $ 66 $113 $243
investment, assuming (1) 5% Small Cap Value Fund $33 $ 70 $120 $257
annual return and (2) Small Cap Relative Value Fund $34 $ 74 -- --
redemption at the end of
each time period:
You would pay the following Contrarian Fund $25 $ 77 $132 $281
expenses on the same High Return Equity Fund $21 $ 66 $113 $243
investment, assuming no Small Cap Value Fund $23 $ 70 $120 $257
redemption Small Cap Relative Value Fund $24 $ 74 -- --
</TABLE>
- ---------------
(7) Assumes conversion to Class A shares six years after purchase. The
contingent deferred sales charge was applied as follows: 1 year (4%), 3
years (3%), 5 years (2%) and 10 years (0%). See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Class B Shares" for more
information regarding the calculation of the contingent deferred sales
charge.
(8) The contingent deferred sales charge was applied as follows: 1 year (1%), 3
years (0%), 5 years (0%) and 10 years (0%). See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Class C Shares."
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in a Fund will bear directly or
indirectly. See "Investment Manager and Underwriter" for more information. Since
the Small Cap Relative Value Fund commenced operations on or about May 6, 1998,
the expenses shown for the Fund are estimates for the current fiscal year, and
the example is only provided for the one and three year periods.
As discussed more fully under "Investment Manager and Underwriter," Scudder
Kemper has agreed to temporarily waive its management fee for the current fiscal
year in the amount of .25% of average daily net assets of the Small Cap Relative
Value Fund. Without such waiver, "Management Fees" would have been .75% for the
Small Cap Relative Value Fund and "Total Operating Expenses" would have been
1.77%, 2.65% and 2.62% for the Class A, Class B and Class C shares,
respectively, of the Fund.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Fund. THE
EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
7
<PAGE> 16
FINANCIAL HIGHLIGHTS
The tables below show financial information for each Fund, except the Small Cap
Relative Value Fund, expressed in terms of one share outstanding throughout the
period. The information in the tables has been audited by Ernst & Young LLP,
independent auditors, except for the information for the periods ended December
31, 1994 and prior, which have been audited by other independent auditors. The
report of Ernst & Young LLP for each Fund is contained in its Registration
Statement and is available from that Fund. The financial statements contained in
each Fund's 1997 Annual Report to Shareholders (except the Small Cap Relative
Value Fund) are incorporated herein by reference and may be obtained by writing
or calling that Fund. The fiscal year end of the Contrarian, High Return Equity
and Small Cap Value Funds has been changed from December 31 to November 30.
CONTRARIAN FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JAN. 1 TO ------------------------------------------------------------------------------
NOV. 30, 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988(A)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period $16.93 16.20 12.18 13.62 13.50 12.38 10.11 11.34 10.55 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .23 .23 .26 .28 .22 .25 .28 .25 .29 .11
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) 4.25 2.07 5.05 (.28) .96 1.13 2.38 (.94) 1.60 .54
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.48 2.30 5.31 -- 1.18 1.38 2.66 (.69) 1.89 .65
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income .20 .22 .24 .28 .22 .26 .28 .26 .29 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gain .08 1.35 1.05 1.16 .84 -- .11 .28 .81 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .28 1.57 1.29 1.44 1.06 .26 .39 .54 1.10 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $21.13 16.93 16.20 12.18 13.62 13.50 12.38 10.11 11.34 10.55
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 26.58% 14.42 44.57 (.03) 9.10 11.32 26.53 (6.08) 18.29 6.96
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the Fund 1.35% 1.23 1.25 1.25 1.25 1.25 1.25 1.25 1.25 1.34
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.47% 1.56 1.85 1.89 1.64 2.04 2.35 2.46 2.59 2.42
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET
ASSETS (ANNUALIZED)
Expenses 1.35% 1.25 1.66 1.42 1.54 1.53 1.76 1.52 1.67 2.37
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.47% 1.54 1.44 1.71 1.34 1.76 1.84 2.19 2.17 1.39
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period March 18, 1988 (inception date) to December 31, 1988.
8
<PAGE> 17
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------------------ -------------
JAN. 1 TO YEAR ENDED SEPTEMBER 11 TO JAN. 1 TO
NOV. 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 NOV. 30, 1997
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $16.92 16.20 15.26 16.90
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .08 .11 .07 .06
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 4.22 2.07 1.85 4.20
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.30 2.18 1.92 4.26
- --------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .06 .11 .07 .02
- --------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain .08 1.35 .91 .08
- --------------------------------------------------------------------------------------------------------------------
Total dividends .14 1.46 .98 .10
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $21.08 16.92 16.20 21.06
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 25.44% 13.61 12.83 25.26
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 2.26% 2.11 2.00 2.47
- --------------------------------------------------------------------------------------------------------------------
Net investment income .56% .68 .88 .35
- --------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 2.26% 2.34 2.36 2.47
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .56% .45 .52 .35
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
--------------------------------------
YEAR ENDED SEPTEMBER 11 TO
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------------------
<S> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period 16.20 15.26
- --------------------------------------------
Income from investment operations:
Net investment income .11 .08
- --------------------------------------------
Net realized and unrealized gain 2.05 1.85
- --------------------------------------------
Total from investment operations 2.16 1.93
- --------------------------------------------
Less dividends:
Distributions from net investment income .11 .08
- --------------------------------------------
Distributions from net realized gain 1.35 .91
- --------------------------------------------
Total dividends 1.46 .99
- --------------------------------------------
Net asset value, end of period 16.90 16.20
- --------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 13.51 12.85
- --------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 2.12 1.95
- --------------------------------------------
Net investment income .67 .93
- --------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZ
Expenses 2.80 2.31
- --------------------------------------------
Net investment income (loss) (.01) .57
- --------------------------------------------
</TABLE>
ALL CLASSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JAN. 1 TO --------------------------------------------------------------------
NOV. 30, 1997 1996 1995 1994 1993 1992 1991 1990 1989
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands) $178,115 77,592 25,482 12,983 17,157 14,884 14,292 11,782 9,632
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 77% 95 30 16 16 28 36 37 45
- ---------------------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the period from January 1 to November 30, 1997 and the
year ended December 31, 1996 were $.0538 and $.0490, respectively.
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MARCH 18 TO
DECEMBER 31, 1988
-----------------
<S> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands) 5,889
- -------------------------------------
Portfolio turnover rate (annualized) 39
- -------------------------------------
Average commission rates paid per sha
year ended December 31, 1996 were $
- -------------------------------------
</TABLE>
9
<PAGE> 18
HIGH RETURN EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JAN. 1, TO ------------------------------------------------------------------------
NOV. 30, 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988(A)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $26.52 21.49 15.11 15.50 14.62 12.53 8.85 10.14 11.03 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .54 .39 .26 .25 .21 .24 .31 .34 .39 .25
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) 6.89 5.75 6.76 (.39) 1.13 2.21 3.87 (1.21) 1.41 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 7.43 6.14 7.02 (.14) 1.34 2.45 4.18 (.87) 1.80 1.25
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment
income .37 .38 .24 .25 .21 .24 .30 .35 .43 .22
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain .06 .73 .40 -- .25 .12 .20 .07 2.26 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .43 1.11 .64 .25 .46 .36 .50 .42 2.69 .22
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $33.52 26.52 21.49 15.11 15.50 14.62 12.53 8.85 10.14 11.03
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 28.15% 28.79 46.86 (.99) 9.22 19.80 47.57 (8.63) 18.45 13.04
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the Fund 1.22% 1.21 1.25 1.25 1.25 1.25 1.25 1.25 1.25 .57
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.38% 2.12 1.55 1.58 1.47 1.88 2.52 3.61 3.83 3.75
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses 1.22% 1.21 1.57 1.39 1.56 1.70 2.31 2.38 2.74 3.36
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.38% 2.12 1.23 1.44 1.16 1.43 1.46 2.48 2.34 .96
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period March 18, 1988 (inception date) to December 31, 1988.
10
<PAGE> 19
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------------- ---------------------------------------------
JAN. 1 TO YEAR ENDED SEPT. 11 TO JAN. 1 TO YEAR ENDED SEPT. 11 TO
NOV. 30, 1997 DEC. 31, 1996 DEC. 31, 1995 NOV. 30, 1997 DEC. 31, 1996 DEC. 31, 1995
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period $26.44 21.47 19.45 26.45 21.48 19.45
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .31 .19 .07 .32 .20 .09
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain 6.84 5.72 2.41 6.83 5.72 2.41
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 7.15 5.91 2.48 7.15 5.92 2.50
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income .16 .21 .06 .16 .22 .07
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gain .06 .73 .40 .06 .73 .40
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .22 .94 .46 .22 .95 .47
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $33.37 26.44 21.47 33.38 26.45 21.48
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 27.10% 27.63 12.88 27.10 27.66 12.94
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the Fund 2.12% 2.20 2.00 2.10 2.22 1.95
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.48% 1.13 .61 1.50 1.11 .66
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses 2.12% 2.31 2.35 2.10 2.33 2.30
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.48% 1.02 .26 1.50 1.00 .31
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ALL CLASSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JAN 1 TO ------------------------------------
NOV. 30, 1997 1996 1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $2,931,721 737,834 98,196 35,005 28,413
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 5% 10 18 12 14
- ------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the period from January 1 to November 30,
1997 and the year ended December 31, 1996 were $.0501 and $.0513, respectively.
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------ MARCH 18 TO
1992 1991 1990 1989 DECEMBER 31, 1988
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) 14,425 7,238 3,868 3,992 2,413
- ------------------------------------------------------
Portfolio turnover rate (annualized) 13 37 204 156 107
- ------------------------------------------------------
Average commission rates paid per share on stock trans
1997 and the year ended December 31, 1996 were $.0501
- ------------------------------------------------------
</TABLE>
11
<PAGE> 20
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JAN. 1 TO ----------------------------------------------------------
NOV. 30, 1997 1996(B) 1995 1994 1993 1992(A)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $18.28 14.50 10.85 11.23 11.52 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .05 .14 (.02) -- .06 .03
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 3.50 4.14 4.64 .02 .23 1.95
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.55 4.28 4.62 .02 .29 1.98
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income -- .07 -- -- .06 .03
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain -- .43 .97 .40 .52 .43
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends -- .50 .97 .40 .58 .46
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $21.83 18.28 14.50 10.85 11.23 11.52
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NET ANNUALIZED) 19.42% 29.60 43.29 .15 2.54 32.51*
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 1.32% 1.31 1.25 1.25 1.25 1.25
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .51% .87 (.16) (.03) .53 .81
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.32% 1.47 1.83 1.82 2.09 4.29
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .51% .71 (.74) (.61) (.32) (2.24)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
(a) For the period May 22, 1992 (commencement of operations) to December 31,
1992.
12
<PAGE> 21
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------------ ------------------------------------------------
JAN. 1 TO YEAR ENDED SEPT. 11 TO JAN. 1 TO YEAR ENDED SEPT. 11 TO
NOV. 30, 1997 DEC. 31, 1996(B) DEC. 31, 1995 NOV. 30, 1997 DEC. 31, 1996(B) DEC. 31, 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning
of period $18.14 14.48 15.75 18.17 14.48 15.75
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income
(loss) (.04) .01 (.02) (.03) .01 (.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) 3.36 4.11 (.41) 3.37 4.14 (.41)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 3.32 4.12 (.43) 3.34 4.15 (.43)
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income -- .03 -- -- .03 --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gain -- .43 .84 -- .43 .84
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends -- .46 .84 -- .46 .84
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $21.46 18.14 14.48 21.51 18.17 14.48
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT
ANNUALIZED) 18.30% 28.54 (2.52) 18.38 28.77 (2.51)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the
Fund 2.34% 2.12 2.00 2.24 2.06 1.95
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.51)% .06 (.99) (.41) .12 (.94)
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses 2.34% 2.49 2.39 2.24 2.19 2.35
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.51)% (.31) (1.38) (.41) (.01) (1.34)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Per share data for 1996 were determined based on average shares outstanding.
13
<PAGE> 22
ALL CLASSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JAN. 1 TO ------------------------------------------- MAY 22 TO
NOV. 30, 1997 1996 1995 1994 1993 DECEMBER 31, 1992
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $1,263,144 273,222 31,606 6,931 4,875 2,385
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 83% 23 86 140 79 37
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rates paid per share on stock transactions for the period
from January 1 to November 30, 1997 and the year ended
December 31, 1996 were $.0547 and $.0426, respectively.
- --------------------------------------------------------------------------------
NOTES:Total return does not reflect the effect of any sales charges. The
investment manager waived its management fee and absorbed operating
expenses of the Funds through December 31, 1996. The "Other Ratios to
Average Net Assets" are computed without this expense waiver or
absorption.
The Small Cap Relative Value Fund (not shown above) commenced operations on or
about May 6, 1998; therefore, no financial information for the Fund is presented
herein.
14
<PAGE> 23
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following information sets forth each Fund's investment objective and
policies. The investment objective of each Fund is not fundamental and,
consequently, may be changed without the affirmative vote of a majority of the
outstanding securities of that Fund. Each Fund's returns and net asset value
will fluctuate and there is no assurance that any Fund will meet its objective.
For a description of how the investment manager selects specific securities for
inclusion in a Fund's portfolio, see "Additional Investment Information."
Each Fund will invest principally in a diversified portfolio of equity
securities of companies that the investment manager believes to be undervalued.
Securities of a company may be undervalued as a result of overreaction by
investors to unfavorable news about a company, industry or the stock markets in
general or as a result of a market decline, poor economic conditions, tax-loss
selling or actual or anticipated unfavorable developments affecting the company.
CONTRARIAN FUND. The Contrarian Fund's primary investment objective is to seek
long-term capital appreciation and its secondary objective is to seek current
income. The Fund will invest primarily in common stocks of larger, listed
companies with a record of earnings and dividends, low price-earnings ratios,
reasonable returns on equity, and sound finances which, in the opinion of the
investment manager, have intrinsic value. The Fund may, however, from time to
time, invest in stocks that pay no dividends. It is anticipated that most stocks
purchased will be listed on the New York Stock Exchange, but the Fund may also
purchase securities listed on other securities exchanges and in the
over-the-counter market. The Fund may also invest in preferred stocks,
convertible securities and warrants. The Fund may sell call options on
securities it holds ("covered call options").
HIGH RETURN EQUITY FUND. The High Return Equity Fund's investment objective is
to achieve a high rate of total return. The common stocks held by the Fund will
have the same investment characteristics as those held by the Contrarian Fund.
The Fund generally will invest in common stocks that pay relatively high
dividends, i.e. comparable to the dividend yield of Standard & Poor's 500
Composite Stock Index. In order to enhance its investment return, the Fund may
sell covered call options, and sell put options on securities it may acquire.
The Fund will earn premium income on the sale of these options.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities. Equity securities include common stocks, preferred
stocks, securities convertible into or exchangeable for common or preferred
stocks, equity investments in partnerships, joint ventures and other forms of
non-corporate investment and warrants and rights exercisable for equity
securities and equity equivalents.
15
<PAGE> 24
While most investments will be in dividend paying stocks, the Fund may also
acquire stocks that do not pay dividends in anticipation of market appreciation,
future dividends, and when the investment manager believes that it would be
advantageous to write options on such stocks. The Fund will be managed with a
view to achieving a high rate of total return on investors' capital primarily
through appreciation of its common stock holdings, options transactions and by
acquiring and selling stock index futures and options thereon and, to a lesser
extent, through dividend and interest income, all of which, in the investment
manager's judgment, are elements of "total return."
Although the Fund will not invest 25% or more of its total assets in any one
industry, it may, from time to time, invest a significant percentage of its
total assets in one or more market sectors, such as the financial services
sector. The investment manager considers a market sector to be comprised of a
group of industries. If the Fund invests a significant percentage of its assets
in a market sector, financial, economic, business and other developments
affecting issuers in that sector may have a greater effect on the Fund than if
it had not invested a significant percentage of its assets in that sector.
SMALL CAP VALUE FUND. The Small Cap Value Fund's investment objective is to seek
long-term capital appreciation. It will invest principally in a diversified
portfolio of equity securities of small companies that the investment manager
believes to be undervalued. Under normal market conditions, at least 65% of the
total assets of the Fund will be invested in securities of companies that are
similar in size to those comprising the Russell 2000 Index. The Fund will sell
securities of companies that have grown in market capitalization above the
maximum of the Russell 2000 Index, as necessary to keep the Fund focused on
smaller companies. The Russell 2000 Index is comprised of 2,000 of the smallest
stocks in the Russell 3000 Index, which is comprised of 3,000 of the largest
capitalized, U.S. domiciled companies.
The Fund will invest primarily in common stocks of companies with a record of
earnings, low price-earnings ratios, reasonable returns on equity and sound
finances which, in the opinion of the investment manager, have intrinsic value.
Such securities are generally traded on the New York Stock Exchange, the
American Stock Exchange and in the over-the-counter market. The Fund may also
invest in preferred stocks, convertible securities and warrants. The Fund may
also sell covered call options and put options on securities it may acquire.
SMALL CAP RELATIVE VALUE FUND. The investment objective of the Small Cap
Relative Value Fund is to seek long-term capital appreciation. The Fund will
invest principally in a diversified portfolio of equity securities that the
investment manager believes to be undervalued. The investment manager will
follow a relative value investment strategy, seeking undervalued stocks
typically found in major sectors of the Russell 2000 Index. See discussion of
"relative value investment strategy" below under "Selection of Investments --
Small Cap Relative Value Fund." Under normal market conditions, at least 65% of
the Fund's total assets will be invested in equity securities of companies that
are similar in size to those comprising the Russell 2000 Index. The Fund will
sell securities of companies that have grown in market capitalization above
16
<PAGE> 25
the maximum of the Russell 2000 Index, as necessary to keep the Fund focused on
smaller companies. Typically, most companies selected for inclusion in the Small
Cap Relative Value Fund will have market capitalizations ranging from
approximately $100 million to $1 billion. Equity securities include common
stocks, preferred stocks, securities convertible into or exchangeable for common
or preferred stocks, equity investments in partnerships, joint ventures and
other forms of non-corporate investments and warrants and rights exercisable for
equity securities. The Fund may also purchase and write options, engage in
financial futures transactions and lend its portfolio securities.
ADDITIONAL INVESTMENT INFORMATION. The portfolio turnover rates of each Fund
other than the Small Cap Relative Value Fund are listed under "Financial
Highlights." It is anticipated that, under normal circumstances, the portfolio
turnover rate for the Small Cap Relative Value Fund will not exceed 100%. A Fund
may periodically experience a high turnover rate (over 100%). The Funds will
usually hold stocks acquired for the long-term and will sell stocks when the
investment manager believes that anticipated price appreciation is no longer
probable, alternative investments offer superior appreciation prospects, or the
risk of decline in market prices is greater than the potential for gain.
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. The use of options and futures
contracts will tend to increase the portfolio turnover rate of a Fund. To the
extent the investment policies of that Fund result in a relatively high turnover
rate, it will incur greater expenses and brokerage fees. See "Portfolio
Transactions" in the Statement of Additional Information.
SELECTION OF INVESTMENTS -- CONTRARIAN, HIGH RETURN EQUITY, SMALL CAP VALUE FUND
AND SMALL CAP RELATIVE VALUE. In order to determine whether a security is
"undervalued," the principal factor considered by the investment manager is the
price to earnings (P/E) ratio of the security. The investment manager believes
that the risk in owning stocks can be reduced by investing in companies with
sound finances whose current market prices are low in relation to earnings. In
determining whether a company's finances are sound, the investment manager
considers among other things, its cash position and current ratio (current
assets compared to current liabilities).
The investment manager applies quantitative analysis to its research process,
and begins by screening a large number of stocks. Typically, most companies
selected for inclusion in the Contrarian and High Return Equity Funds will have
market capitalizations well in excess of $1 billion and those selected for
inclusion in the Small Cap Value Fund will have market capitalizations ranging
from approximately $100 million to $1 billion. In selecting among stocks with
low P/E ratios, the investment manager also considers factors such as the
following about the issuer:
- Financial strength,
- Book-to-market value,
- Five and ten-year earnings growth rates,
- Five and ten-year dividend growth rates,
17
<PAGE> 26
- Five and ten-year return on equity,
- Size of institutional ownership, and
- Earnings estimates for the next 12 months.
Fundamental analysis is used on companies that initially look promising.
Earnings and cash flow analysis as well as a company's conventional dividend
payout ratio are important to this process. Typically, the Funds will consist of
stocks diversified by both sector and industry, although, as noted above, the
High Return Equity Fund may, from time to time, concentrate its assets in one or
more market sectors. While it is anticipated that under normal circumstances all
Funds will be fully invested, in order to conserve assets during temporary
defensive periods when the investment manager deems it appropriate, each Fund
may invest up to 50% of its assets in cash or defensive-type securities, such as
high-grade debt securities, securities of the U.S. Government or its agencies
and high quality money market instruments, including repurchase agreements.
Investments in such interest-bearing securities will be for temporary defensive
purposes only.
The Funds' policies of investing in securities that may be out of favor differ
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
SELECTION OF INVESTMENTS -- SMALL CAP RELATIVE VALUE FUND. In selecting
"undervalued" securities for the Small Cap Relative Value Fund, the investment
manager considers the P/E ratio of the security as well as other measures of
valuation based on sales, cash flow, and book value. The investment manager also
considers factors such as sales and earnings growth rates and the issuer's
financial strength. The investment manager follows a relative value investment
strategy for the Small Cap Relative Value Fund, in contrast to the absolute
value investment strategy that is used for the Contrarian, High Return Equity
and Small Cap Value Funds. A relative value investment strategy is a strategy
whereby undervalued stocks within a particular sector are selected based on
whether the stock is undervalued relative to other stocks in the same sector. An
absolute value investment strategy, on the other hand, is a strategy whereby
undervalued stocks are selected irrespective of the sector in which the stock is
found, although, as noted above, each Fund other than the High Return Equity
Fund will typically consist of stocks diversified by both sector and industry.
The relative value investment strategy allows the Small Cap Relative Value Fund
to invest in undervalued securities in all sectors, including technology,
healthcare and other areas of the market that typically are underweighted in an
absolute value portfolio.
The investment manager's relative value investment strategy is driven by a
quantitative approach, and begins by screening a large number of stocks.
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<PAGE> 27
Typically, most companies selected for inclusion in the Small Cap Relative Value
Fund will have market capitalizations ranging from approximately $100 million to
$1 billion. While it is anticipated that under normal circumstances the Fund
will be fully invested, in order to conserve assets during temporary defensive
periods when the investment manager deems it appropriate, the Fund may invest up
to 50% of its assets in cash or defensive-type securities, such as high-grade
debt securities, securities of the U.S. Government or its agencies and high
quality money market instruments, including repurchase agreements. Investments
in such interest bearing securities will be for temporary defensive purposes
only.
COMMON STOCKS. Each Fund may invest in common stocks. Common stock is issued by
companies to raise cash for business purposes and represents a proportionate
interest in the issuing companies. Therefore, a Fund participates in the success
or failure of any company in which it holds stock. The market values of common
stock can fluctuate significantly, reflecting the business performance of the
issuing company, investor perception and general economic or financial market
movements. Smaller companies are especially sensitive to these factors. An
investment in common stock entails greater risk of becoming valueless than does
an investment in fixed-income securities. Despite the risk of price volatility,
however, common stock also offers the greatest potential for long-term gain on
investment, compared to other classes of financial assets such as bonds or cash
equivalents.
CONVERTIBLE SECURITIES. Each 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 a Fund may invest include bonds, notes,
debentures and preferred stocks 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 generally entail less credit risk than the
issuer's common stock.
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements, under
which it acquires ownership of a security and the broker-dealer or bank agrees
to repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the Fund's holding period. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, a Fund might
have expenses in enforcing its rights, and could experience losses, including a
decline in the value of the underlying securities and loss of income. The
securities underlying a repurchase agreement will be marked-to-market every
business day so that the value of such securities is at least equal to the
investment value of the repurchase agreement, including any accrued interest
thereon. In addition, the Fund must take physical possession of the security or
receive written confirmation of the purchase and a custodial or safekeeping
receipt from a third party or be recorded as the owner of the security through
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<PAGE> 28
the Federal Reserve Book-Entry System. Repurchase agreements will be limited to
transactions with financial institutions believed by the investment manager to
present minimal credit risk. The investment manager will monitor on an on-going
basis the creditworthiness of the broker-dealers and banks with which the Funds
may engage in repurchase agreements. Repurchase agreements maturing in more than
seven days will be considered as illiquid for purposes of each Fund's limitation
on illiquid securities. The Contrarian, High Return Equity and Small Cap Value
Funds will not invest more than 10%, and the Small Cap Relative Value Fund will
not invest more than 15%, of the value of their net assets in illiquid
securities.
DEPOSITORY RECEIPTS. Each Fund may invest up to 20% of its assets in securities
of foreign companies through the acquisition of American Depository Receipts
("ADRs"). ADRs are bought and sold in the United States and are issued by
domestic banks. ADRs represent the right to receive securities of foreign
issuers deposited in the domestic bank or a correspondent bank. ADRs do not
eliminate all the risk inherent in investing in the securities of foreign
issuers, such as changes in foreign currency exchange rates. However, by
investing in ADRs rather than directly in foreign issuers' stock, the Fund
avoids currency risks during the settlement period. In general, there is a
large, liquid market in the United States for most ADRs.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. A Fund may deal in options on
securities and securities indexes that are listed for trading on a national
securities exchange. The Small Cap Relative Value Fund may also deal in options
on securities and securities indexes that are traded over-the-counter.
Each Fund may write (sell) covered call options on up to 100% of net assets and
each Fund other than the Contrarian Fund may write (sell) secured put options on
up to 50% of net assets. The Small Cap Relative Value Fund may purchase put and
call options provided that no more than 5% of its net assets may be invested in
premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security or other asset at the exercise price
during or at the end of the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying security or
other asset at the exercise price during or at the end of the option period. The
writer of a covered call owns securities or other assets that are acceptable for
escrow and the writer of a secured put invests an amount not less than the
exercise price in eligible securities or other assets to the extent that it is
obligated as a writer. If a call written by a Fund is exercised, the Fund
foregoes any possible profit from an increase in the market price of the
underlying security or other asset over the exercise price plus the premium
received. In writing puts, there is a risk that a Fund may be required to take
delivery of the underlying security or other asset at a disadvantageous price.
Over-the-counter traded options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by
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<PAGE> 29
the dealer as a result of the insolvency of such dealer or otherwise, in which
event the Small Cap Relative Value Fund may experience material losses. However,
in writing options the premium is paid in advance by the dealer. OTC options are
available for a greater variety of securities and other assets, and a wider
range of expiration dates and exercise prices, than for exchange traded options.
A Fund may engage in financial futures transactions. Financial futures contracts
are commodity contracts that obligate the long or short holder to take or make
delivery of a specified quantity of a financial instrument, such as a security,
or the cash value of a securities index during a specified future period at a
specified price. A Fund will "cover" futures contracts sold by the Fund and
maintain in a segregated account certain liquid assets in connection with
futures contracts purchased by the Fund as described under "Investment Policies
and Techniques" in the Statement of Additional Information. A Fund will not
enter into any futures contracts or options on futures contracts if the
aggregate of the contract value of the outstanding futures contracts of the Fund
and futures contracts subject to outstanding options written by the Fund would
exceed 50% of the total assets of the Fund.
The Funds may engage in financial futures transactions and may use index options
as an attempt to hedge against market risks. For example, when the near-term
market view is bearish but the portfolio composition is judged satisfactory for
the longer term, exposure to temporary declines in the market may be reduced by
entering into futures contracts to sell securities or the cash value of a
securities index. Conversely, where the near-term view is bullish, but the Fund
is believed to be well positioned for the longer term with a high cash position,
the Fund can hedge against market increases by entering into futures contracts
to buy securities or the cash value of a securities index. In either case, the
use of futures contracts would tend to reduce portfolio turnover and facilitate
the Fund's pursuit of its investment objective.
Futures contracts entail risks. If the investment manager's judgment about the
general direction of interest rates, markets or exchange rates is wrong, the
overall performance of a Fund may be poorer than if no such contracts had been
entered into. There may be an imperfect correlation between movements in prices
of futures contracts and portfolio assets being hedged. In addition, the market
prices of futures contracts may be affected by certain factors. For example, if
participants in the futures market elect to close out their contracts rather
than meet margin requirements, distortions in the normal relationship between
the underlying assets and the futures market could result. Price distortions
also could result if investors in futures contracts decide to make or take
delivery of underlying securities or other assets rather than engage in closing
transactions because of the resultant reduction in the liquidity of the futures
market. In addition, because, from the point of view of speculators, margin
requirements in the futures market are less onerous than margin requirements in
the cash market, increased participation by speculators in the futures market
could cause temporary price distortions. Due to the possibility of price
distortions in the futures market and because of the imperfect correla-
21
<PAGE> 30
tion between movements in the prices of securities or other assets and movements
in the prices of futures contracts, a correct forecast of market trends by the
investment manager still may not result in a successful hedging transaction. If
any of these events should occur, a Fund could lose money on the financial
futures contracts and also on the value of its portfolio assets. The costs
incurred in connection with futures transactions could reduce a Fund's return.
Index options involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by a Fund
may expire worthless, in which case a Fund would lose the premium paid therefor.
A Fund may engage in futures transactions only on commodities exchanges or
boards of trade. A Fund will not engage in transactions in index options,
financial futures contracts or related options for speculation, but only as an
attempt to hedge against changes in interest rates or market conditions
affecting the values of securities which the Fund owns or intends to purchase.
SPECIAL RISK FACTORS--OPTIONS, FUTURES AND OTHER DERIVATIVES. The Statement of
Additional Information contains further information about the characteristics,
risks and possible benefits of options, futures and other derivative
transactions. See "Investment Policies and Techniques" in the Statement of
Additional Information. The principal risks are: (a) possible imperfect
correlation between movements in the prices of options, futures and other
derivatives contracts and movements in the prices of the securities hedged, used
for cover or that the derivatives were intended to replicate; (b) lack of
assurance that a liquid secondary market will exist for any particular option,
futures or other derivatives contract at any particular time; (c) the need for
additional skills and techniques beyond those required for normal portfolio
management; (d) losses on futures contracts resulting from market movements not
anticipated by the investment manager; and (e) the possible non-performance of
the counter-party to the derivative contract.
SECURITIES LOANS. The Funds are authorized to lend their portfolio securities to
qualified brokers, dealers, banks and other financial institutions for the
purpose of realizing additional investment income. The Funds do not intend to
loan securities if as a result more than 5% of their respective net assets would
be on loan.
BORROWING. Each Fund is authorized to borrow from banks in amounts not in excess
of 10% of their respective total assets (the Small Cap Relative Value Fund is
authorized to borrow from banks in amounts not in excess of one-third (1/3) of
its total assets), although they do not presently intend to do so. If, in the
future, they do borrow from banks, they would not purchase additional securities
at any time when such borrowings exceed 5% of their respective net assets.
SMALL CAP SECURITIES. Investments in securities of companies with small market
capitalizations are generally considered to offer greater opportunity for
22
<PAGE> 31
appreciation and to involve greater risks of depreciation than securities of
companies with larger market capitalizations. Since the securities of such
companies are not as broadly traded as those of companies with larger market
capitalizations, these securities are often subject to wider and more abrupt
fluctuations in market price.
Among the reasons for the greater price volatility of these securities are the
less certain growth prospects of smaller firms, a lower degree of liquidity in
the markets for such stocks compared to larger capitalization stocks, and the
greater sensitivity of small companies to changing economic conditions. In
addition to exhibiting greater volatility, small company stocks may, to a
degree, fluctuate independently of larger company stocks. Small company stocks
may decline in price as large company stock prices rise, or rise in price as
large company stock prices decline. Investors should therefore expect that the
share value of the Small Cap Value Fund and the Small Cap Relative Value Fund
may be more volatile than the shares of a fund that invests in larger
capitalization stocks.
DERIVATIVES. In addition to options and financial futures transactions,
consistent with its objective, each Fund may invest in a broad array of
financial instruments and securities in which the value of the instrument or
security is "derived" from the performance of an underlying asset or a
"benchmark" such as a security index or an interest rate ("derivatives").
Derivatives are most often used in an effort to manage investment risk, to
increase or decrease exposure to an asset class or benchmark (as a hedge or to
enhance return), or to create an investment position indirectly (often because
it is more efficient or less costly than direct investment). There is no
guarantee that these results can be achieved through the use of derivatives. The
types of derivatives used by each Fund and the techniques employed by the
investment manager may change over time as new derivatives and strategies are
developed or regulatory changes occur.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. ("Scudder Kemper"), 345
Park Avenue, New York, New York, is the investment manager of each Fund and
provides each Fund with continuous professional investment supervision. Dreman
Value Management, L.L.C. ("DVM"), Three Harding Road, Red Bank, New Jersey
07701, is the sub-adviser for the High Return Equity Fund. See "High Return
Equity Fund" below for information about DVM. Scudder Kemper, which resulted
from the combination of the businesses of Scudder, Stevens & Clark, Inc. and
Zurich Kemper Investments, Inc., is one of the largest investment managers in
the country with more than $210 billion in assets under management and has been
engaged in the management of investment funds for more than seventy years.
Zurich Insurance Company, a leading internationally recognized provider of
insurance and financial services in property/casualty and life insurance,
reinsurance and structured financial solutions as well as asset management, owns
approxi-
23
<PAGE> 32
mately 70% of Scudder Kemper, with the balance owned by Scudder Kemper's
officers and employees.
Responsibility for overall management of each Fund rests with its Board members
and officers. Professional investment supervision is provided by Scudder Kemper.
The investment management agreement provides that Scudder Kemper shall act as
each Fund's investment adviser, manage its investments and provide it with
various services and facilities.
Thomas Sassi and Jonathan Kay have been co-managers of the Contrarian Fund since
July 1997 and Frederick L. Gaskin has been a co-manager of the Fund since
September 1997. Mr. Sassi is the lead manager of the Fund. He joined Scudder
Kemper in August 1996. He was a consultant with an unaffiliated investment
consulting firm and an officer of an unaffiliated investment banking firm from
1993 to 1996. Mr. Gaskin joined Scudder Kemper in 1996. From 1993 until 1996,
Mr. Gaskin served as a vice president and portfolio manager for an unaffiliated
investment management firm. He received a B.S. in finance from Appalachian State
University and an M.B.A. from Babcock Graduate School of Management. Mr. Sassi
received a B.B.A. in management and economics and an M.B.A. in Finance from
Hofstra University in New York City, New York. Jonathan Kay joined Scudder
Kemper in 1993 where he has served as a portfolio manager for institutional
accounts. He received a B.A. in economics from the University of Buffalo and an
M.B.A. in Finance from Bernard M. Baruch College in New York City, New York.
David N. Dreman has been the portfolio manager of the High Return Equity Fund
since its inception in 1988. He is the Chairman of DVM, and was associated with
the Fund's former investment adviser. Mr. Dreman is a pioneer of the philosophy
of contrarian investing (buying what is out of favor) and a leading proponent of
the low P/E investment style. He is a columnist for FORBES and the author of
several books on the value style of investing. He received a Bachelor of
Commerce from the University of Manitoba, Winnipeg, Manitoba, Canada.
Thomas H. Forester and Steven T. Stokes have been the portfolio co-managers of
the Small Cap Value Fund since July 1997. Mr. Forester has lead responsibility
for the management of the Fund. He joined Scudder Kemper in May 1997. Prior to
joining Scudder Kemper, he served as a senior portfolio manager of an
unaffiliated investment management firm from 1995 to 1997. For the three years
prior to 1995, he was a portfolio manager for another investment management
firm. He received his undergraduate degree at the University of Colorado and an
M.B.A. in finance from Northwestern University. He is a chartered financial
analyst. Mr. Stokes joined Scudder Kemper in April 1996. Prior to joining
Scudder Kemper, he served as a portfolio manager and financial analyst for an
unaffiliated investment management firm from 1986 to 1996. Mr. Stokes received a
B.S. degree in Finance from State University of New York at New Paltz. He is a
chartered financial analyst.
James M. Eysenbach has been the lead portfolio manager, and Philip S. Fortuna
and Calvin Young have been portfolio co-managers of the Small Cap
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<PAGE> 33
Relative Value Fund since its inception in May, 1998. Mr. Fortuna joined Scudder
Kemper in 1986 and is currently a Managing Director of Scudder Kemper. Mr.
Fortuna received a B.S. degree in economics from Carnegie Mellon University in
1978 and an M.B.A. degree from the University of Chicago in 1984. Mr. Eysenbach
joined Scudder Kemper in November 1991 and is a Senior Vice President of Scudder
Kemper. Mr. Eysenbach received an A.B. degree with an economics major and a
physics minor from Bowdoin College in 1984 and an M.B.A. degree in finance from
the Anderson School of Management at UCLA in 1991. Mr. Young joined Scudder
Kemper in March 1990 and is a Vice President of Scudder Kemper. Mr. Young
received a B.S. degree in electrical engineering/computer science from the
University of California at Berkeley in 1984 and an M.B.A. degree from Golden
Gate University in 1987.
Each Fund pays Scudder Kemper an investment management fee, payable monthly, at
1/12 of the annual rate of .75% of the first $250 million of its average daily
net assets, .72% of average daily net assets between $250 million and $1
billion, .70% of average daily net assets between $1 billion and $2.5 billion,
.68% of average daily net assets between $2.5 billion and $5 billion, .65% of
average daily net assets between $5 billion and $7.5 billion, .64% of average
daily net assets between $7.5 billion and $10 billion, .63% of average daily net
assets between $10 billion and $12.5 billion and .62% of its average daily net
assets over $12.5 billion. To the extent that the management fee paid to Scudder
Kemper is .75%, it is higher than that paid by most other mutual funds. Scudder
Kemper has agreed to temporarily waive its management fee for the current fiscal
year in the amount of .25% of the average daily net assets of the Small Cap
Relative Value Fund. The actual level of this voluntary waiver shall be in
Scudder Kemper's discretion and, upon notice to the Fund, Scudder Kemper may at
any time terminate this waiver.
HIGH RETURN EQUITY FUND. As mentioned above, DVM is a sub-adviser for the High
Return Equity Fund. Under the terms of the sub-advisory agreement between
Scudder Kemper and DVM, DVM manages the investment and reinvestment of the
Fund's assets in accordance with the investment objectives, policies and
limitations and subject to the supervision of Scudder Kemper and the Board of
Directors. DVM was formed in April 1997 and has served as sub-adviser for the
Fund since August 1997. DVM is controlled by David N. Dreman. Scudder Kemper
pays DVM for its services a sub-advisory fee, payable monthly, at the annual
rate of .24% of the first $250 million of the Fund's average daily net assets,
.23% of the average daily net assets between $250 million and $1 billion, .224%
of average daily net assets between $1 billion and $2.5 billion, .218% of
average daily net assets between $2.5 billion and $5 billion, .208% of average
daily net assets between $5 billion and $7.5 billion, .205% of average daily net
assets between $7.5 billion and $10 billion, .202% of average daily net assets
between $10 billion and $12.5 billion and .198% of the Fund's average daily net
assets over $12 billion. In addition, Scudder Kemper has guaranteed to pay a
minimum of $8 million to DVM during each of the calendar years 2000, 2001 and
2002 that DVM serves as sub-adviser.
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<PAGE> 34
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of Scudder Kemper, is responsible for determining the daily net asset
value per share of each Fund and maintaining all accounting records related
thereto. Currently, SFAC receives no fee for its services to the Contrarian,
High Return Equity and Small Cap Value Funds; however, subject to Board
approval, at some time in the future SFAC may seek payment for its services to
those Funds under its agreement with such Funds. SFAC charges a fee for its
services to the Small Cap Relative Value Fund. See "Investment Manager and
Underwriter--Fund Accounting Agent" in the Statement of Additional Information
for additional information.
YEAR 2000 COMPLIANCE. Like other mutual funds and financial and business
organizations worldwide, the Funds could be adversely affected if computer
systems on which the Funds rely, which primarily include those used by Scudder
Kemper, its affiliates or other service providers, are unable to correctly
process date-related information on and after January 1, 2000. This risk is
commonly called the Year 2000 Issue. Failure to successfully address the Year
2000 Issue could result in interruptions to and other material adverse effects
on the Funds' business and operations. Scudder Kemper has commenced a review of
the Year 2000 Issue as it may affect the Funds and is taking steps it believes
are reasonably designed to address the Year 2000 Issue, although there can be no
assurances that these steps will be sufficient. In addition, there can be no
assurances that the Year 2000 Issue will not have an adverse effect on the
companies whose securities are held by the Funds or on global markets or
economies generally.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with the Funds, Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, a wholly-owned
subsidiary of Scudder Kemper, is the principal underwriter and distributor of
each Fund's shares and acts as agent of each 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 qualifying and maintaining the qualification of the Funds' shares for sale
under the securities laws of the various states and the Funds bear the expense
of registering their shares with the Securities and Exchange Commission. KDI may
enter into related selling group agreements with various broker-dealers,
including affiliates of KDI, that provide distribution services to investors.
KDI also may provide some of the distribution services.
CLASS A SHARES. KDI receives no compensation from the Funds as principal
underwriter for Class A shares and pays all expenses of distribution of each
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 shares and pays or
allows concessions or discounts to firms for the sale of each Fund's shares.
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<PAGE> 35
CLASS B SHARES. For its services under the distribution agreement, KDI receives
a fee from each Fund, payable monthly, at the annual rate of .75% of average
daily net assets of such Fund attributable to 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 distribution agreement, KDI receives
a fee from each Fund, payable monthly, at the annual rate of .75% of average
daily net assets of such Fund attributable to 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 .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 .75% of net assets attributable to Class C shares maintained and serviced by
the firm and the fee continues until terminated by KDI or a Fund. KDI also
receives any contingent deferred sales charges received on redemptions of Class
C shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Charge--Class C Shares."
RULE 12B-1 PLAN. Since each 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, that agreement is approved and
reviewed separately for the Class B shares and the Class C shares in accordance
with Rule 12b-1 under the Investment Company Act of 1940, which regulates the
manner in which an investment company may, directly or indirectly, bear the
expenses of distributing its shares. The table below shows amounts paid in
connection with the Contrarian, High Return Equity and Small Cap Value Funds'
Rule 12b-1 Plan during the period January 1, 1997 through November 30, 1997.
<TABLE>
<CAPTION>
CONTINGENT
DISTRIBUTION FEES DEFERRED SALES
DISTRIBUTION EXPENSES PAID BY FUND CHARGE PAID
INCURRED BY UNDERWRITER TO UNDERWRITER TO UNDERWRITER
----------------------- ------------------- -----------------
FUND CLASS B CLASS C CLASS B CLASS C CLASS B CLASS C
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Contrarian........... $ 1,552,000 104,000 353,000 29,000 62,000 2,000
High Return Equity... $43,649,000 3,515,000 5,477,000 901,000 817,000 31,000
Small Cap Value...... $14,136,000 1,560,000 1,716,000 392,000 221,000 22,000
</TABLE>
If the Rule 12b-1 Plan (the "Plan") is terminated in accordance with its terms,
the obligation of a 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
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<PAGE> 36
may or may not be sufficient to reimburse KDI for its expenses incurred. (See
"Principal Underwriter" for more information.)
ADMINISTRATIVE SERVICES. KDI also provides information and administrative
services for shareholders of each Fund pursuant to an administrative services
agreement ("administrative agreement"). KDI may enter 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 Funds. Such administrative 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 each 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 its expenses of providing
services pursuant to the administrative agreement, including the payment of any
service fees. For services under the administrative agreement, each Fund pays
KDI a fee, payable monthly, at an annual rate of up to .25% of average daily net
assets of Class A, B and C shares of each Fund. KDI then pays each firm a
service fee, normally payable quarterly, at an annual rate of up to .25% of net
assets of each class of those accounts in the Fund that it maintains and
services. 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 a 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 .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 .25% (calculated monthly and normally paid quarterly) of the
net assets attributable to Class B and Class C shares maintained and serviced by
the firm 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 each Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services and it is intended
that KDI will pay all the administrative services fee that it receives from each
Fund to firms in the form of service fees. The effective administrative services
fee rate to be charged against all assets of each 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 each Fund.
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<PAGE> 37
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company ("State Street"), 225
Franklin Street, Boston, Massachusetts 02110, as sub-custodian, have custody of
all securities and cash of the Contrarian, High Return Equity and Small Cap
Value Funds. State Street, as custodian, has custody of all securities and cash
of the Small Cap Relative Value Fund. IFTC also is the transfer agent and
dividend-paying agent for the Contrarian, High Return Equity and Small Cap Value
Funds. Pursuant to a services agreement with IFTC, Kemper Service Company
("KSVC"), an affiliate of Scudder Kemper, serves as "Shareholder Service Agent"
of the Contrarian, High Return Equity and Small Cap Value Funds and, as such,
performs all of IFTC's duties as transfer agent and dividend-paying agent. KSvC
also serves as the transfer agent and dividend-paying agent, as well as the
Shareholder Service Agent, of the Small Cap Relative Value Fund. For a
description of transfer agent and shareholder service agent fees, see
"Investment Manager and Underwriter" in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS. Scudder Kemper places all orders for purchases and sales
of a Fund's securities (except that DVM places all orders for the High Return
Equity Fund). As described more fully under "Portfolio Transactions" in the
Statement of Additional Information, it may consider sales of shares of a Fund
and of funds managed by Scudder Kemper or its affiliates as a factor in
selecting broker-dealers.
DIVIDENDS AND TAXES
DIVIDENDS. The Contrarian and High Return Equity Funds normally distribute
quarterly dividends of net investment income, the Small Cap Value Fund and the
Small Cap Relative Value Fund normally distribute annual dividends of net
investment income and each Fund distributes any net realized short-term and
long-term capital gains at least annually.
Dividends paid by a Fund as 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 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.
Income and capital gain dividends, if any, of a Fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
Fund at net asset value on the reinvestment date, 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 gain dividends in cash and long-
term capital gain dividends in shares of the same class at net asset value;
or
29
<PAGE> 38
(2) To receive income and capital gain dividends in cash.
Any dividends of a Fund that are reinvested will normally be reinvested in
shares of the same class of that same Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of a Fund
invested 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 Kemper Funds. To use this
privilege of investing dividends of a Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account value of $1,000 in the Fund
distributing the dividends. The Funds will reinvest dividend checks (and future
dividends) in shares of that same Fund and class 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 same Fund unless the
shareholder requests that such policy not be applied to the shareholder's
account.
TAXES. The Small Cap Relative Value Fund intends to qualify and the Contrarian,
High Return Equity and Small Cap Value Funds intend to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code
(the "Code") and, if so qualified, generally will not be liable for federal
income taxes to the extent its earnings are distributed. Dividends derived from
net investment income and net short-term capital gains are taxable to
shareholders as ordinary income and 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 currently taxed at a maximum
rate of 20% on gains realized by a Fund from securities held more than 18 months
and at a maximum rate of 28% on gains realized by a 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. A portion of the dividends paid by a 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. If the net asset value of
shares were reduced below the shareholder's cost by dividends representing gains
realized on sales of securities, such dividends would be a return of investment
though taxable as stated above.
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 if 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 a Fund may be subject to state, local
and foreign taxes on Fund distributions and dispositions of fund shares. Share-
30
<PAGE> 39
holders should consult their own tax advisors regarding the particular tax
consequences of an investment in a Fund.
Each 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 security number) and
in certain other circumstances. 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 dividend reinvestment 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 each 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, Jr. 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.
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<PAGE> 40
PURCHASE OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of each 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 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.
The primary distinctions among the classes of each 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 Maximum initial sales None Initial sales charge
A.... charge of 5.75% of the waived or reduced for
public offering price certain purchases
Class Maximum contingent 0.75% Shares convert to Class
B.... deferred sales charge of A shares six years after
4% of redemption issuance
proceeds; declines to
zero after six years
Class Contingent deferred 0.75% No conversion feature
C.... sales charge of 1% of
redemption proceeds for
redemptions made during
first year after
purchase
</TABLE>
The minimum initial investment for each 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.
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<PAGE> 41
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............... .00** .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.
Each Fund receives the entire net asset value of all its Class A shares sold.
KDI, the Funds' 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. Upon notice to all dealers with whom it
has sales agreements, KDI may reallow to dealers 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 a Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in such Fund or other Kemper Mutual
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
33
<PAGE> 42
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 a 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, .50% on the next $45 million and .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
employee benefit plans using the subaccount recordkeeping system made available
through KSvC. 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 a Fund and other
Kemper Mutual 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 a Fund at net asset value under the Large Order NAV
Purchase Privilege is not available if another net asset value purchase
privilege also applies.
Class A shares of a Fund or any other Kemper Mutual 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-transferrable
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 net asset value
pursuant to this privilege, KDI may in its discretion pay investment dealers and
other financial services firms a concession, payable quarterly, at an annual
rate of up to .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 attribu-
34
<PAGE> 43
table 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
a 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; (c) officers, directors, and employees of service agents of the Funds;
(d) shareholders who owned shares of Kemper Value Series, Inc. ("KVS") on
September 8, 1995, and have continuously owned shares of KVS (or a Kemper Fund
acquired by exchange of KVS shares) since that date, for themselves or members
of their families; and (e) any trust, pension, profit-sharing or other benefit
plan for only such persons. 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 Funds 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 shares may
purchase a Fund's 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 a Fund's
Class A shares at net asset value through reinvestment programs described in the
prospectuses of such trusts that have such programs. Class A shares of a Fund
may be sold at net asset value through certain investment advisers registered
under the Investment Advisers Act of 1940 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
advisor 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 Funds. The Funds 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 a Fund may be purchased at net asset value by 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.
Class A shares of a Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursu-
35
<PAGE> 44
ant 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 .50% of the
amount of Class A shares purchased.
Class A shares of a Fund may be purchased at net asset value by 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.
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 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 Funds for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter." Class B shares of
a Fund will automatically convert to Class A shares of the same Fund six years
after issuance on the basis of the relative net asset value per share. 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 a
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
36
<PAGE> 45
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
redemption of Class C shares 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 .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 .75% of net assets attributable to Class
C shares maintained and serviced by the firm. KDI is compensated by each 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 a Fund or any Kemper Mutual Fund 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 a 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 are currently 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 a
Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of a Fund sold by the firm under the following conditions:
37
<PAGE> 46
(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 KSVC, (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 Funds. 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
Funds, or other funds underwritten by KDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received 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"). 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 the Funds' 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
the Funds' shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Funds' transfer agent will have no information
with respect to or control over the 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 Funds 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.
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<PAGE> 47
Such firms, including affiliates of KDI, may receive compensation from the Funds
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 Funds reserve the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders. Also, from time to time, each
Fund may temporarily suspend the offering of shares of any Fund or class of a
Fund to new investors. During the period of such suspension, persons who are
already shareholders of such class of such Fund normally are permitted to
continue to purchase additional shares of such Fund or class and to have
dividends reinvested.
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.
TAX IDENTIFICATION NUMBER. Be sure to complete the Tax Identification Number
section of the applicable Fund's application when you open an account. Federal
tax law requires each 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. Each Fund
reserves the right to reject new account applications without a correct
certified Social Security or tax identification number. The Funds also reserve
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 applicable 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 a Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Funds' transfer agent,
the shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual 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
39
<PAGE> 48
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 Fund will be the net asset value per share
of that 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 a 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 may be up to 10 days from receipt by a 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"), 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 Funds may assess a
quarterly fee of $9 on an 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. A Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges, unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephone instructions are genuine.
THE SHAREHOLDER WILL BEAR THE RISK OF LOSS, including loss resulting from
fraudulent or unauthorized transactions, so long as the reasonable verification
procedures are followed. The verification procedures include recording
instructions, requiring certain identifying information before acting upon
instructions and sending written confirmations.
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<PAGE> 49
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 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 Funds reserve 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 each 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 of the applicable Fund 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 a 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 of the Fund
effective on that day and normally the proceeds will be sent to the
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<PAGE> 50
designated account the following business day. Delivery of the proceeds of a
wire redemption of $250,000 or more may be delayed by a Fund for up to seven
days if Scudder Kemper 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 Funds are not
responsible for the efficiency of the federal wire system or the account
holder's financial services firm or bank. The Funds currently do 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 Funds reserve 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 Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and .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 a 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
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<PAGE> 51
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.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES
YEAR OF REDEMPTION AFTER PURCHASE CHARGE
--------------------------------- ----------
<S> <C>
First...................................... 4%
Second..................................... 3%
Third...................................... 3%
Fourth..................................... 2%
Fifth...................................... 2%
Sixth...................................... 1%
</TABLE>
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 a 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 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; (b) redemptions by employer
43
<PAGE> 52
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 a Fund's Systematic Withdrawal Plan at a maximum of 10% per year of the
net asset value of the account; (f) 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; (g) redemption of shares by an employer sponsored employee benefit plan
that offers funds in addition to Kemper Funds and 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; and
(h) redemption of shares purchased through a dealer-sponsored asset allocation
program maintained on an omnibus record-keeping system provided the dealer of
record has waived the advance of the first year administrative services and
distribution fees applicable to such shares and has agreed 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 a 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 of share 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 under the schedule above 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 May, 1998 will be eligible for the 3% charge if redeemed on
or after May 1, 1999. 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 a Fund
or any Kemper Mutual 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
a Fund or of the other listed Kemper Mutual Funds. A shareholder of a Fund or a
Kemper Mutual Fund who redeems Class A shares purchased under the
44
<PAGE> 53
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 Class A, Class B
or Class C shares, as the case may be, of a Fund or of other Kemper Mutual
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. 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 a Fund or of the Kemper Mutual 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 Mutual
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 shares of a
Fund, the reinvestment in the same 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 each Fund's present policy to redeem in cash,
if the Board of Directors or Trustees, as the case may be, (the "Board"),
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 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 as liquid as a redemption entirely in cash.
SPECIAL FEATURES
CLASS A SHARES--COMBINED PURCHASES. Each 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 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
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<PAGE> 54
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 (available only upon exchange or conversion from Class A
shares of another Kemper Mutual Fund), Kemper U.S. Mortgage Fund, Kemper
Short-Intermediate Government Fund, Kemper Value Series, Inc., Kemper Value Plus
Growth Fund, Kemper Quantitative Equity Fund, Kemper Horizon Fund, Kemper Europe
Fund, Kemper Asian Growth Fund, Kemper Aggressive Growth Fund, Kemper
Global/International Series, Inc., Kemper Securities Trust and Kemper Equity
Trust ("Kemper Mutual Funds"). Except as noted below, there is no combined
purchase credit for direct purchases of shares of Zurich 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 Mutual 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 Mutual Funds", (b) all classes of shares of any Kemper Mutual Fund and
(c) the value of any other plan investment, 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 Mutual 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 Mutual 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 are included in this privilege.
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<PAGE> 55
CLASS A SHARES--CUMULATIVE DISCOUNT. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value of all Class A shares of
the above mentioned Kemper Mutual 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.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of Kemper Mutual
Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Mutual 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 a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of any Kemper Mutual 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 the
contingent deferred sales charge.
CLASS B SHARES. Class B shares of a Fund and Class B shares of any Kemper Mutual
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 a contingent deferred sales charge being imposed at the
time of exchange. For purposes of the contingent deferred sales charge that may
be imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
47
<PAGE> 56
CLASS C SHARES. Class C shares of a Fund and Class C shares of any Kemper Mutual
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 purposes of determining the contingent deferred sales
charge that may be imposed upon the redemption of the shares received on
exchange, amounts exchanged retain their original cost and purchase date.
GENERAL. Shares of a Kemper Mutual Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Mutual 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. 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 KSVC, 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 use the
telephone 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 the portfolios of Investors Municipal Cash Fund are 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 Fund, a Kemper Mutual Fund or Money Market Fund may
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<PAGE> 57
authorize the automatic exchange of a specified amount ($100 minimum) of such
shares for shares of the same class of another 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 a 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 KSVC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination will become effective as soon as the Shareholder Service
Agent has had a reasonable 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 shares of a Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan ("Bank Direct Deposit"), investments are made automatically (minimum $50
and 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 KSVC, 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. A Fund may immediately terminate a shareholder's Plan in
the event that any item is unpaid by the shareholder's financial institution.
The Funds may terminate or modify this privilege at any time.
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<PAGE> 58
PAYROLL DIRECT DEPOSIT AND GOVERNMENT DIRECT DEPOSIT. A shareholder may invest
in a 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 a 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.) A 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 a 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 (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. Shares are redeemed so that the payee will receive payment
approximately the first of the month. 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 will ordinarily 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 have already been
paid. Therefore, a 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 redemptions 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 Funds.
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:
- - Traditional, Roth and Education Individual Retirement Accounts ("IRAs") with
IFTC as custodian. 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.
50
<PAGE> 59
- - 403(b)(7) Custodial Accounts with IFTC as custodian. This type of plan is
available to employees of most non-profit organizations.
- - 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. The brochures for plans with IFTC as custodian describe the current
fees payable to IFTC for its services as custodian. Investors should consult
with their own tax advisers before establishing a retirement plan.
PERFORMANCE
A 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 Funds.
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 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 a 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 such periods have 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.
A Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged equity indexes including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Standard &
Poor's/Barra Value Index, the Russell 1000 Value Index and the Russell 2000
Value Index. The performance of a Fund may also be compared to the combined
performance of two indexes. The performance of a Fund may also be compared to
the performance of other mutual funds or mutual fund indexes 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 CHI-
51
<PAGE> 60
CAGO 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.
A Fund may depict the historical performance of the securities in which a 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. A 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. A Fund may also discuss the relative performance of
growth stocks versus value stocks.
Each 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 the 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 the 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
shares 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.
Each Fund's returns and net asset value will fluctuate. Shares of a Fund are
redeemable by an investor at the 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 each Fund's performance appears in the Statement of
Additional Information. Additional information about each Fund's performance
also appears in its Annual Report to Shareholders, which is available without
charge from the applicable Fund.
52
<PAGE> 61
CAPITAL STRUCTURE
The Contrarian, High Return Equity and Small Cap Value Funds are each a series
of Kemper Value Series, Inc. ("KVS"). KVS was organized as a Maryland
corporation in October, 1987 and has an authorized capitalization of
3,000,000,000 shares of $.01 par value common stock. In March, 1998, KVS changed
its name from Kemper Value Fund, Inc. to Kemper Value Series, Inc. and in July,
1997, KVS changed its name from Kemper-Dreman Fund, Inc. to Kemper Value Fund,
Inc. In September, 1995, KVS changed its name from Dreman Mutual Group, Inc. to
Kemper-Dreman Fund, Inc. The Small Cap Relative Value Fund is a series of Kemper
Securities Trust (the "Trust"). 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, all
having a par value of $.01, which may be divided by the Board of Trustees into
classes of shares. Since KVS and the Trust may offer multiple funds, each is
known as a "series company." Currently, KVS offers four classes of shares of
each Fund. These are Class A, Class B and Class C shares, as well as Class I
shares, which have different expenses, that may affect performance, and are
available for purchase exclusively by the following investors: (a) tax-exempt
retirement plans of Scudder Kemper and its affiliates; and (b) the following
investment advisory clients of Scudder Kemper and its investment advisory
affiliates that invest at least $1 million in a Fund: (1) unaffiliated benefit
plans, such as qualified retirement plans (other than individual retirement
accounts and self-directed retirement plans); (2) unaffiliated banks and
insurance companies purchasing for their own accounts; and (3) endowment funds
of unaffiliated non-profit organizations. Currently, the Trust offers three
classes of shares of the Small Cap Relative Value Fund--Class A, Class B and
Class C shares. The Board may authorize the issuance of additional classes and
additional Funds if deemed desirable, each with its own investment objectives,
policies and restrictions. Shares of a Fund have equal noncumulative voting
rights except that Class B and Class C shares have separate and exclusive voting
rights with respect to the Rule 12b-1 Plan. Shares of each class also have equal
rights with respect to dividends, assets and liquidation of such 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 of each Fund
are fully paid and nonassessable when issued, are transferable without
restriction and have no preemptive or conversion rights. The Board of Directors
of KVS and the Board of Trustees of the Trust may, to the extent permitted by
applicable law, have the right at any time to redeem from any shareholder, or
from all shareholders, all or any part of any series or class, or of all series
or classes, of the shares of KVS and the Trust.
The Funds are not required to hold annual shareholder meetings and do not intend
to do so. However, they will hold special meetings as required or deemed
desirable for such purposes as electing Board members, changing fundamental
policies or approving an investment management agreement. KVS will call a
meeting of shareholders, if requested to do so by the holders of
53
<PAGE> 62
at least 10% of KVS's outstanding shares. In the case of a meeting called to
consider removal of a Board member or Board members, KVS or the Trust will
assist in communications with other shareholders as required by Section 16(c) of
the Investment Company Act of 1940. If shares of more than one Fund are
outstanding, shareholders will vote by Fund and not in the aggregate or by class
except when voting in the aggregate is required under the Investment Company Act
of 1940, such as for the election of Board members, or when voting by class is
appropriate.
MASTER/FEEDER STRUCTURE. The Board of Trustees of the Trust may determine,
without further shareholder approval, in the future that the objectives of the
Small Cap Relative Value 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 gains or
loss, or by contributing its assets to the master fund and avoiding transaction
costs and the realization of taxable gain or loss.
54
<PAGE> 63
May 6, 1998
PROSPECTUS
KEMPER EQUITY FUNDS/
VALUE STYLE
Kemper Contrarian Fund
Kemper-Dreman High Return Equity Fund
Kemper Small Cap Value Fund
Kemper Small Cap Relative Value Fund
Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048
[KEMPER FUNDS LOGO] [KEMPER FUNDS LOGO]
[RECYCLED LOGO] Printed on Recycled Paper DRE-1 (5/98) KDI 801196
<PAGE> 64
KEMPER SECURITIES TRUST
KEMPER SMALL CAP RELATIVE VALUE FUND
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEMS REQUIRED
BY FORM N-1A LOCATION
-------------- --------
<S> <C> <C>
PART B STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page........................... Cover Page
Item 11. Table of Contents.................... Table of Contents
Item 12. General Information and History...... Cover Page
Item 13. Investment Objectives and Policies... Investment Restrictions; Investment Policies and
Techniques
Item 14. Management of the Fund............... Investment Manager and Underwriter; Officers and
Directors
Item 15. Control Persons and Principal Holders
of Securities........................ Officers and Directors--Principal Holders of
Securities
Item 16. Investment Advisory and Other
Services............................. Investment Manager and Underwriter; Distribution and
Servicing Arrangements
Item 17. Brokerage Allocation and Other
Practices............................ Portfolio Transactions
Item 18. Capital Stock and Other Securities... Dividends and Taxes; Shareholders Rights
Item 19. Purchase, Redemption and Price of
Securities Being Offered............. Purchase and Redemption of Shares
Item 20. Tax Status........................... Dividends and Taxes
Item 21. Underwriters......................... Investment Manager and Underwriter
Item 22. Calculation of Performance Data...... Performance
Item 23. Financial Statements................. Financial Statements
</TABLE>
<PAGE> 65
STATEMENT OF ADDITIONAL INFORMATION
MAY 6, 1998
KEMPER CONTRARIAN FUND ("CONTRARIAN FUND")
KEMPER-DREMAN HIGH RETURN EQUITY FUND ("HIGH RETURN EQUITY FUND")
KEMPER SMALL CAP VALUE FUND ("SMALL CAP VALUE FUND")
KEMPER SMALL CAP RELATIVE VALUE FUND ("SMALL CAP RELATIVE VALUE 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 each of the funds (the "Funds") listed
above. It should be read in conjunction with the prospectus of the Funds dated
May 6, 1998. The prospectus may be obtained without charge from the Funds by
calling the number listed above or the firm from which the prospectus was
obtained.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Restrictions.............................. B-1
Investment Policies and Techniques................... B-2
Portfolio Transactions............................... B-8
Investment Manager and Underwriter................... B-11
Purchase and Redemption of Shares.................... B-20
Net Asset Value...................................... B-21
Dividends and Taxes.................................. B-23
Performance.......................................... B-25
Officers and Board Members........................... B-34
Shareholder Rights................................... B-41
Small Cap Relative Value Fund -- Report of
Independent Auditors (April 24, 1998).............. B-43
Small Cap Relative Value Fund -- Statement of Net
Assets (April 24, 1998)............................ B-44
</TABLE>
The financial statements appearing in the Contrarian, High Return Equity and
Small Cap Value Funds' 1997 Annual Report to Shareholders are incorporated
herein by reference. The Annual Report for each of those Funds accompanies this
document.
DRE-13 (5/98) (LOGO)printed on recycled paper
<PAGE> 66
INVESTMENT RESTRICTIONS
Each 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, this means the lesser of the vote
of (a) 67% of the shares of the Fund present at a meeting where more than 50% of
the outstanding shares are present in person or by proxy or (b) more than 50% of
the outstanding shares of the Fund.
A FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities of any one issuer other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
collectively ("U.S. Government Securities") if immediately thereafter more than
5% of its total assets would be invested in the securities of any one issuer, or
purchase more than 10% of an issuer's outstanding securities, except that up to
25% of each Fund's total assets may be invested without regard to these
limitations.
(2) For the Contrarian, High Return Equity and Small Cap Value Funds, borrow
money or issue senior securities, except that each Fund may borrow from banks
for temporary purposes in amounts not in excess of 10% of the value of its total
assets at the time of such borrowing; or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing in amounts not in excess of
the lesser of the amount borrowed or 10% of the value of its total assets at the
time of such borrowing; provided that the Funds may enter into futures contracts
and related options as described in the prospectus. Optioned securities are not
considered to be pledged for purposes of this limitation.
(3) For the Small Cap Relative Value Fund, borrow money or issue senior
securities, except that the Fund may borrow from banks for temporary purposes in
amounts not in excess of one-third (1/3) of the value of its total assets at the
time of such borrowing; or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing or in connection with options and futures
contracts.
(4) Purchase any securities which would cause more than 25% of the value of its
total assets at the time of purchase to be invested in the securities of issuers
conducting their principal activities in the same industry.
(5) For the Contrarian, High Return Equity and Small Cap Value Funds, invest
more than 10% of the value of its net assets in illiquid securities, including
restricted securities and repurchase agreements with remaining maturities in
excess of seven days, and other securities for which market quotations are not
readily available.
(6) Make loans, except that each Fund may lend securities it owns as described
herein and enter into repurchase agreements pursuant to its investment objective
and policies.
B-1
<PAGE> 67
(7) Purchase securities on margin or make short sales of securities, provided
that the Funds may enter into futures contracts and related options and make
initial and variation margin deposits in connection therewith.
(8) Purchase or sell commodities or commodity contracts, except futures
contracts and options thereon as stated in the prospectus, or, for the
Contrarian, High Return Equity and Small Cap Value Funds only, invest in oil,
gas or mineral exploration or development programs, or in real estate or
mortgage loans provided that the Funds may, to the extent appropriate to their
investment objectives, purchase publicly traded securities of companies engaging
in whole or in part in such activities.
(9) Engage in the business of underwriting securities issued by others, except
that each Fund may acquire securities which are subject to restrictions on
disposition ("restricted securities") within the meaning of the Securities Act
of 1933.
THE FUNDS MAY NOT, AS A NON-FUNDAMENTAL POLICY:
(1) Invest for the purpose of exercising control over management of any company.
(2) Invest its assets in securities of any investment company, except by open
market purchases, including an ordinary broker's commission, or in connection
with a merger, acquisition of assets, consolidation or reorganization, and any
investments in the securities of other investment companies will be in
compliance with the Investment Company Act of 1940.
THE SMALL CAP RELATIVE VALUE FUND MAY NOT, AS A NON-FUNDAMENTAL POLICY:
Invest more than 15% of the value of its net assets in illiquid securities.
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. Each Fund may engage in options and financial futures and other
derivatives transactions in accordance with its respective investment objectives
and policies. Each such Fund intends to engage in such transactions if it
appears to the investment manager to be advantageous to do so in order to pursue
its investment objective and also to hedge against the effects of market risks
but not for speculative purposes. The use of futures and options, and possible
benefits and attendant risks, are discussed below along with information
concerning other investment policies and techniques.
OPTIONS ON SECURITIES. A Fund may write (sell) "covered" call options on
securities as long as it owns the underlying securities subject to the option or
an option to purchase the same underlying securities, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain for the term of the option a segregated account
consisting of cash
B-2
<PAGE> 68
or other liquid securities ("eligible securities") to the extent required by
applicable regulation in connection with the optioned securities. A Fund (other
than the Contrarian Fund) may write "covered" put options provided that, as long
as the Fund is obligated as a writer of a put option, the Fund will own an
option to sell the underlying securities subject to the option, having an
exercise price equal to or greater than the exercise price of the "covered"
option, or it will deposit and maintain in a segregated account eligible
securities having a value equal to or greater than the exercise price of the
option. A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security at the exercise price during or at
the end of the option period. A put option gives the purchaser the right to
sell, and the writer the obligation to buy, the underlying security at the
exercise price during or at the end of the option period. The premium received
for writing an option will reflect, among other things, the current market price
of the underlying security, the relationship of the exercise price to such
market price, the price volatility of the underlying security, the option
period, supply and demand and interest rates. The Funds may write, and the Small
Cap Relative Value Fund may also purchase, spread options, which are options for
which the exercise price may be a fixed dollar spread or yield spread between
the security underlying the option and another security that is used as a bench
mark. The exercise price of an option may be below, equal to or above the
current market value of the underlying security at the time the option is
written. The buyer of a put who also owns the related security is protected by
ownership of a put option against any decline in that security's price below the
exercise price less the amount paid for the option. The ability to purchase put
options allows the Small Cap Relative Value Fund to protect capital gains in an
appreciated security it owns, without being required to actually sell that
security. At times the Small Cap Relative Value Fund would like to establish a
position in a security upon which call options are available. By purchasing a
call option, the Fund is able to fix the cost of acquiring the security, this
being the cost of the downturn in the market, because the Fund is only at risk
for the amount of the premium paid for the call option which it can, if it
chooses, permit to expire.
During the option period the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the
security being "called away." For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain in the amount of the premium received.
If the covered call option writer has to sell the underlying security because of
the exercise of a call option, it realizes a gain or loss from the sale of the
underlying security, with the proceeds being increased by the amount of the
premium.
If a secured put option expires unexercised, the writer realizes a gain from the
amount of the premium. If the secured put writer has to buy the underlying
B-3
<PAGE> 69
security because of the exercise of the put option, the secured put writer
incurs an unrealized loss to the extent that the current market value of the
underlying security is less than the exercise price of the put option. However,
this would be offset in whole or in part by gain from the premium received.
OVER-THE-COUNTER OPTIONS. As indicated in the prospectus (see "Investment
Objectives, Policies and Risk Factors"), the Small Cap Relative Value Fund may
deal in over-the-counter traded options ("OTC options"). 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 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 investment manager 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.
OPTIONS ON SECURITIES INDICES. Each Fund may write call options on securities
indices, and each Fund other than the Contrarian Fund may write put options on
securities indices, and the Small Cap Relative Value Fund may purchase call and
put options on securities indices, in an attempt to hedge against market
conditions affecting the value of securities that the Fund owns or intends to
purchase, and not for speculation. Through the writing or purchase of index
options, a Fund can achieve many of the same objectives as through
B-4
<PAGE> 70
the use of options on individual securities. Options on securities indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the securities index upon which the
option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. This amount of cash is equal to
such difference between the closing price of the index and the exercise price of
the option. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. Unlike security options, all
settlements are in cash and gain or loss depends upon price movements in the
market generally (or in a particular industry or segment of the market), rather
than upon price movements in individual securities. Price movements in
securities that the Fund owns or intends to purchase will probably not correlate
perfectly with movements in the level of an index since the prices of such
securities may be affected by somewhat different factors and, therefore, the
Fund bears the risk that a loss on an index option would not be completely
offset by movements in the price of such securities.
When a Fund writes an option on a securities index, it will segregate, and
mark-to-market, eligible securities to the extent required by applicable
regulation. In addition, where the Fund writes a call option on a securities
index at a time when the contract value exceeds the exercise price, the Fund
will segregate and mark-to-market, until the option expires or is closed out,
cash or cash equivalents equal in value to such excess.
A Fund may also deal in options on other appropriate indices as available.
Options on a securities index involve risks similar to those risks relating to
transactions in financial futures contracts described below. Also, an option
purchased by the Small Cap Relative Value Fund may expire worthless, in which
case the Fund would lose the premium paid therefor.
FINANCIAL FUTURES CONTRACTS. The Funds may enter into financial futures
contracts for the future delivery of a financial instrument, such as a security
or the cash value of a securities index. This investment technique is designed
primarily to hedge (i.e., protect) against anticipated future changes in market
conditions which otherwise might affect adversely the value of securities or
other assets which the Fund holds or intends to purchase. A "sale" of a futures
contract means the undertaking of a contractual obligation to deliver the
securities or the cash value of an index called for by the contract at a
specified price during a specified delivery period. A "purchase" of a futures
contract means the undertaking of a contractual obligation to acquire the
securities or cash value of an index at a specified price during a specified
delivery period. In some cases, securities called for by a futures contract may
not have been issued at the time the contract was written.
Although some futures contracts by their terms call for the actual delivery or
acquisition of securities or other assets, in most cases a party will close out
the contractual commitment before delivery of the underlying assets by
purchasing (or selling, as the case may be) on a commodities exchange an
identical
B-5
<PAGE> 71
futures contract calling for delivery in the same month. Such a transaction, if
effected through a member of an exchange, cancels the obligation to make or take
delivery of the underlying securities or other assets. All transactions in the
futures market are made, offset or fulfilled through a clearing house associated
with the exchange on which the contracts are traded. A Fund will incur brokerage
fees when it purchases or sells contracts, and will be required to maintain
margin deposits. At the time a Fund enters into a futures contract, it is
required to deposit with its custodian, on behalf of the broker, a specified
amount of cash or eligible securities, called "initial margin." The initial
margin required for a futures contract is set by the exchange on which the
contract is traded. Subsequent payments, called "variation margin," to and from
the broker are made on a daily basis as the market price of the futures contract
fluctuates. The costs incurred in connection with futures transactions could
reduce a Fund's return. Futures contracts entail risks. If the investment
manager's judgment about the general direction of markets is wrong, the overall
performance may be poorer than if no such contracts had been entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators, the
margin requirements in the futures markets are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager may still not result in a successful hedging
transaction. If any of these events should occur, the Fund could lose money on
the financial futures contracts and also on the value of its portfolio assets.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. Each Fund may write call options on
financial futures contracts; each Fund other than the Contrarian Fund may write
put options on financial futures contracts; and the Small Cap Relative Value
Fund may purchase call and put options on financial futures contracts. 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 at a specified exercise price
at any time during the period of the option. Upon exercise, the writer of the
option delivers the futures contract to the holder at the exercise price. A Fund
would be required to deposit with its custodian initial margin and maintenance
margin with respect to put and call options on futures contracts written by it.
A Fund will establish segregated accounts or will provide cover
B-6
<PAGE> 72
with respect to written options on financial futures contracts in a manner
similar to that described under "Options on Securities." Options on futures
contracts involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by the
Small Cap Relative Value Fund may expire worthless, in which case the Fund would
lose the premium paid therefor.
LENDING PORTFOLIO SECURITIES. A Fund may lend its portfolio securities to
brokers, dealers and institutional investors who need to borrow securities in
order to complete certain transactions, such as covering short sales, avoiding
failures to deliver securities or completing arbitrage operations. By lending
its securities, a portfolio can increase its income by the receipt of interest
on the loan. Any gain or loss in the market value of the securities loaned that
might occur during the term of the loan would accrue to the Fund. Securities'
loans will be made on terms which require that (a) the borrower pledge and
maintain (on a daily basis) with the Fund collateral consisting of cash, a
letter of credit or United States Government securities having a value at all
times not less than 100% of the value of the securities loaned, (b) the loan can
be terminated by the Fund at any time, (c) the Fund receives reasonable interest
on the loan which may include the Fund's investing any cash collateral in
interest bearing short-term investments), and (d) any distributions on the
loaned securities must be paid to the Fund. The Fund will not lend its
securities if, as a result, the aggregate of such loans exceeds 33% of the value
of the Fund's total assets. Loan arrangements made by a Fund will comply with
all other applicable regulatory requirements, including the rules of the New
York Stock Exchange, which require the borrower, after notice, to redeliver the
securities within the normal settlement time of five business days. All relevant
facts and circumstances, including the credit worthiness of the broker, dealer
or institution, will be considered in making decisions with respect to the
lending of securities, subject to review by the Fund's Board of Directors or
Board of Trustees, as applicable. While voting rights may pass with the loaned
securities, if a material event occurs affecting an investment on loan, the loan
must be called and the securities voted. Each Fund does not intend to lend any
of its securities if as a result more than 5% of the net assets of the Fund
would be on loan.
WARRANTS. Each Fund may invest in warrants up to 5% of the value of its
respective net assets. The holder of a warrant has the right, until the warrant
expires, to purchase a given number of shares of a particular issuer at a
specified price. Such investments can provide a greater potential for profit or
loss than an equivalent investment in the underlying security. Prices of
warrants do not necessarily move, however, in tandem with the prices of the
underlying securities and are, therefore, considered speculative investments.
Warrants pay no dividends and confer no rights other than a purchase option.
Thus, if a warrant held by a Fund were not exercised by the date of its
expiration, the Fund would lose the entire purchase price of the warrant.
REGULATORY RESTRICTIONS. To the extent required to comply with applicable
regulation, when purchasing a futures contract or writing a put option, a Fund
will maintain eligible securities in a segregated account. A Fund will use cover
in connection with selling a futures contract.
B-7
<PAGE> 73
A Fund will not engage in transactions in financial futures contracts or options
thereon for speculation, but only in an attempt to hedge against changes in
interest rates or market conditions affecting the value of securities that the
Fund holds or intends to purchase.
PORTFOLIO TRANSACTIONS
SCUDDER KEMPER INVESTMENTS, INC.
Allocation of brokerage is supervised by Scudder Kemper Investments, Inc.
("Scudder Kemper").
The primary objective of Scudder Kemper in placing orders for the purchase and
sale of securities for a 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. Scudder Kemper seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through its familiarity
with commissions charged on comparable transactions, as well as by comparing
commissions paid by a Fund to reported commissions paid by others. Scudder
Kemper reviews on a routine basis commission rates, execution and settlement
services performed, making internal and external comparisons.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is Scudder Kemper's practice to place such orders with
broker/dealers who supply research, market and statistical information to a
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.
Scudder Kemper is authorized when placing portfolio transactions for a Fund to
pay a brokerage commission in excess of that which another broker might charge
for executing the same transaction 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, Scudder Kemper may give consideration to those firms that have sold
or are selling shares of a Fund managed by Scudder Kemper.
To the maximum extent feasible, it is expected that Scudder Kemper will place
orders for portfolio transactions through Scudder Investor Services, Inc.
("SIS"), a corporation registered as a broker-dealer and a subsidiary of Scudder
Kemper. SIS will place orders on behalf of the Funds with issuers, underwriters
or other brokers and dealers. SIS will not receive any commission, fee or other
remuneration from the Funds for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to Scudder Kemper, it is the opinion
B-8
<PAGE> 74
of Scudder Kemper that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by Scudder
Kemper's staff. Such information may be useful to Scudder Kemper in providing
services to clients other than the Funds and not all such information is used by
Scudder Kemper in connection with the Funds. Conversely, such information
provided to Scudder Kemper by broker/dealers through whom other clients of
Scudder Kemper effect securities transactions may be useful to Scudder Kemper in
providing services to a Fund.
The Board members for a Fund review from time to time whether the recapture for
the benefit of a Fund of some portion of the brokerage commissions or similar
fees paid by a Fund on portfolio transactions is legally permissible and
advisable.
Each 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 a 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 a Fund's portfolio whenever necessary, in
management's opinion, to meet a Fund's objective.
DREMAN VALUE MANAGEMENT, L.L.C.
Under the sub-advisory agreement between Scudder Kemper and Dreman Value
Management, L.L.C. ("DVM"), DVM places all orders for purchases and sales of the
High Return Equity Fund's securities. At times investment decisions may be made
to purchase or sell the same investment securities of the Fund and for one or
more of the other clients managed by DVM. When two or more of such clients are
simultaneously engaged in the purchase or sale of the same security through the
same trading facility, the transactions are allocated as to amount and price in
a manner considered equitable to each. Position limits imposed by national
securities exchanges may restrict the number of options the Fund will be able to
write on a particular security.
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities, options or future contracts available to the Fund. On the
other hand, the ability of the Fund to participate in volume transactions may
produce better executions for the Fund in some cases. The Board of Directors
believes that the benefits of DVM's organization outweigh any limitations that
may arise from simultaneous transactions or position limitations.
DVM, in effecting purchases and sale of portfolio securities for the account of
the Fund, will implement the Fund's policy of seeking best execution of orders.
DVM may be permitted to pay higher brokerage commissions for research services
as described below. Consistent with this policy, orders for portfolio
transactions are placed with broker-dealer firms giving consideration to the
quality, quantity and nature of each firm's professional services, which include
execution, financial responsibility, responsiveness, clearance procedures, wire
service quotations and statistical and other research information provided to
the Fund and DVM. Subject to seeking best execution of an order,
B-9
<PAGE> 75
brokerage is allocated on the basis of all services provided. Any research
benefits derived are available for all clients of DVM. In selecting among firms
believed to meet the criteria for handling a particular transaction, DVM may
give consideration to those firms that have sold or are selling shares of the
Fund and of other funds managed by Scudder Kemper and its affiliates, as well as
to those firms that provide market, statistical and other research information
to the Fund and DVM, although DVM is not authorized to pay higher commissions to
firms that provide such services, except as described below.
DVM may in certain instances be permitted to pay higher brokerage commissions
solely for receipt of market, statistical and other research services as defined
in Section 28(e) of the Securities Exchange Act of 1934 and interpretations
thereunder. Such services may include among other things: economic, industry or
company research reports or investment recommendations; computerized databases;
quotation and execution equipment and software; and research or analytical
computer software and services. Where products or services have a "mixed use," a
good faith effort is made to make a reasonable allocation of the cost of
products or services in accordance with the anticipated research and
non-research uses and the cost attributable to non-research use is paid by DVM
in cash. Subject to Section 28(e) and procedures adopted by the Board of
Directors, the Fund could pay a firm that provides research services commissions
for effecting a securities transaction for the Fund in excess of the amount
other firms would have charged for the transaction if DVM determines in good
faith that the greater commission is reasonable in relation to the value of the
brokerage and research services provided by the executing firm viewed in terms
either of a particular transaction or DVM's overall responsibilities to the Fund
and other clients. Not all of such research services may be useful or of value
in advising the Fund. Research benefits will be available for all clients of
DVM. The sub-advisory fee paid by Scudder Kemper to DVM is not reduced because
these research services are received.
BROKERAGE COMMISSIONS
The table below shows total brokerage commissions paid by the Contrarian, High
Return Equity and Small Cap Value Funds for the last three fiscal periods and
for the most recent fiscal period, the percentage thereof that was allocated to
firms based upon research information provided.
<TABLE>
<CAPTION>
ALLOCATED TO FIRMS
BASED ON
RESEARCH IN
FUND FISCAL 1997* FISCAL 1997 FISCAL 1996 FISCAL 1995
---- ------------ ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Contrarian Fund...... $ 243,000 59% $157,000 $15,000
High Return Equity
Fund............... $1,432,000 25% $489,000 $40,000
Small Cap Value
Fund............... $1,339,000 74% $365,000 $58,000
</TABLE>
* January 1, 1997 -- November 30, 1997.
The increase in the dollar amount of brokerage commissions paid by the Funds
during the 1997 and 1996 fiscal years was primarily due to the increase in the
amount of assets under management of each Fund.
B-10
<PAGE> 76
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper, 345 Park Avenue, New York, New York, is the
investment manager of each Fund. Scudder Kemper is approximately 70% owned by
Zurich Insurance Company, a leading internationally recognized provider of
insurance and financial services in property/casualty and life insurance,
reinsurance and structured financial solutions as well as asset management. The
balance of Scudder Kemper is owned by Scudder Kemper's officers and employees.
Pursuant to an investment management agreement, Scudder Kemper acts as the
investment adviser of each Fund, manages its investments, administers its
business affairs, furnishes office facilities and equipment, provides clerical
and administrative services, and permits any of its officers or employees to
serve without compensation as Board members or officers of the Funds if elected
to such positions. The investment management agreement provides that each Fund
pays the charges and expenses of its operations, including the fees and expenses
of the directors (except those who are affiliates of Scudder Kemper or its
affiliates), 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 related thereto, taxes and membership dues.
Each 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 each Fund's shares for sale
under the securities laws of the various states.
The investment management agreement provides that Scudder Kemper shall not be
liable for any error of judgment or of law, or for any loss suffered by a Fund
in connection with the matters to which the agreements relate, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Scudder Kemper in the performance of its obligations and duties, or by reason of
its reckless disregard of its obligations and duties under the agreement.
Each Fund's investment management agreement continues in effect from year to
year so long as its continuation is approved at least annually by (a) a majority
of the Board members who are not parties to such agreement or interested persons
of any such party except in their capacity as Board members of the Fund, and (b)
by the shareholders or the Board of the Fund. The investment management
agreement may be terminated at any time upon 60 days notice by either party, or
by a majority vote of the outstanding shares of each Fund for that Fund, and
will terminate automatically upon assignment.
Pursuant to the terms of an agreement, Scudder, Stevens & Clark, Inc.
("Scudder"), and Zurich Insurance Company ("Zurich"), formed a new global
investment organization by combining Scudder with Zurich Kemper Investments,
Inc. ("ZKI"), a former subsidiary of Zurich and the parent of the former
investment manager to the Contrarian, High Return Equity and Small Cap Value
Funds and Scudder changed its name to Scudder Kemper Investments, Inc. As a
result of the transaction, Zurich owns approximately 70% of
B-11
<PAGE> 77
Scudder Kemper, with the balance owned by Scudder Kemper's officers and
employees.
Because the transaction between Scudder and Zurich resulted in the assignment of
the Contrarian, High Return Equity and Small Cap Value Funds' investment
management agreements with Zurich Kemper Value Advisors, Inc. ("ZKVA"), a
subsidiary of ZKI, the agreements were deemed to be automatically terminated
upon consummation of the transaction. In anticipation of the transaction,
however, new investment management agreements between those Funds and Scudder
Kemper were approved by the Funds' Board of Directors and shareholders. The new
investment management agreements were effective as of December 31, 1997 and will
be in effect for an initial term ending on the same date as would the previous
investment management agreement with ZKVA.
The Contrarian, High Return Equity and Small Cap Value Funds' investment
management agreements are on substantially similar terms as the investment
management agreements terminated by the transaction, except that Scudder Kemper
is the new investment adviser to the Funds.
The current investment management fee rates paid by the Funds are in the
prospectus under "Investment Manager and Underwriter." From August 24, 1995
through November 30, 1997, the Contrarian, High Return Equity and Small Cap
Value Funds paid the former adviser an investment management fee calculated at
the same annual rate as that currently paid by the Funds. Prior to August 24,
1995, the Contrarian, High Return Equity and Small Cap Value Funds paid a second
former adviser an investment management fee calculated at the annual rate of
1.00% of average daily net assets of the Fund up to $1 billion in net assets and
.75% thereafter. The table below shows the total investment management fees paid
by the Contrarian, High Return Equity and Small Cap Value Funds for the last
three fiscal periods.
<TABLE>
<CAPTION>
FUND FISCAL 1997* FISCAL 1996 FISCAL 1995
---- ------------ ----------- -----------
<S> <C> <C> <C>
Contrarian Fund................ $ 903,000 $ 400,000 $119,000
High Return Equity Fund........ $12,084,000 $2,430,000 $369,000
Small Cap Value Fund........... $ 5,160,000 $ 943,000 $ 90,000
</TABLE>
- ---------------
*January 1, 1997 -- November 30, 1997.
Scudder Kemper has agreed to temporarily waive a portion of its management fee
for the Small Cap Relative Value Fund to the extent described in the prospectus.
See "Investment Manager and Underwriter" in the prospectus.
HIGH RETURN EQUITY FUND SUB-ADVISER. Dreman Value Management, L.L.C. ("DVM"),
Three Harding Road, Red Bank, New Jersey 07701, is the sub-adviser for the High
Return Equity Fund. DVM is controlled by David N. Dreman. DVM serves as
sub-adviser pursuant to the terms of a Sub-Advisory Agreement between it and
Scudder Kemper.
Under the terms of the Sub-Advisory Agreement, DVM manages the investment and
reinvestment of the High Return Equity Fund's portfolio and will provide such
investment advice, research and assistance as Scudder Kemper may, from time to
time, reasonably request. The current sub-advisory fee rates
B-12
<PAGE> 78
paid by Scudder Kemper to DVM are in the prospectus under "Investment Manager
and Underwriter."
The Sub-Advisory Agreement provides that DVM will 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 Sub-Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
DVM in the performance of its duties or from reckless disregard by DVM of its
obligations and duties under the Sub-Advisory Agreement.
The Sub-Advisory Agreement remains in effect until December 31, 2002 unless
sooner terminated or not annually approved as described below. Notwithstanding
the foregoing, the Sub-Advisory Agreement shall continue in effect through
December 31, 2002 and year to year thereafter, but only as long as such
continuance is specifically approved at least annually (a) by a majority of the
directors who are not parties to such agreement or interested persons of any
such party except in their capacity as directors of the Fund, and (b) by the
shareholders or the Board of Directors of the Fund. The Sub-Advisory Agreement
may be terminated at any time upon 60 days' notice by Scudder Kemper or by the
Board of Directors of the Fund or by majority vote of the outstanding shares of
the Fund, and will terminate automatically upon assignment or upon termination
of the Fund's investment management agreement. DVM may not terminate the
Sub-Advisory Agreement prior to July 30, 2000. Thereafter, DVM may terminate the
Sub-Advisory Agreement upon 90 days' notice to Scudder Kemper.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corp. ("SFAC"), a subsidiary of
Scudder Kemper, is responsible for determining the daily net asset value per
share of the Funds and maintaining all accounting records related thereto.
Currently, SFAC receives no fee for its services to the Contrarian, High Return
Equity and Small Cap Value Funds; however, subject to Board approval, at some
time in the future, SFAC may seek payment for its services to those Funds under
its agreement with such Funds. The Small Cap Relative Value Fund pays SFAC an
annual fee equal to .025% of the first $150 million of average daily net assets,
.0075% of the next $850 million of such assets and .0045% of such assets in
excess of $1 billion, plus holding and transaction charges for this service.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with each Fund, Kemper Distributors, Inc.
("KDI"), an affiliate of Scudder Kemper, and a wholly owned subsidiary of
Scudder Kemper, is the principal underwriter and distributor for the shares of
each Fund and acts as agent of each Fund in the continuous offering of its
shares. KDI bears all its expenses of providing services pursuant to the
distribution agreement, including the payment of any commissions. Each Fund pays
the cost for the prospectus and shareholder reports to be set in type and
printed for existing shareholders, and KDI, as principal underwriter, 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.
B-13
<PAGE> 79
Each 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 the Fund, including the Board members who are not interested persons of
the Fund and who have no direct or indirect financial interest in the agreement.
Each agreement automatically terminates in the event of its assignment and may
be terminated for a class at any time without penalty by a Fund for that Fund or
by KDI upon 60 days' notice. Termination by a Fund with respect to a class may
be by vote of a majority of the Board or a majority of the Board members who are
not interested persons of the Fund and who have no direct or indirect financial
interest in the agreement, or a "majority of the outstanding voting securities"
of the class of the Fund, as defined under the Investment Company Act of 1940.
The agreement may not be amended for a class to increase the fee to be paid by a
Fund with respect to such class without approval by a majority of the
outstanding voting securities of such class of a Fund and all material
amendments must in any event be approved by the Board in the manner described
above with respect to the continuation of the agreement.
Prior to September 11, 1995, Fund/Plan Broker Services, Inc. ("FBS"), served as
the underwriter of Contrarian, High Return Equity and Small Cap Value Funds'
shares, pursuant to an underwriting agreement which became effective January 4,
1993. Under the agreement, FBS was the exclusive agent for the Funds' continuous
offer of shares. Prior to September 11, 1995, shares of Contrarian, High Return
Equity and Small Cap Value Funds were offered to the public at net asset value,
without a sales load. No underwriting commissions were associated with sales of
Fund shares for the period January 1, 1995 to September 10, 1995.
CLASS A SHARES. The following information concerns the underwriting commissions
paid in connection with the distribution of each Fund's Class A shares for the
periods noted (except for the Small Cap Relative Value Fund which commenced
operations on or about May 6, 1998).
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS
COMMISSIONS RETAINED UNDERWRITER PAID TO
FUND FISCAL YEAR BY UNDERWRITER PAID TO ALL FIRMS AFFILIATED FIRMS
---- ----------- -------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Contrarian Fund........ 1997* $ 90,000 $ 576,000 $ --
1996 $ 65,000 $ 462,000 $ 41,000
1995** $ -- $ 117,000 $ 6,000
High Return Equity
Fund................. 1997* $3,113,000 $13,161,000 $221,000
1996 $ 601,000 $ 4,531,000 $356,000
1995** $ -- $ 427,000 $ 52,000
Small Cap Value Fund... 1997* $ 584,000 $ 4,828,000 $ 68,000
1996 $ 231,000 $ 1,734,000 $114,000
1995** $ -- $ 178,000 $ 13,000
</TABLE>
- ---------------
*Amounts paid from January 1, 1997 through November 30, 1997.
**Amounts paid from September 11, 1995 through December 31, 1995.
B-14
<PAGE> 80
CLASS B SHARES AND CLASS C SHARES. Since the distribution agreement provides
for fees charged to Class B and Class C shares that are used by KDI to pay for
distribution services (see the prospectus under "Investment Manager and
Underwriter"), the agreement (the "Plan") is approved and renewed separately for
the Class B and Class C shares in accordance with Rule 12b-1 under the
Investment Company Act of 1940, which regulates the manner in which an
investment company may, directly or indirectly, bear expenses of distributing
its shares. Expenses of the Contrarian, High Return Equity and Small Cap Value
Funds and of KDI in connection with the Rule 12b-1 Plans for the Class B and
Class C shares are set forth below. A portion of the marketing, sales and
operating expenses shown below could be considered overhead expense.
<TABLE>
<CAPTION>
TOTAL DISTRIBUTION
DISTRIBUTION FEES PAID
DISTRIBUTION CONTINGENT FEES BY
FEES PAID DEFERRED PAID BY UNDERWRITER
FISCAL BY FUND TO SALES CHARGES UNDERWRITER TO AFFILIATED
FUND CLASS B SHARES YEAR UNDERWRITER TO UNDERWRITER TO FIRMS FIRMS
------------------- ------ ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Contrarian Fund........... 1997* $ 353,000 62,000 989,000 --
1996 $ 95,000*** 15,000 584,000 15,000
1995** $ 7,000 -- 172,000 12,000
High Return Equity Fund... 1997* $5,477,000 817,000 29,872,000 --
1996 $ 750,000*** 127,000 7,215,000 126,000
1995** $ 15,000 1,000 455,000 57,000
Small Cap Value Fund...... 1997* $1,716,000 221,000 9,907,000 --
1996 $ 191,000*** 52,000 2,299,000 47,000
1995** $ 8,000 1,000 208,000 13,000
<CAPTION>
OTHER DISTRIBUTION EXPENSES PAID BY UNDERWRITER
------------------------------------------------------------
ADVERTISING MARKETING MIS.
AND PROSPECTUS AND SALES OPERATING INTEREST
FUND CLASS B SHARES LITERATURE PRINTING EXPENSES EXPENSES EXPENSE
------------------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Contrarian Fund........... 96,000 7,000 287,000 7,000 166,000
148,000 9,000 293,000 57,000 74,000
14,000 3,000 34,000 5,000 3,000
High Return Equity Fund... 2,812,000 210,000 7,887,000 330,000 2,538,000
1,186,000 75,000 2,455,000 468,000 422,000
35,000 9,000 75,000 13,000 7,000
Small Cap Value Fund...... 867,000 65,000 2,409,000 78,000 810,000
391,000 25,000 813,000 134,000 156,000
17,000 4,000 39,000 6,000 4,000
</TABLE>
B-15
<PAGE> 81
<TABLE>
<CAPTION>
TOTAL DISTRIBUTION
DISTRIBUTION FEES PAID
DISTRIBUTION CONTINGENT FEES BY
FEES PAID DEFERRED PAID BY UNDERWRITER
FISCAL BY FUND TO SALES CHARGES UNDERWRITER TO AFFILIATED
FUND CLASS C SHARES YEAR UNDERWRITER TO UNDERWRITER TO FIRMS FIRMS
------------------- ------ ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Contrarian Fund................ 1997* $ 29,000 2,000 38,000 --
1996 $ 2,000*** 2,000 15,000 --
1995** $ -- -- -- --
High Return Equity Fund........ 1997 $901,000 31,000 1,417,000 --
1996 $ 96,000*** 3,000 281,000 --
1995** $ 1,000 -- 1,000 --
Small Cap Value Fund........... 1997* $392,000 22,000 677,000 --
1996 $ 48,000 1,000 130,000 --
1995** $ 1,000 -- 1,000 --
<CAPTION>
OTHER DISTRIBUTION EXPENSES PAID BY UNDERWRITER
-----------------------------------------------------------
ADVERTISING MARKETING MIS.
AND PROSPECTUS AND SALES OPERATING INTEREST
FUND CLASS C SHARES LITERATURE PRINTING EXPENSES EXPENSES EXPENSE
------------------- ----------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Contrarian Fund................ 12,000 1,000 35,000 9,000 9,000
20,000 1,000 41,000 6,000 3,000
-- 1,000 -- -- --
High Return Equity Fund........ 565,000 42,000 1,309,000 32,000 150,000
202,000 13,000 237,000 55,000 22,000
5,000 1,000 11,000 2,000 --
Small Cap Value Fund........... 248,000 19,000 537,000 10,000 69,000
103,000 7,000 136,000 35,000 12,000
4,000 1,000 10,000 2,000 --
</TABLE>
- ---------------
(1) No contingent deferred sales charges have been imposed on Class C shares
purchased prior to April 1, 1996.
* Amounts paid from January 1, 1997 through November 30, 1997.
** Amounts paid from September 11, 1995 through December 31, 1995.
*** Amounts shown are after expense waiver.
B-16
<PAGE> 82
ADMINISTRATIVE SERVICES. Administrative services are provided to each 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 each Fund, including the payment of service fees. Each
Fund pays KDI an administrative services fee, payable monthly, at an annual rate
of up to .25% of average daily net assets of the Class A, B and C shares of the
Fund.
KDI has entered 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 Funds. The
firms provide such office space and 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 Funds,
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,
normally payable quarterly, at an annual rate of up to .25% of the net assets in
the Funds' 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 .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
.25% (calculated monthly and normally paid quarterly) of the net assets
attributable to Class B and 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.
B-17
<PAGE> 83
The following information concerns the administrative services fee paid by each
Fund (except the Small Cap Relative Value Fund which commenced operations on or
about May 6, 1998).
<TABLE>
<CAPTION>
ADMINISTRATIVE SERVICE FEES
PAID BY FUND SERVICE FEES SERVICE FEES
----------------------------------- PAID BY ADMINISTRATOR PAID BY ADMINISTRATOR
FUND FISCAL YEAR CLASS A CLASS B CLASS C TO FIRMS TO AFFILIATED FIRMS
---- ----------- ---------- ---------- -------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Contrarian Fund............... 1997* $ 146,000 111,000 10,000 284,000 --
1996 $ 32,000*** 42,000 3,000 114,000 2,000
1995** $ 5,000 3,000 -- 16,000 1,000
High Return Equity Fund....... 1997* $1,732,000 1,818,000 299,000 4,879,000 15,000
1996 $ 304,000 293,000 38,000 941,000 19,000
1995** $ 19,000 6,000 -- 41,000 4,000
Small Cap Value............... 1997* $ 936,000 577,000 130,000 2,042,000 5,000
1996 $ 42,000*** 109,000 19,000 351,000 6,000
1995** $ 7,000 3,000 -- 20,000 1,000
</TABLE>
- ---------------
* Amounts paid from January 1, 1997 through November 30, 1997.
** Amounts paid from September 11, 1995 through December 31, 1995.
*** Amounts shown are after expense waiver.
B-18
<PAGE> 84
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 Funds. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services and it is intended
that KDI will pay all the administrative services fee that it receives from a
Fund to firms in the form of service fees. The effective administrative services
fee rate to be charged against all assets of a Fund while this procedure is in
effect will depend upon the proportion of a Fund's assets that is in accounts
for which a firm of record provides administrative services.
Certain Board members or officers of the Funds are also directors or officers of
Scudder Kemper or KDI as indicated under "Officers and Board Members."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company ("State Street"), 225
Franklin Street, Boston, Massachusetts 02110 as sub-custodian, have custody of
all securities and cash of the Contrarian, High Return Equity and Small Cap
Value Funds maintained in the United States. State Street, as custodian, has
custody of all securities and cash of the Small Cap Relative Value Fund
maintained in the United States. IFTC and State Street attend to the collection
of principal and income, and payment for and collection of proceeds of
securities bought and sold by the Funds. IFTC is also the transfer agent and
dividend-paying agent for the Contrarian, High Return Equity and Small Cap Value
Funds. Pursuant to a services agreement with IFTC, Kemper Service Company
("KSVC"), an affiliate of Scudder Kemper, serves as "Shareholder Service Agent"
of the Contrarian, High Return Equity and Small Cap Value Funds, and as such,
performs all of IFTC's duties as transfer agent and dividend paying agent. KSVC
also serves as the transfer agent and dividend-paying agent, as well as the
Shareholder Service Agent, of the Small Cap Relative Value Fund. IFTC receives
as transfer agent for the Contrarian, High Return Equity and Small Cap Value
Funds, and pays to KSVC, 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. IFTC's fee is reduced by certain earnings credits in favor of the
Contrarian, High Return Equity and Small Cap Value Funds and State Street's
custodial fee is reduced by certain earnings credits in favor of the Small Cap
Relative Value Fund. KSVC receives as transfer agent for the Small Cap Relative
Value Fund, 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. The following shows for each Fund, the shareholder service fees
IFTC remitted to KSVC for the fiscal period from January 1, 1997
B-19
<PAGE> 85
through November 30, 1997 (except for the Small Cap Relative Value Fund which
commenced operations on or about May 6, 1998).
<TABLE>
<CAPTION>
FEES IFTC
PAID TO KSVC
FUND --------------
<S> <C>
Contrarian Fund........................................ $ 386,000
High Return Equity Fund................................ $4,150,000
Small Cap Value Fund................................... $2,132,000
</TABLE>
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Funds' independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Funds' annual financial statements, review certain
regulatory reports and the Funds' federal income tax returns, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Funds. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
LEGAL COUNSEL. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601, serves as legal counsel to the Contrarian, High Return
Equity and Small Cap Value Funds. Dechert Price & Rhoads, Ten Post Office Square
South, Boston, Massachusetts serves as counsel to the Small Cap Relative Value
Fund.
PURCHASE AND REDEMPTION OF SHARES
As described in the Funds' prospectus, shares of a Fund are sold at their public
offering price, which is the net asset value per share of the Fund 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 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. 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 a Fund will be redeemed by the Fund at the applicable net asset value
per share of such Fund as described in the Funds' prospectus.
Each Fund has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than KDI, to accept purchase and
redemption orders for the Fund's shares. Those brokers may also designate other
parties to accept purchase and redemption orders on a Fund's behalf. Orders for
purchase or redemption will be deemed to have been received by a Fund when such
brokers or their authorized designees accept the orders. Subject to the terms of
the contract between a Fund and the broker, ordinarily orders will be priced at
a Fund's net asset value next computed after acceptance by such brokers or their
authorized designees. Further, if purchases or
B-20
<PAGE> 86
redemptions of a Fund's shares are arranged and settlement is made at an
investor's election through any other authorized NASD member, that member may,
at its discretion, charge a fee for that service. The Board of Trustees or
Directors as the case may be ("Board") of a Fund and KDI each has the right to
limit the amount of purchases by, and to refuse to sell to, any person. The
Board and KDI may suspend or terminate the offering of shares of a Fund at any
time for any reason.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B shares 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 in sales and sales related efforts.
A Fund may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange (the "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 a Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of a its net assets, or (c) for such other periods
as the SEC may by order permit for the protection of a Fund's shareholders.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel or ruling by the Internal
Revenue Service or other assurance acceptable to each Fund to the effect that
(a) the assessment of the distribution services fee with respect to Class B
shares and not Class A shares and the assessment of the administrative services
fee with respect to each Class 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 each 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, Jr. Day, Presidents'
B-21
<PAGE> 87
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
CONTRARIAN AND SMALL CAP VALUE FUNDS
Fund securities that are primarily traded on a domestic securities exchange or
securities listed on the NASDAQ National Market are valued at the last sale
price on the exchange or market where primarily traded or listed or, if there is
no recent sale price available, at the last current bid quotation. A security
that is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for such security by the Board
or its delegates. Securities not so traded or listed are valued at the last
current bid quotation if market quotations are available. Fixed income
securities are valued by using market quotations, or independent pricing
services that use prices provided by market makers or estimates of market values
obtained from yield data relating to instruments or securities with similar
characteristics. Equity options are valued at the last sale price unless the bid
price is higher or the asked price is lower, in which event such bid or asked
price is used. Exchange traded fixed income options, financial futures and
options thereon are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. Over-the-counter traded
options are valued based upon current prices provided by market makers. Other
securities and assets are valued at fair value as determined in good faith by
the Board. If an event were to occur, after the value of a security was so
established but before the net asset value per share was determined, which was
likely to materially change the net asset value, then that security would be
valued using fair value determinations by the Board or its delegates.
HIGH RETURN EQUITY FUND AND SMALL CAP RELATIVE VALUE FUND
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
B-22
<PAGE> 88
to the above methods, the investment manager 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 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 Valuation Committee of the Board, 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 AND TAXES
DIVIDENDS. The Contrarian and High Return Equity Funds normally distribute
quarterly dividends of net investment income and the Small Cap Value Fund and
the Small Cap Relative Value Fund normally distribute annual dividends of net
investment income. Each Fund distributes any net realized short-term and
long-term capital gains at least annually.
Each Fund may at any time vary the foregoing dividend practices and, therefore,
reserves the right from time to time to either distribute or retain for
reinvestment such of its net investment income and its net short-term and
long-term capital gains as the Board of Directors, or Board of Trustees, as
applicable, of the Fund determines appropriate under the then current
circumstances. In particular, and without limiting the foregoing, a Fund may
make additional distributions of net investment income or capital gain net
income in order to satisfy the minimum distribution requirements contained in
the Internal Revenue Code (the "Code"). Dividends will be reinvested in shares
of the Fund paying such dividends unless shareholders indicate in writing that
they wish to receive them in cash or in shares of Kemper Funds as described in
the prospectus.
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
B-23
<PAGE> 89
shares. Distributions of capital gains, if any, will be paid in the same amount
for each class.
TAXES. The Small Cap Relative Value Fund intends to qualify and the Contrarian,
High Return Equity and Small Cap Value Funds intend to continue 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.
A Fund's options and futures transactions are subject to special tax provisions
that may accelerate or defer recognition of certain gains or losses, change the
character of certain gains or losses, or alter the holding periods of certain of
a Fund's securities.
The mark-to-market rules of the Code may require a Fund to recognize unrealized
gains and losses on certain options, futures and forward contracts held by the
Fund at the end of the fiscal year. Under these provisions, 60% of any capital
gain net income or loss recognized will generally be treated as long-term and
40% as short-term. In addition, the straddle rules of the Code would require
deferral of certain losses realized on positions of a straddle to the extent
that such Fund had unrealized gains in offsetting positions at year end.
Certain foreign currency-related gains and losses earned by a Fund may be
treated as ordinary income or loss.
The current position of the Internal Revenue Service is to treat a fund, such as
the Small Cap Relative Value Fund, as owning its proportionate share of the
income and assets of any partnership in which it is a partner, in applying the
various regulated investment company qualification tests. These requirements may
limit the extent to which the Small Cap Relative Value Fund may invest in
partnerships, especially in the case of partnerships that do not invest
primarily in a diversified portfolio of stocks and securities.
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of a Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 of the prior calendar year, minus any overdistribution
in the prior calendar year. Each Fund intends to declare or distribute dividends
during the appropriate periods of an amount sufficient to prevent imposition of
the 4% excise tax.
A shareholder who redeems shares of a Fund 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 shares held six months or less will be treated
as long-term capital loss to the extent that the shareholder has received any
long-term capital gain dividends on such shares. An exchange of a 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. A
shareholder who has redeemed shares of a Fund or other Kemper Mutual
B-24
<PAGE> 90
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 a Fund or in shares
of a Kemper Mutual Fund 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 realized a loss
on the redemption or exchange of a Fund's shares and reinvests in shares of the
same Fund 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. If a shareholder of
Class A shares redeems or otherwise disposes of such Class A shares less than
ninety-one days after they are acquired and subsequently acquires shares of the
Fund or of a Kemper Mutual Fund without payment of any sales charge (or for a
reduced sales charge) pursuant to a reinvestment privilege acquired in
connection with the Class A shares disposed of, then the sales charge on the
Class A shares disposed of (to the extent of the reduction in the sales charge
on the shares subsequently acquired) shall not be taken into account in
determining gain or loss on the Class A shares disposed of, but shall be treated
as incurred on the acquisition of the shares subsequently acquired.
Investment income derived from certain American Depository Receipts may be
subject to foreign income taxes withheld at the source. Because the amount of a
Fund's investments in various countries will change from time to time, it is not
possible to determine the effective rate of such taxes in advance.
Shareholders who are non-resident aliens are subject to U.S. withholding tax on
ordinary income dividends (whether received in cash or shares) at a rate of 30%
or such lower rate as prescribed by any applicable tax treaty.
PERFORMANCE
As described in the prospectus, each 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 various measures of performance are described
below. Performance information will be computed separately for each class.
Each Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for a Fund for a specific period is
found by first taking a hypothetical $1,000 investment ("initial investment") in
the Fund's 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. The redeemable
value in the case of Class B and Class C shares may or may not include the
effect of the applicable contingent deferred sales charge that may be
B-25
<PAGE> 91
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. The calculation assumes that all income and
capital gains dividends paid by a Fund have been reinvested at net asset value
on the reinvestment dates during the period. Average annual total return may
also be calculated without adjusting to deduct the maximum sales charge.
Calculation of a Fund's total return is not subject to a standardized formula,
except when calculated for purposes of the "Financial 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 a 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 and 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 shares and Class C
shares would be reduced if such charge were included.
A Fund's performance figures are based upon historical results and are not
representative of future performance. A 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
shares and Class C shares are sold at net asset value. Redemptions 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 each
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 the returns described in this section.
Shares of each Fund are redeemable at the then current net asset value, which
may be more or less than original cost.
B-26
<PAGE> 92
The figures below show performance information for various periods for each Fund
(except the Small Cap Relative Value Fund which commenced operations on or about
May 6, 1998). Comparative information for certain indices is also included.
Please note the differences and similarities between the investments which a
Fund may purchase and the investments measured by the applicable indices. The
net asset values and returns of each class of shares of the Funds will also
fluctuate. No adjustment has been made for taxes payable on dividends. The
periods indicated were ones of fluctuating securities prices and interest rates.
CONTRARIAN FUND--NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Initial Capital Gain Income Ending Percentage Ending Percentage
TOTAL $10,000 Income Dividends Value Increase Value Increase
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted)
TABLE (1) Reinvested (2) (1) (1) (1) (1)
------ ---------- ------------ ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $19,916 $10,861 $5,245 $36,022 260.2% $38,220 282.2%
Five Years 14,954 5,176 1,803 21,933 119.3 23,266 132.7
One Year 10,699 792 262 11,753 17.5 12,473 24.7
CLASS B SHARES
Life of Fund(++) $13,813 $ 1,817 $ 450 $15,780 57.8% $16,080 60.8%
One Year 11,340 840 173 12,053 20.5 12,353 23.5
CLASS C SHARES
Life of Fund(++) $13,800 $ 1,817 $ 429 $ * *% $16,046 60.5%
One Year 11,341 841 153 * * 12,335 23.4
<CAPTION>
Lipper
Growth
Dow Jones Standard Consumer Russell and U.S.
TOTAL Industrial & Poor's Price 1,000(R) Income Treasury
RETURN Average 500 Index Value Fund Bill
TABLE (3) (4) (5) (6) (7) (8)
------ ---------- -------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 429.0% 389.5% 38.6% 379.63% 308.6% 67.3%
Five Years 168.0 150.3 13.7 163.38 129.1 25.8
One Year 22.2 28.5 1.8 35.18 23.7 5.2
CLASS B SHARES
Life of Fund(++) 78.0% 78.1% 5.6% 81.69% 62.3% 10.7%
One Year 22.2 28.5 1.8 35.18 23.7 5.2
CLASS C SHARES
Life of Fund(++) 78.0% 78.1% 5.6% 81.69% 62.3% 10.7%
One Year 22.2 28.5 1.8 35.18 23.7 5.2
</TABLE>
<TABLE>
<CAPTION>
Lipper
Growth
Dow Jones Standard Consumer Russell and U.S.
AVERAGE ANNUAL Fund Fund Fund Industrial & Poor's Price 1000(R) Income Treasury
TOTAL RETURN Class A Class B Class C Average 500 Index Value Fund Bill
TABLE Shares Shares Shares (3) (4) (5) (6) (7) (8)
-------------- ------- ------- ------- ---------- -------- -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 14.1% * * 18.7% 17.8% 3.4% 17.45% 15.5 5.4
Life of Fund(++) * 22.8 23.7 29.7 29.7 2.5 29.16 24.4 4.7
Five Years 17.0 * * 21.8 20.1 2.6 21.37 18.0 4.7
One Year 17.5 20.5 23.4 22.2 28.5 1.8 35.18 23.7 5.2
</TABLE>
- ---------------
(+) Since March 18, 1988, except for the Russell 1,000(R) Value which is since
March 31, 1988.
(++) Since September 11, 1995 for Class B and Class C shares, except for the
Russell 1,000(R) Value which is since August 31, 1995.
N/A - Not Available.
B-27
<PAGE> 93
HIGH RETURN EQUITY FUND--NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Initial Income Ending Percentage Ending Percentage
TOTAL $10,000 Capital Gain Dividends Value Increase Value Increase
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted)
TABLE (1) Reinvested (2) (1) (1) (1) (1)
------ ---------- ------------ ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 31,593 11,193 10,649 53,435 434.4 56,694 466.9
Five Years 21,966 1,167 2,239 25,372 153.7 26,925 169.3
One Year 11,335 132 406 11,873 18.7 12,598 26.0
CLASS B SHARES
Life of Fund(++) 17,157 537 617 18,011 80.1 18,311 83.1
One Year 12,016 140 324 12,180 21.8 12,480 24.8
CLASS C SHARES
Life of Fund(++) 17,163 537 626 * * 18,326 83.3
One Year 12,015 140 324 * * 12,479 24.8
<CAPTION>
Lipper
Dow Jones Standard Consumer S&P/ Equity
TOTAL Industrial & Poor's Price Barra's Income
RETURN Average 500 Index Value Fund
TABLE (3) (4) (5) (9) (12)
------ ---------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 429.0 389.5 38.6 354.16 281.8
Five Years 168.0 150.3 13.7 156.03 121.2
One Year 22.2 28.5 1.8 29.99 23.8
CLASS B SHARES
Life of Fund(++) 78.0 78.1 5.6 74.70 59.4
One Year 22.2 28.5 1.8 29.99 23.8
CLASS C SHARES
Life of Fund(++) 78.0 78.1 5.6 74.70 59.4
One Year 22.2 28.5 1.8 29.99 23.8
</TABLE>
<TABLE>
<CAPTION>
AVERAGE Standard Consumer S&P/ Lipper
ANNUAL Fund Fund Fund Dow Jones & Poor's Price Barra's Equity
TOTAL RETURN Class A Class B Class C Industrial 500 Index Value Income
TABLE Shares Shares Shares Average(3) (4) (5) (9) Fund(12)
------------ ------- ------- ------- ---------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 18.8 * * 18.7 17.8 3.4 16.79 14.8
Life of Fund(++) * 30.4 31.4 29.7 29.7 2.5 27.01 23.4
Five Years 20.5 * * 21.8 20.1 2.6 20.69 17.2
One Year 18.7 21.8 24.8 22.2 28.5 1.8 29.99 23.8
</TABLE>
- ---------------
(+) Since March 18, 1988, except for the S&P/Barra's Value which is since March
31, 1988.
(++) Since September 11, 1995 for Class B and Class C shares, except for the
S&P/Barra's Value which is since August 31, 1995.
N/A - Not Available.
B-28
<PAGE> 94
SMALL CAP VALUE FUND--NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Initial Income Ending Percentage Ending Percentage
TOTAL $10,000 Capital Gain Dividends Value Increase Value Increase
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted)
TABLE (1) Reinvested (2) (1) (1) (1) (1)
------ ---------- ------------ ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 20,574 3,295 1,859 25,728 157.3 27,298 173.0
Five Year 17,719 2,837 1,601 22,157 23,512 135.1
One Year 11,053 25 245 11,323 13.2 12,017 20.2
CLASS B SHARES
Life of Fund(++) 13,625 250 951 14,526 45.3 14,826 48.3
One Year 11,638 26 237 11,601 16.0 11,901 19.0
CLASS C SHARES
Life of Fund(++) 13,657 251 953 * * 14,861 48.6
One Year 11,640 26 237 11,903 19.0
<CAPTION>
Dow Jones Standard Consumer Russell Lipper Small
TOTAL Industrial & Poor's Price 2000(R) Cap
RETURN Average 500 Index Value Fund
TABLE (3) (4) (5) (10) (11)
------ ---------- -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 165.5 164.6 15.6 178.97 127.6
Five Year 168.0 150.3 13.7 145.74 105.1
One Year 22.2 28.5 1.8 31.69 13.5
CLASS B SHARES
Life of Fund(++) 78.0 78.1 5.6 66.94 34.90
One Year 22.2 28.5 1.8 31.69 13.5
CLASS C SHARES
Life of Fund(++) 78.0 78.1 5.6 66.94 34.90
One Year 22.2 28.5 1.8 31.69 13.5
</TABLE>
<TABLE>
<CAPTION>
AVERAGE Lipper
ANNUAL Fund Fund Fund Dow Jones Standard Consumer Russell Small
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price 2000(R) Cap
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Value(10) Fund(11)
------------ ------- ------- ------- ---------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 18.6 * * 19.3 19.2 2.7 20.17 16.0
Life of Fund(++) * 18.3 19.5 29.7 29.7 2.5 24.56 14.4
Five Years 17.3 * * 21.8 20.1 2.6 19.70 15.5
One Year 13.2 16.0 19.0 22.2 28.5 1.8 31.69 13.5
</TABLE>
- ---------------
(+) Since May 22, 1992, except for the Lipper Small Company Fund which is since
May 31, 1992.
(++) Since September 11, 1995 for Class B and Class C shares, except for the
Russell 2000 Value which is since August 31, 1995.
N/A - Not Available.
B-29
<PAGE> 95
FOOTNOTES FOR ALL FUNDS
(1) The Initial Investment and adjusted amounts for Class A shares were
adjusted for the maximum initial sales charge at the beginning of the
period, which is 5.75%. The Initial Investment for Class B and Class C
shares was not adjusted. Amounts were adjusted for Class B and Class C
shares for the contingent deferred sales charge that may be imposed at the
end of the period based upon the schedule for shares sold currently; see
"Redemption or Repurchase of Shares" in the prospectus.
(2) Includes short-term capital gain dividends, if any.
(3) The Dow Jones Industrial Average is an unmanaged weighted average of thirty
blue chip industrial corporations listed on the New York Stock Exchange.
Assumes reinvestment of dividends. Source is Towers Data Systems.
(4) The Standard & Poor's 500 Stock Index is an unmanaged unweighted average of
500 stocks, over 95% of which are listed on the New York Stock Exchange.
Assumes reinvestment of dividends. Source is Towers Data Systems.
(5) The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. Source is Towers Data Systems.
(6) The Russell 1000(R) Value Index is an unmanaged index comprised of common
stocks of larger U.S. companies with less than average growth orientation.
Companies in this index generally have low price to book and price-earnings
ratios, higher dividend yields and lower forecasted growth values. Assumes
reinvestment of dividends. Source is Lipper Analytical Services, Inc.
(7) The Lipper Growth and Income Fund Index is a net asset value weighted index
of the performance of the 30 largest growth and income mutual funds tracked
by Lipper Analytical Services, Inc. Performance is based on changes in net
asset value with all dividends reinvested and with no adjustment for sales
charges. Source is Towers Data Systems.
(8) The U.S. Treasury Bill Index is an unmanaged index based on the average
monthly yield of Treasury Bills maturing in 6 months. Source is Towers Data
Systems.
(9) The Standard & Poor's/Barra Value Index is constructed by dividing the
stocks in the S&P 500 Index according to a single attribute: book-to-price
ratio. The Value Index contains firms with higher book-to-price ratios and
is capitalization weighted. Source is Lipper Analytical Services, Inc.
(10) The Russell 2000(R) Value Index is an unmanaged index comprised of
securities in the Russell 2000 Index (small companies) with a less than
average growth orientation. Companies in this index generally have low
price to book and price-earnings ratios. Source is Lipper Analytical
Services, Inc.
(11) The Lipper Small Cap Fund Index is a net asset value weighted index of the
30 largest small company growth funds. Performance is based on changes in
net asset value with all dividends reinvested and with no adjustment for
sales charges. Source is Towers Data Systems.
(12) The Lipper Equity Income Fund Index is a net asset value weighted index of
the 30 largest equity income funds. Performance is based on changes in net
asset value with all dividends reinvested and with no adjustment for sales
charges. Source is Towers Data Systems.
B-30
<PAGE> 96
The following tables illustrate an assumed $10,000 investment in Class A shares
of each Fund, which includes the current maximum sales charge of 5.75%, with
income and capital gain dividends reinvested in additional shares. Each table
covers the period from commencement of operations of the Fund to December 31,
1997.
CONTRARIAN FUND (3/18/88)
<TABLE>
<CAPTION>
DIVIDENDS
ANNUAL CUMULATIVE VALUE OF SHARES ACQUIRED
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1988 $ 132 $ 0 $ 9,925 $ 137 $ 0 $10,062
1989 285 785 10,668 429 806 11,903
1990 277 303 9,512 649 1,019 11,180
1991 307 126 11,645 1,119 1,381 14,145
1992 303 0 12,700 1,542 1,505 15,747
1993 267 1,001 12,812 1,827 2,537 17,176
1994 360 1,483 11,458 1,965 3,748 17,171
1995 473 1,385 15,240 3,130 6,454 24,824
1996 557 1,878 15,956 3,842 8,660 28,458
1997 2,106 1,414 18,540 6,597 11,499 36,636
</TABLE>
B-31
<PAGE> 97
HIGH RETURN EQUITY FUND (3/18/88)
<TABLE>
<CAPTION>
DIVIDENDS
ANNUAL CUMULATIVE VALUE OF SHARES ACQUIRED
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1988 $ 247 $ 0 $10,376 $ 258 $ 0 $10,634
1989 468 2,331 9,539 687 2,370 12,596
1990 524 0 8,326 1,115 2,069 11,510
1991 387 265 11,786 1,990 3,208 16,984
1992 370 123 13,753 2,722 3,872 20,347
1993 298 345 14,581 3,189 4,453 22,223
1994 352 0 14,214 3,449 4,341 22,004
1995 351 589 20,216 5,317 6,782 32,315
1996 1,261 426 24,995 7,887 8,816 41,698
1997 1,832 1,562 30,895 11,632 12,483 55,010
</TABLE>
SMALL CAP VALUE FUND (5/22/92)
<TABLE>
<CAPTION>
DIVIDENDS
ANNUAL CUMULATIVE VALUE OF SHARES ACQUIRED
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1992 $ 28 $405 $10,857 $ 29 $ 411 $11,297
1993 58 507 10,584 86 914 11,584
1994 0 416 10,226 83 1,292 11,601
1995 724 326 13,666 864 2,093 16,623
1996 454 118 17,228 1,557 2,759 21,544
1997 295 460 20,056 2,116 3,685 25,857
</TABLE>
* Includes short-term capital gain dividends.
B-32
<PAGE> 98
Investors may want to compare the performance of a 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 a 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 a 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, IBC's Money Fund Report Averages(R) (All
Taxable). As reported by IBC 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.
The following tables compare the performance of the Class A shares of the
Contrarian, High Return Equity and Small Cap Value Funds over various periods
ended November 30, 1997 with that of other mutual funds within the categories
described below according to data reported by Lipper Analytical Services, Inc.
("Lipper"), New York, New York, which is a mutual fund reporting service. Lipper
performance figures are based on changes in net asset value, with all income and
capital gain dividends reinvested. Such calculations do not include the effect
of any sales charges. Future performance cannot be guaranteed. Lipper publishes
performance analyses on a regular basis. Each
B-33
<PAGE> 99
category includes funds with a variety of objectives, policies and market and
credit risks that should be considered in reviewing these rankings.
<TABLE>
<CAPTION>
GROWTH & INCOME
FUNDS
CONTRARIAN FUND ---------------
<S> <C>
Five Years........................ 92 of 235
One Year.......................... 245 of 608
</TABLE>
The Lipper Growth & Income Funds category includes funds that combine a growth
of earnings orientation and an income requirement for level and/or rising
dividends.
<TABLE>
<CAPTION>
EQUITY INCOME
FUNDS
HIGH RETURN EQUITY FUND -------------
<S> <C>
Five Years........................ 1 of 60
One Year.......................... 45 of 178
</TABLE>
The Lipper Equity Income Funds category includes funds that seek relatively high
current income and growth of income through investing 60% or more of its
portfolio in equities.
<TABLE>
<CAPTION>
SMALL COMPANY
FUNDS
SMALL CAP VALUE FUND -------------
<S> <C>
One Year.......................... 255 of 447
Five Years........................ 47 of 134
</TABLE>
The Lipper Small Company Fund category includes funds that by prospectus or
portfolio practice limit investments to companies on the basis of the size of
the company.
OFFICERS AND BOARD MEMBERS
The officers and Board members of the Funds, their birthdates, their principal
occupations and their affiliations, if any, with Scudder Kemper Investments,
Inc. ("Scudder Kemper") and Kemper Distributors, Inc. ("KDI"), or their
affiliates are listed below. All persons named as Board members also serve in
similar capacities for other funds advised by Scudder Kemper.
ALL FUNDS:
JAMES E. AKINS (10/15/26), Board Member, 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; United States Ambassador to Saudi Arabia, 1973-1976.
ARTHUR R. GOTTSCHALK (2/13/25), Board Member, 10642 Brookridge Drive, Frankfort,
Illinois; Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; formerly, Illinois State Senator;
formerly, Vice President, The Reuben H. Donnelley Corp.; formerly, attorney.
B-34
<PAGE> 100
FREDERICK T. KELSEY (4/25/27), Board Member, 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 Funds.
DANIEL PIERCE (3/18/34), Board Member*, 345 Park Avenue, New York, New York;
Chairman of the Board and Managing Director, Scudder Kemper; Director, Fiduciary
Trust Company and Fiduciary Company Incorporated.
FRED B. RENWICK (2/1/30), Board Member, 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), Board Member, 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), Board Member, 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.
MARK S. CASADY (9/21/60), President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
PHILIP J. COLLORA (11/15/45), Vice President, Treasurer and Secretary*, 222
South Riverside Plaza, Chicago, Illinois; Attorney, Scudder Kemper.
JERALD K. HARTMAN (3/1/33), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
THOMAS W. LITTAUER (4/26/55), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Senior Vice President, Scudder Kemper.
KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
JOHN R. HEBBLE (6/27/58), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
B-35
<PAGE> 101
MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.
CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.
ELIZABETH C. WERTH (10/1/47), Assistant Secretary*, 222 South Riverside Plaza,
Chicago, Illinois; Vice President, Scudder Kemper; Vice President, KDI.
KEMPER VALUE SERIES, INC. ONLY:
EDMOND D. VILLANI (3/4/47), Director*, 345 Park Avenue, New York, New York;
President, Chief Executive Officer and Managing Director, Scudder Kemper.
THOMAS H. FORESTER (12/15/58), Vice President*, 345 Park Avenue, New York, New
York; Vice President, Scudder Kemper; formerly, senior portfolio manager of an
unaffiliated investment management firm from 1995 to 1997; formerly, portfolio
manager for an unaffiliated investment management firm from 1992 to 1995.
FREDERICK L. GASKIN (12/18/61), Vice President*, 345 Park Avenue, New York, New
York; Vice President, Scudder Kemper; formerly, vice president and portfolio
manager for an unaffiliated investment management firm from 1993 to 1996.
JONATHAN KAY (9/22/61), Vice President*, 345 Park Avenue, New York, New York;
Vice President, Scudder Kemper.
THOMAS F. SASSI (11/7/42), Vice President*, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper; formerly, consultant with an unaffiliated
investment consulting firm and an officer of an unaffiliated investment banking
firm from 1993 to 1996.
STEVEN T. STOKES (7/18/62), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper; formerly, portfolio manager and
financial analyst for an unaffiliated investment management firm from 1986 to
1996.
KEMPER SECURITIES TRUST ONLY:
MARK S. CASADY (9/21/60), Trustee*, see above.
KATHRYN L. QUIRK (12/3/52), Trustee*, see above.
JAMES M. EYSENBACH (4/1/62), Vice President*, 101 California Street, Suite 4100,
San Francisco, California; Senior Vice President, Scudder Kemper.
PHILIP S. FORTUNA (11/30/57), Vice President*, 101 California Street, Suite
4100, San Francisco, California; Managing Director, Scudder Kemper.
CALVIN YOUNG (3/20/61), Vice President*, 101 California Street, Suite 4100, San
Francisco, California; Vice President, Scudder Kemper.
- ---------------
* "Interested persons" as defined in the Investment Company Act of 1940.
B-36
<PAGE> 102
The Board members and officers who are "interested persons" as designated above
receive no compensation from the Funds. The table below shows amounts from
Kemper Value Series, Inc. ("KVS") paid or accrued to those directors who are not
designated "interested persons" during the fiscal period January 1, 1997 through
November 30, 1997. The table below also shows estimated amounts from Kemper
Securities Trust (the "Trust"), including estimated amounts from Small Cap
Relative Value Fund, paid or accrued to such trustees for the current fiscal
year. The total compensation from the Kemper Fund complex is for the 1997
calendar year.
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
AGGREGATE COMPENSATION FROM KEMPER FUND
COMPENSATION FROM THE COMPLEX PAID TO
NAME OF BOARD MEMBERS FROM KVS TRUST BOARD MEMBERS(2)
--------------------- ------------ ------------ ----------------
<S> <C> <C> <C>
James E. Akins............ $13,700 $1,600 $106,300
Arthur R. Gottschalk(1)... $15,400 $1,600 $121,100
Frederick T. Kelsey....... $13,700 $1,600 $111,300
Fred B. Renwick........... $13,700 $1,600 $106,300
John B. Tingleff.......... $13,700 $1,600 $106,300
John G. Weithers.......... $13,700 $1,600 $106,300
</TABLE>
- ---------------
(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. The total deferred amount and interest accrued for the
fiscal period ended November 30, 1997 for KVS is $14,500 for Mr. Gottschalk.
(2) Includes compensation for service on the boards of 13 Kemper funds with 39
fund portfolios. Each board member currently serves as a board member of 14
Kemper Funds with 44 fund portfolios. Total compensation does not reflect
amounts paid by Scudder Kemper Investments, Inc. to the board members for
meetings regarding the combination of Scudder and ZKI. Such amounts totaled
$42,800, $40,100, $39,000, $42,900, $42,900, and $42,900 for Messrs. Akins,
Gottschalk, Kelsey, Renwick, Tingleff and Weithers, respectively.
As of March 31, 1998, the officers and Board members as a group owned less than
1% of each Fund, and, as of April 24, 1998, Scudder Kemper owned all of the
outstanding shares of the Small Cap Relative Value Fund.
B-37
<PAGE> 103
PRINCIPAL HOLDERS OF SECURITIES
As of March 31, 1998 the following owned of record more than 5% of the
outstanding stock of the Contrarian, High Return Equity, and Small Cap Value
Funds, as set forth below.
CONTRARIAN FUND
<TABLE>
<CAPTION>
NAME & ADDRESS CLASS PERCENTAGE
-------------- ----- ----------
<S> <C> <C>
*NFSC...................................... A 6.51
1 World Financial Center
200 Liberty St., 4th floor
New York, NY 10281-1003
*NFSC...................................... B 9.26
1 World Financial Center
200 Liberty St., 4th floor
New York NY 10281-1003
*NFSC...................................... C 7.26
1 World Financial Center
200 Liberty St., 4th floor
New York NY 10281-1003
*MLPF & S.................................. C 11.90
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
</TABLE>
B-38
<PAGE> 104
HIGH RETURN EQUITY FUND
<TABLE>
<CAPTION>
NAME & ADDRESS CLASS PERCENTAGE
-------------- ----- ----------
<S> <C> <C>
*NFSC........................................ A 11.23
1 World Financial Center
200 Liberty St., 4th Floor
New York NY 10281-1003
*Donaldson Lufkin Jenrette................... A 5.74
Securities Corporation Inc
P.O. Box 2052
Jersey City NJ 07303
*NFSC........................................ B 11.94
1 World Financial Center
200 Liberty St., 4th Floor
New York NY 10281-1003
*Donaldson Lufkin Jenrette................... B 6.13
Securities Corporation Inc.
P.O. Box 2052
Jersey City NJ 07303
*MLPF & S.................................... B 5.82
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
*NFSC........................................ C 8.15
1 World Financial Center
200 Liberty St., 4th Floor
New York NY 10281-1003
*MLPF & S.................................... C 17.56
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
*Donaldson Lufkin Jenrette................... C 7.22
Securities Corporation Inc.
P.O. Box 2052
Jersey City NJ 07303
*Scudder Kemper Investments, Inc............. I 100.00
Employee Benefit Plans
345 Park Ave.
New York NY 10154
</TABLE>
B-39
<PAGE> 105
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
NAME & ADDRESS CLASS PERCENTAGE
-------------- ----- ----------
<S> <C> <C>
*NFSC........................................ A 7.95
1 World Financial Center
200 Liberty St., 4th Floor
New York NY 10281-1003
*Donaldson Lufkin Jenrette................... A 11.42
Securities Corporation Inc.
P.O. Box 2050
Jersey City NJ 07303
*MLPF & S.................................... A 5.24
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
*Donaldson Lufkin Jenrette................... B 6.45
Securities Corporation Inc.
P.O. Box 2050
Jersey City NJ 07303
*NFSC........................................ B 12.13
1 World Financial Center
200 Liberty St., 4th Floor
New York NY 10281-1003
*MLPF & S.................................... B 11.31
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
*Donaldson Lufkin Jenrette................... C 7.78
Securities Corporation Inc.
P.O. Box 2052
Jersey City NJ 07303
*NFSC........................................ C 8.31
1 World Financial Center
200 Liberty St., 4th Floor
New York NY 10281-1003
*MLPS & S.................................... C 28.69
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
*Scudder Kemper Investments, Inc............. I 100.00
Employee Benefit Plans
345 Park Ave.
New York NY 10154
</TABLE>
- ---------------
* Record owner only.
B-40
<PAGE> 106
SHAREHOLDER RIGHTS
The Small Cap Relative Value Fund is a series of Kemper Securities Trust
(formerly Kemper Growth and Income Fund) (the "Trust"), a Massachusetts business
trust established under an Agreement and Declaration of Trust of the Trust
("Declaration of Trust"), dated October 1, 1997.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Small Cap Relative Value Fund. The Declaration of Trust, however, disclaims
shareholder liability for acts or obligations of the Small Cap Relative Value
Fund and requires that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the Small Cap Relative
Value 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 Small Cap Relative
Value 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
Scudder Kemper to be 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 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 of the Trust may determine,
without further shareholder approval, in the future that the objectives of the
Small Cap Relative Value 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
B-41
<PAGE> 107
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 gains or
loss, or by contributing its assets to the master fund and avoiding transaction
costs and the realization of taxable gain or loss.
B-42
<PAGE> 108
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Kemper Securities Trust,
Kemper Small Cap Relative Value Fund
We have audited the accompanying statement of net assets of Kemper Securities
Trust -- Kemper Small Cap Relative Value Fund as of April 24, 1998. This
statement of net assets is the responsibility of Kemper Securities Trust'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 Securities Trust --
Kemper Small Cap Relative Value Fund at April 24, 1998 in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
April 24, 1998
B-43
<PAGE> 109
KEMPER SECURITIES TRUST --
KEMPER SMALL CAP RELATIVE VALUE FUND
STATEMENT OF NET ASSETS -- APRIL 24, 1998
<TABLE>
<C> <S>
ASSETS
Cash...................................................... $ 1,200
-------
Organization costs........................................ 11,000
-------
Total assets............................................ 12,200
LIABILITIES
Organization costs payable................................ 11,000
-------
Net assets.............................................. $ 1,200
=======
NET ASSETS
Net assets, applicable to shares of common stock ($.01 par
value per share) outstanding as follows:
Class A -- 42.105
Class B -- 42.105
Class C -- 42.105....................................... $ 1,200
=======
THE PRICING OF SHARES
Net asset value and redemption price per share
Class A ($400 / 42.105 shares outstanding).............. $ 9.50
Class B* ($400 / 42.105 shares outstanding)............. $ 9.50
Class C* ($400 / 42.105 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
</TABLE>
- ---------------
* Subject to contingent deferred sales charge.
NOTES:
1. Kemper Securities Trust (the "Trust") was organized as a Massachusetts
business trust in October, 1997. All shares of beneficial interest of Kemper
Small Cap Relative Value Fund were issued to Scudder Kemper Investments, Inc.
("Scudder Kemper"), the investment manager for the Small Cap Relative Value
Fund on April 24, 1998 for $1,200 cash. The Trust may establish multiple
series; currently two series have been established.
2. Costs of $11,000 incurred by Kemper Small Cap Relative Value Fund in
conjunction with its organization, are amortized over the five year period
beginning May 1, 1998. If any of the shares purchased by Scudder Kemper are
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.
B-44
<PAGE> 110
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<S> <C> <C>
(a) Financial Statements:
(1) Included in Part A of the Registration Statement: Financial
Highlights to be filed by amendment.
(2) Financial Statements included in Part B of the Registration
Statement:
Report of Independent Auditors -- April 24, 1998
Statement of Net Assets --April 24, 1998
</TABLE>
Schedules I, II, III, IV and V have been omitted as the required
information is not present.
(b) Exhibits
<TABLE>
<C> <S> <C>
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.(1)
2. By-Laws.(1)
3. Inapplicable.
4. Inapplicable.
5. (a) 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.(1)
(b) Form of Investment Management Agreement dated May 6, 1998,
between the Registrant on behalf of Kemper Small Cap
Relative Value Fund and Scudder Kemper Investments, Inc.
6. (a) 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.(1)
(b) Form of Underwriting Agreement and Distribution Services
Agreement dated May 6, 1998, between the Registrant on
behalf of Kemper Small Cap Relative Value Fund and Kemper
Distributors, Inc.
7. Inapplicable.
8. (a) Custodian Agreement.*
(b) Fee schedule for Exhibit 8(a).
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.(1)
(a)(2) Fee schedule for Exhibit 9(a)(1).(1)
(a)(3) Form of Agency Agreement dated May 6, 1998, between the
Registrant on behalf of Kemper Small Cap Relative Value Fund
and Kemper Service Company.
(a)(4) Fee schedule for Exhibit 9(a)(3).
(b)(1) 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.(1)
(b)(2) Form of Fund Accounting Services Agreement dated May 6,
1998, between the Registrant on behalf of Kemper Small Cap
Relative Value Fund and Scudder Fund Accounting Corp.
(c)(1) 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.(1)
(c)(2) Form of Administrative Services Agreement dated May 6, 1998,
between the Registrant on behalf of Kemper Small Cap
Relative Value Fund, and Kemper Distributors, Inc.
</TABLE>
C-1
<PAGE> 111
<TABLE>
<C> <S> <C>
10. Opinion and Consent of Outside Counsel.
11. Consent of Independent Accountants.
12. Inapplicable.
13. Inapplicable.
14. Inapplicable.
15. Inapplicable.
16. Inapplicable.
17. Inapplicable.
18. Inapplicable.
24. Powers of attorney.
27. Inapplicable.
485(b) Representation of Counsel (Rule 485(b)).
</TABLE>
- -------------------------
* To be provided.
(1) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Registration Statement filed on January 30, 1998.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (AS OF MARCH 31, 1998).
<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF SHAREHOLDERS
-------------- ----------------------
<S> <C>
Kemper Small Cap Relative
Value Fund 0
Kemper U.S. Growth and Income
Fund (Class A) 149
Kemper U.S. Growth and Income
Fund (Class B) 117
Kemper U.S. Growth and Income
Fund (Class C) 13
</TABLE>
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, TRUSTEE, ETC. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any personal liability. The
Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities, to which such Shareholder may become subject by reason
of his being or having been a Shareholder, and shall reimburse such Shareholder
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability, 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
C-2
<PAGE> 112
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 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
C-3
<PAGE> 113
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 30. LOCATION OF ACCOUNTS AND RECORDS
All such accounts, books and other documents are maintained at the offices
of the Registrant, at the offices of Registrant's investment manager, Scudder
Kemper Investments, Inc., and the Registrant's principal underwriter, Kemper
Distributors, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the
offices of the Registrant's custodian, State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, or at the offices of the
Registrant's shareholder service agent, Kemper Service Company, 811 Main Street,
Kansas City, Missouri 64105.
ITEM 31. MANAGEMENT SERVICES
Not Applicable
ITEM 32. UNDERTAKINGS
The Registrant undertakes to file a Post-Effective Amendment containing
financial statements, with respect to Kemper Small Cap Relative Value Fund,
which need not be certified, within four to six months of the effective date of
the Registration Statement.
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of its latest annual report to shareholders, upon request and
without charge.
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
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.
C-4
<PAGE> 114
S I G N A T U R E S
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies that
it meets all the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Chicago and State of Illinois, on the 27th day of April, 1998.
KEMPER SECURITIES TRUST
By /s/ Mark S. Casady
-----------------------
Mark S. Casady
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below on April 27,
1998 on behalf of the following persons in the capacities
indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Mark S. Casady President (Principal
---------------------------------------- Executive Officer)
Mark S. Casady and Trustee
/s/ James E. Akins* Trustee
----------------------------------------
/s/ Arthur R. Gottschalk* Trustee
----------------------------------------
/s/ Daniel Pierce* Trustee
----------------------------------------
/s/ Kathryn L. Quirk Trustee
----------------------------------------
/s/ Frederick T. Kelsey* Trustee
----------------------------------------
/s/ Fred B. Renwick* Trustee
----------------------------------------
/s/ John B. Tingleff* Trustee
----------------------------------------
/s/ John G. Weithers* Trustee
----------------------------------------
/s/ Philip J. Collora Treasurer
----------------------------------------
Philip J. Collora
</TABLE>
*Philip J. Collora signs this document pursuant to powers of
attorney filed herewith.
/s/ Philip J. Collora
--------------------------------
Philip J. Collora
<PAGE> 115
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
------- ----
<S> <C> <C>
1. (a) Declaration of Trust dated October 1, 1997 is incorporated
by reference to the initial Registration Statement..........
1. (b) Written Consent of Amendment to the Declaration of Trust
dated January 8, 1998.(1)...................................
2. By-Laws.(1).................................................
3. Inapplicable................................................
4. Inapplicable................................................
5. (a) 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.(1).....
5. (b) Form of Investment Management Agreement dated May 6, 1998,
between the Registrant on behalf of Kemper Small Cap
Relative Value Fund and Scudder Kemper Investments, Inc. ...
6. (a) 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.(1).......................................
6. (b) Form of Underwriting Agreement and Distribution Service
Agreement dated May 6, 1998, between the Registrant on
behalf of Kemper Small Cap Relative Value Fund and Kemper
Distributors, Inc...........................................
7. Inapplicable................................................
8. (a) Custodian Agreement.* ......................................
8. (b) Fee schedule for Exhibit 8(a)...............................
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.(1)..............................
9. (a)(2) Fee schedule for Exhibit 9(a)(1).(1)........................
9. (a)(3) Form of Agency Agreement dated May 6, 1998, between the
Registrant on behalf of Kemper Small Cap Relative Value Fund
and Kemper Service Company..................................
9. (a)(4) Fee schedule for Exhibit 9(a)(3)............................
9. (b)(1) 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.(1)........
9. (b)(2) Form of Fund Accounting Services Agreement dated May 6,
1998, between the Registrant on behalf of Kemper Small Cap
Relative Value Fund and Scudder Fund Accounting Corp........
9. (c)(1) 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.(1)...........
9. (d)(2) Form of Administrative Services Agreement dated May 6, 1998,
between the Registrant on behalf of Kemper Small Cap
Relative Value Fund, and Kemper Distributors, Inc...........
10. Opinion and Consent of Outside Counsel......................
11. Consent of Independent Accountants..........................
12. Inapplicable................................................
13. Inapplicable................................................
14. Inapplicable................................................
15. Inapplicable................................................
16. Inapplicable................................................
17. Inapplicable................................................
18. Inapplicable................................................
24. Powers of attorney..........................................
27. Inapplicable................................................
485(b) Representation of Counsel (Rule 485(b)).....................
</TABLE>
- -------------------------
* To be provided.
(1) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Registration Statement filed on January 30, 1998.
<PAGE> 1
EX 5(b)
INVESTMENT MANAGEMENT AGREEMENT
Kemper Securities Trust
Two International Place
Boston, Massachusetts 02110
May 6, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Kemper Small Cap Relative Value 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 Small Cap
Relative Value 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:
<PAGE> 2
(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 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.
2
<PAGE> 3
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
3
<PAGE> 4
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 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
4
<PAGE> 5
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.
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 0.75 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 $1.0
billion shall be 1/12 of 0.72 of 1 percent of such portion; provided further
that, for any calendar month during which the average of such
5
<PAGE> 6
values exceeds $1.0 billion, the fee payable for that month based on the portion
of the average of such values in excess of $1.0 billion up to and including $2.5
billion shall be 1/12 of 0.70 of 1 percent of such portion; 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 up to and including $5.0 billion shall be
1/12 of 0.68 of 1 percent of such portion; provided that, for any calendar month
during which the average of such values exceeds $5.0 billion, the fee payable
for that month based on the portion of the average of such values in excess of
$5.0 billion up to and including $7.5 billion shall be 1/12 of 0.65 of 1 percent
of such portion; provided that, for any calendar month during which the average
of such values exceeds $7.5 billion, the fee payable for that month based on the
portion of the average of such values in excess of $7.5 billion up to and
including $10.0 billion shall be 1/12 of 0.64 of 1 percent of such portion;
provided that, for any calendar month during which the average of such values
exceeds $10.0 billion, the fee payable for that month based on the portion of
the average of such values in excess of $10.0 billion up to and including $12.5
billion shall be 1/12 of 0.63 of 1 percent of such portion; and provided that,
for any calendar month during which the average of such values exceeds $12.5
billion, the fee payable for that month based on the portion of the average of
such values in excess of $12.5 billion shall be 1/12 of 0.62 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
6
<PAGE> 7
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.
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.
7
<PAGE> 8
8. Duration and Termination of This Agreement. This Agreement shall remain
in force until September 30, 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.
8
<PAGE> 9
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.
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.
9
<PAGE> 10
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 Small Cap Relative Value 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
10
<PAGE> 1
EX 6(b)
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 6th day of May, 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
<PAGE> 2
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 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 contemplated such shares as KDI shall
reasonably request and as the Securities and Exchange Commission shall permit to
be so
2
<PAGE> 3
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 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.
3
<PAGE> 4
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.
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
4
<PAGE> 5
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 April 30, 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 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
5
<PAGE> 6
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.
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.
6
<PAGE> 7
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 Small Cap Relative Value Fund ATTEST:
By:
---------------------------------- ---------------------
Mark S. Casady Title:
President
KEMPER DISTRIBUTORS, INC. ATTEST:
By:
---------------------------------- ---------------------
Title:
TITLE:
-------------------------------
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[TO COME]
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EX 9(a)(3)
AGENCY AGREEMENT
AGREEMENT dated the 6th day of May, 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.
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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 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 nonassessable.
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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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, mailing shareholder reports and prospectuses, withholding
federal income taxes, preparing and mailing checks for disbursement
of income and
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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 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
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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.
(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.
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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 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
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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.
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
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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.
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.
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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.
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
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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 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.
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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 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
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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 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.
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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 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
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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.
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.
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(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.
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
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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.
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
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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 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.
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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 Small Cap Relative Value Fund ATTEST:
By:
--------------------------------- ---------------------
Mark S. Casady Title:
President
KEMPER SERVICE COMPANY ATTEST:
By:
--------------------------------- --------------------
Title: TITLE:
------------------------------
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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:
Non-negotiable securities mailed to domestic locations via registered mail.
Non-negotiable securities mailed to domestic locations via first-class or
certified mail.
Non-negotiable securities mailed to foreign locations via registered mail.
Negotiable securities mailed to all locations via registered mail.
19
<PAGE> 1
EX 9(a)(4)
EXHIBIT A
TRANSFER AGENCY FEE SCHEDULE
KEMPER SERVICE COMPANY
<TABLE>
<CAPTION>
A & C SHARES B SHARES
<S> <C> <C>
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
</TABLE>
<PAGE> 1
EX 9(b)(2)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 6th day of May, 1998 between Kemper Securities
Trust (the "Fund"), on behalf of Kemper Small Cap Relative Value 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.
<PAGE> 2
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 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 , 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;
2
<PAGE> 3
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 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.
3
<PAGE> 4
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 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
4
<PAGE> 5
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.
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.
5
<PAGE> 6
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 Small Cap Relative Value Fund
By:
---------------------------------
Mark S. Casady
President
SCUDDER FUND ACCOUNTING CORPORATION
By:
---------------------------------
John R. Hebble
6
<PAGE> 1
EX 9(c)(2)
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT dated this 6th day of May, 1998 by and between KEMPER SECURITIES
TRUST, a Massachusetts business trust ("the Fund"), on behalf of KEMPER SMALL
CAP RELATIVE VALUE FUND, a series of the Trust, 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
<PAGE> 2
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 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
2
<PAGE> 3
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 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 Small Cap Relative Value Fund,
By:
----------------------------------
Mark S. Casady
President
KEMPER DISTRIBUTORS,INC.
By:
----------------------------------
TITLE:
-------------------------------
3
<PAGE> 4
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 Small Cap Relative Value Fund,
By:
----------------------------------
Mark S. Casady
President
KEMPER DISTRIBUTORS,INC.
By:
--------------------------------
TITLE:
-----------------------------
Dated: May 6, 1998
4
<PAGE> 1
EXHIBIT 1.10
[DECHERT PRICE & RHOADS LETTERHEAD]
April 24, 1998
Kemper Securities Trust in respect of
Kemper Small Cap Relative Value Fund
222 South Riverside Plaza
Chicago, Illinois 60606
Re: Post-Effective Amendment No. 2 to the Registration Statement
on Form N-1A (File No. 811-08393) (the "Registration Statement")
Gentlemen:
Kemper Securities Trust (the "Trust") is a trust created under a
written Declaration of Trust dated October 1, 1997, as 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.
As counsel for Kemper Securities Trust, we are familiar with the
registration of the Trust under the Investment Company Act of 1940, as amended
(the "1940 Act"), and the prospectus contained in Post-Effective Amendment No. 2
to the Trust's registration statement relating to the shares of beneficial
interest of Kemper Small Cap Relative Value Fund being filed under the
Securities Act of 1933, as amended (File No. 333-42335) ("Post-Effective
Amendment No. 2"). We have also examined such other records of the Trust,
agreements, documents and instruments as we deemed appropriate.
<PAGE> 2
Scudder Securities Trust
April 24, 1998
Page 2
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 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 March
18, 1998, the Trustees established the initial series of the Trust designated as
Kemper Small Cap Relative Value Fund (the "Fund").
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 are of the opinion that all necessary Trust action precedent to the
issue of said Shares, comprising the Shares covered by Post-Effective Amendment
No. 2 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 Post-Effective Amendment No. 2 to the Registration
Statement.
Very truly yours,
DECHERT PRICE & RHOADS
<PAGE> 1
EXHIBIT-11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors and Reports to Shareholders" and to the
use in the Registration Statement (Form N-1A) of Kemper Securities Trust of our
reports dated January 26, 1998 for Kemper U.S. Growth and Income Fund and April
24, 1998 for Kemper Small Cap Relative Value Fund and their incorporation by
reference in the related prospectus and statement of additional information of
Kemper U.S. Growth and Income Fund and Kemper Equity Funds/Value Style,
respectively, filed with the Securities and Exchange Commission in this
Post-Effective Amendment No. 2 to the Registration Statement under the
Securities Act of 1933 (File No. 333-42335) and in this Amendment No. 3 to the
Registration Statement under the Investment Company Act of 1940 (File No.
811-08393).
ERNST & YOUNG LLP
Chicago, Illinois
April 24, 1998
<PAGE> 2
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Kemper Securities Trust-
Kemper Small Cap Relative Value Fund
We have audited the accompanying statement of net assets of Kemper Securities
Trust-Kemper Small Cap Relative Value Fund as of April 24, 1998. This
statement of net assets is the responsibility of Kemper Security Trust'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 Securities
Trust-Kemper Small Cap Relative Value Fund at April 24, 1998 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
April 24, 1998
<PAGE> 1
EX 24
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/ James E. Akins Trustee March 18, 1998
- ----------------------
<PAGE> 2
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/ Arthur R. Gottschalk Trustee March 18, 1998
- ------------------------
<PAGE> 3
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/ Frederick T. Kelsey Trustee March 18, 1998
- -----------------------
<PAGE> 4
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/ Daniel Pierce Trustee March 18, 1998
- ----------------------
<PAGE> 5
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/ Fred B. Renwick Trustee March 18, 1998
- ----------------------
<PAGE> 6
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/ John B. Tingleff Trustee March 18, 1998
- ----------------------
<PAGE> 7
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/ Edmond D. Villani Trustee March 18, 1998
- ----------------------
<PAGE> 8
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Kemper Securities Trust.
Signature Title Date
/s/ John G. Weithers Trustee March 18, 1998
- --------------------------
<PAGE> 1
EXHIBIT 99.485(b)
[LETTERHEAD OF VEDDER PRICE]
May 5, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Kemper Securities Trust
-----------------------
To The Commission:
We are counsel to the above-referenced investment company (the "Fund") and
as such have participated in the preparation and review of Post-Effective
Amendment No. 2 to the Fund's registration statement being filed pursuant to
Rule 485(b) under the Securities Act of 1933. In accordance with paragraph
(b)(4) of Rule 485, we hereby represent that such amendment does not contain
disclosures that would render it ineligible to become effective pursuant to
paragraph (b) thereof.
Very truly yours,
/s/ Vedder, Price, Kaufman & Kammholz
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
DAS/COK/agw
